Digital Ecosystem For Insurers

7 min read
Jun 11, 2022 11:30:00 AM

Digital ecosystems are all over the news these days, as online worlds of experience that enable seamless access to a comprehensive collection of products and services, as digital integrations of providers from other industries, and as significant potential for insurers trying to grow their client bases. Digital ecosystems will generate roughly €60 trillion in income globally by 2030, and the ambitions that come with them are as big as their potential.

In 2020, the insurance business will have undergone many years of the digital revolution in only a few months. The days of monolithic legacy systems designed and maintained in-house for decades are numbered. Instead, the market rewards dynamic carriers that utilize APIs, microservices, and web services to create ecosystems that provide the right experience to the right people on the appropriate platform.

What is a digital ecosystem?

A digital ecosystem is a loose network of interconnected apps and technology that work together to achieve corporate goals. Digital ecosystems are defined by characteristics of openness, adaptability, and self-organization, which are inspired by natural ecosystems. APIs, web services, and microservices are frequently used to build a digital ecosystem's framework.

Uber, for example, has approximately 2,200 microservices in its ecosystem. This design provides more flexibility and autonomy, allowing teams to innovate quickly and switch out specific services without harming the system as a whole.

Taking advantage of digital ecosystems isn't a one-size-fits-all proposition. While some businesses will create the consumer interface as the ecosystem's principal orchestrator, others will focus on specific elements or sectors. However, the range of appealing options is more colorful and subtle than these two extremes.

5 Lessons to Insurers on Ecosystem

Five lessons acquired by insurers along the way to ecosystem orchestration and participation will aid their efforts in the digital ecosystem:

  1. Basic principle

From the customer's perspective, improve the value chain. Client demands are effectively and swiftly addressed, adding value, allowing for cross-selling, and building customer loyalty. Prudential's Pulse ecosystem, for example, provides health services to everyone, although 70% of users are not Prudential clients. They may merge with a single mouse click. About two million insurance plans were given to health-conscious and digitally savvy clients in the first year alone.

  1. Prerequisite

First and foremost, establish competent digitalization in the core business. Ecosystem techniques will not have the desired effect if there are challenges in the leading company. Customers should not, for example, be required to re-enter their data and log-in details after agreeing to advertise and check cookies. 

Such annoyances are fatal to success. Furthermore, data silos make measuring the advantages of digitalization a challenge. For example, the discovery has integrated its core business with appropriate ecosystem services in the Vitality One platform and discovered that its users' health costs are up to 14 percent lower than those who do not use these ecosystem services—a result of a combination of higher loyalty, changed habits, and a compelling customer experience.

  1. Impact

From the core to the ecosystem, Ecosystem services may take time to become financially viable in addition to the primary insurance company. After all, growth is more important than direct monetization. Of course, the company model should be long-term viable, but the advantages are typically more indirect in the near term. F

or example, ping An, a Chinese insurer, currently gets one-third of its clients from its 700 million ecosystem users, even though the company isn't always lucrative and regulatory standards aren't equivalent to those in other nations like Germany.

  1. Scaling

Don't attempt it alone. Ecosystem expansion necessitates a combination of three activities: manufacturing, purchasing, and collaborating. The fourth factor is challenging since it necessitates ensuring that ecosystem members do not provide the ecosystem's clients the same or comparable items or services. As a result, successful models are more well-thought-out. 

  1. Vision

Focus on your unique strengths. Insurance companies frequently believe they have no chance in the ecosystem world, which is reasonable. Leading IT firms have developed ecosystem empires based on devoted customers who daily utilize their goods and services. Other sectors have an intrinsic rivalry as well; some businesses provide insurance in addition to their primary product. Tesla, for example, just formed its own insurance company, claiming to give premiums 20 to 30 percent lower than the industry average. On the other hand, Insurers can counteract these trends by using their customer data and resources, such as medical billing data from health insurers and driver and vehicle data from motor insurers. Insurers may continue to develop their digital customer interfaces and value chains in a focused manner by concentrating on exploiting these capabilities.

Ecosystems are here to stay, whether we like it or not. Ecosystems provide a cost-effective way for digitally aware insurers to create value in a connected world and remain ahead of the competition in the long run. Everybody has appealing chances, and no plan is necessarily the worst approach. Ecosystems are thus not just a safe option for next year but also a viable road to success in the coming decade for insurers.

Three steps To Prepare For Insurance Ecosystems

Depending on their circumstances and interests, insurers will take different paths to build or join an insurance ecosystem. However, we've seen that influential firms adopt three main actions while preparing to participate in a digital ecosystem:

  • Evaluate your organizational structure and readiness

Insurance ecosystems will force insurers to reconsider their responsibilities as companies and examine their readiness for digital ecosystems internally. Silos and bureaucracy must be broken down, and insurers may need to form a distinct staff of digital experts. For example, State Farm recruited a separate chief digital officer to lead the company's digital transformation and shift from waterfall to agile approaches. 

In addition, insurers should review and prepare their organizations to encourage open sharing of data and cultivate a culture of "coopetition" to break down prior rivalry across industries to be ready for ecosystems. This might lead to collaborations between traditional insurers and insurtech firms, such as Geico's function as a broker for Lemonade's rental insurance.

  • Understand your customers and identify partnerships to meet their needs

Insurance ecosystems are built around customer-centricity. Insurers must boost touchpoints to develop connections with clients and collect vital data for risk management since tech-savvy millennials and even current customers seek more integrated experiences. State Farm, for example, text-mined customer calls and dramatically increased. IT's a connection with consumers to acquire data on customer expectations. 

As discussed in step one, partnerships are essential for satisfying consumer expectations. A thriving ecosystem spans several industries, and strong collaborations result in not just selected goods that address vital needs but also seamless services personalized to each consumer. For example, Lemonade's partnership with Avail, an online landlord-tenant platform, allows tenants to choose Lemonade's renter's insurance while signing a lease.

  • Develop the necessary technologies

As previously stated, insurers will need to adapt their architecture to manage digital ecosystems' massive volumes of data. This entails creating application programming interfaces (APIs) that allow internal and external partners to share data processes and algorithms. 

Insurance companies may use this information to assess risk, analyze client behavior, and transfer services across partnerships. APIs are the foundations that connect providers, consumers, and partners to form a digital ecosystem. Thus, a solid API strategy will be critical to a flourishing insurance ecosystem.

Three ways insurance ecosystems drive competitive advantage

  1. Optimize Customer Experience

Customers used to be more loyal to specific brands, and there were fewer touchpoints in the lead-up to sales and renewals. However, customer relationships are more fluid nowadays since price and plan comparisons have become more open. As a result, the customer journey often comprises several encounters across multiple channels before and after a policy is sold.

Insurers may improve the customer experience by expanding the number of interactions with clients and adding new services via digital ecosystems. Lemonade's open API is one example, but insurers are making use of a variety of additional changes to satisfy current expectations and capitalize on growth potential:

  • Conversational marketing technology and chatbots
  • Personal health management software for life insurance
  • Provision of virtual healthcare
  • Collaborations with other companies to get digital loyalty points
  • Smart home and car safety solutions that are connected
  • Manufacturer warranties are extended as part of an integrated e-commerce experience
  • Customers receive advice and estimations using speech technology

Insurers who are late in developing their ecosystems are likely to lose market share to competitors and disruptors who provide engaging new experiences.

  1. Insurance ecosystems' "componentization" improves agility and innovation

Insurers may decrease costs and increase agility and system dependability while encouraging innovation by using open ecosystems that mix discrete components.

Modularity allows you flexibility by swapping out components as your company demands change. In the same way, if a single service fails, it may be replaced without affecting other parts.

"Componentization" also compels IT planners to describe the functions of various components clearly. This defines ownership and makes it simpler to spot bottlenecks and inefficiencies, resulting in better service quality and lower IT costs.

We designed a componentized platform from the ground up at TransformHub. Our platform allows group and voluntary benefits carriers to pick and choose particular components that meet their digital goals while interacting with their existing CRM, PAS, and other systems.

CIOs and CTOs are curators in the context of digital ecosystems. Within a specified governance architecture, their job is to review and pick best-in-class components for each ecosystem function regularly. In addition, to be at the cutting edge of innovation, the digital ecosystem economy focuses on maintaining and growing collaborations with external suppliers and data-service providers.

  1. Securing Data Dominance

In the insurance business, big data analytics is altering the game. More data is created than ever before, presenting insurers with several options. For example, wearables that measure thousands of data points, such as an insured's heart rate and sleep habits, are being used by life and health insurers.

Insurers must establish and grow significant data ecosystems to achieve data domination. Analytics platforms, data visualization platforms, business intelligence platforms, artificial intelligence tools, and Internet of Things (IoT) technologies like wearables and smart home devices are just a few examples.

Are you ready to enter the digital economy? See how TransformHub's Insurance Consulting Services may assist you in strategizing and developing the technologies you require to flourish as an ecosystem orchestrator or partner. Contact us today!