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Ecosystems in insurance: what winners do differently

Successful ecosystems continue to produce significant value for those firms that embrace the leading practices defined by winners.


In brief

  • Insurance ecosystems have rapidly gained traction in the last several years and the top performers clarify the specific actions that lead to success.
  • Because ecosystems are fundamentally different from conventional business models, leaders must address key technology, talent and cultural factors.
  • Winning ecosystem models can involve market-facing product plays or an aggregation of tech-driven capabilities behind the scenes.

By shifting the basis of competition in financial services, ecosystems have been one of the most impactful strategic developments in the last decade. Thanks to ecosystems, insurers are competing with firms from different sub-sectors to win share of wallet and establish primary financial relationships with customers. They are also partnering with InsurTechs and other providers to build integrated tech solutions to optimize performance in key parts of the value chain. Fundamentally, that’s why ecosystem strategies remain an urgent matter for senior executives and boards in insurance.

Now that the latest generation of ecosystems has been operating for a few years, it’s worth asking what we’ve learned. Clearly, the most successful have turned potential into profits, demonstrating how the right business model and partners, and the right technology and data capabilities can lead to tangible revenue growth and value creation for multiple stakeholders (including customers). In other cases, targeted ecosystems are boosting performance in key areas of the business (e.g., underwriting, claims). However, other ecosystems have struggled to produce the expected results.

Ecosystems for automotive lines have matured the most quickly, thanks largely to the prevalence of connected vehicles. We expect significant growth in ecosystems for home insurance in the relatively near term. As large brokers continue to add risk advisory services, reinsurance ecosystems are likely to see an uptick, too. Even with some insurers still developing their strategies, we are seeing signs of consolidation as early winners look to expand their platforms via acquisition.

Ecosystem Playbook

The ecosystem playbook: how european insurers can seize the growth and innovation opportunities

In our study, market engagement with successful financial services ecosystems around the world, the EY insurance team found that they share seven common characteristics and capabilities, highlighted below. We’ll also look at the experiences ecosystem leaders and highlight their key actions, which can provide a template for success for both ecosystem orchestrators and firms that participate as product manufacturers or service providers.

 

1. Customer-centricity

The strongest ecosystems are rigorously – even obsessively – committed to creating tangible value for customers. Experiences are designed for consistency across product lines, so customers are comfortable using the ecosystem to satisfy multiple needs.
 

Orchestrators and participants excel at unlocking the value of customer data to offer additional services, which speaks to the importance of trust; customers must feel confident about the brands involved if they are to share data and place more of their financial lives within the ecosystems.
 

2. New capabilities and solutions offering clear value

To generate breakthrough value, ecosystems need a “killer app” to solve a very specific problem and gives customers a clear reason to engage, especially those who are hesitant to embrace new offerings. Some life and health insurers have gained traction with wellness-oriented offerings.

But targeted ecosystems that enhance critical back-office capabilities in key parts of the business are also paying off. Some auto carriers now rely on third-party artificial intelligence (AI) and data providers to automate damage assessment and unlock straight-through processing for simple claims. Another multi-line carrier built a fully digital operating model based on a technology ecosystem involving multiple partners, which it’s now enhancing with GenAI. 
 

The key in these cases is finding the right partners to meet specific needs that underpin their customer journeys, enabling more end-to-end automation. External data sources and complementary services help insurers achieve operational excellence via straight-through processing, while enabling them to personalize and tailor their offerings. 

 

3. Strong, visible leadership

Successful ecosystems have prominent leadership from the top of the organization. Such advocacy is critical to allocating the necessary resources and driving cultural change. Strategies are clearly defined as top priorities and group chief executives are commonly involved as high-profile advocates. Ecosystem players also tend to model themselves on technology businesses, regardless of their heritage.
 

The C-suite must be involved because of the complexity of key strategic decisions involving ecosystems. For instance, firms must determine the best primary business model – orchestrating their own ecosystem or providing products to those orchestrated by others. Doing both may be a viable approach, though there will be hard choices to make along the way, especially relative to product pricing, distribution relationships, budgeting and organizational culture – hence the need for C-suite guidance.

 

4. Metrics that matter

Appropriate metrics should drive execution of ecosystem strategies, defining how value is delivered to customers and other stakeholders. For instance, performance measures and incentives should encourage broader views of overall customer relationships (e.g., share of wallet or products per customer), rather than focusing on product lines. Customer lifetime value metrics are important for ecosystems designed to enhance overall journeys and cross-sell ancillary products. It’s also important to articulate a clear link between metrics and value for investors and shareholders.
 

Metrics related to operational outcomes are also critical. One highly successful ecosystem tracks shorter settlement timelines from straight-through processing in claims (e.g., with reductions from several days to just a few hours). Ecosystems supporting self-service digital capabilities may wish to track contacts-per-policy and the impact on contact centres (especially repeat contacts).
 

The economics of ecosystems continue to evolve. Wholesale, commodity-level pricing and margins may challenge carriers that participate in ecosystems solely as manufacturers, but access to new customers may provide sufficient long-term upside. The financial gains from increased automation, stronger customer loyalty from more personalized interactions and improved operational performance are other key variables in the business case.

 

5. Win-win distribution

Ecosystem winners align product distribution to value propositions and compensation schemes that benefit intermediaries. Beyond customer value, the top ecosystems are designed to benefit all participants and stakeholders.
 

For insurers with third-party distribution networks, launching an ecosystem may be viewed as channel shifting or even threatening, especially if it happens at the wrong time. Of course, distributors may explore their ecosystems. Insurers will need to examine the impact on the full range of distribution relationships.

 

6. Excellent partnerships

While competitive pressures create urgency for insurers to engage with ecosystems, they must be thoughtful in finding the right partners. Potential ecosystem collaborators should be evaluated in terms of their ability to fulfil specific business needs and their willingness to contribute fresh thinking and innovative ideas. When it comes to choosing partners, cultural fit may be as important as complementary offerings and attractive commercial terms.
 

Beyond complementary service providers (e.g., financial planners involved in life insurance ecosystems), strong ecosystems typically feature specialists playing specific roles – such as cyber security firms protecting the ecosystem or InsurTechs offering functional solutions (e.g., policy administration, pricing). Digital marketers, analytics firms and cloud computing providers can also make major contributions. The bottom line: the better the partners, the better the ecosystem.

 

7. Deploy technology for change at pace and scale

There’s no talking about ecosystem success without talking about technology transformation. Ecosystem winners make sophisticated use of open architecture, application programming interfaces (APIs) and strong standards to seamlessly and securely share data with a range of partners, including InsurTechs and other non-traditional players. Further, they are using AI to more efficiently manage their ecosystems and to generate insights from customer data to personalize offers.

The breadth of these capabilities and characteristics suggest the need for thoughtful ecosystem strategies that address technology, talent and cultural factors. It’s not easy for traditional, vertically aligned insurers to evolve into digital-first, customer-centric ecosystem players. But we believe that the experiences of first movers and early adopters show that a smart strategy and strong execution make the investment and effort worthwhile.

Summary

Ecosystems are not necessarily new. Insurers have long sold their products through third-party networks and affinity partnerships. But competitive, technological, regulatory and market shifts have fundamentally changed the nature – and increased the importance – of ecosystems. In a fast-moving, ever-shifting insurance industry, we believe ecosystem success will be increasingly correlated with overall market leadership. Ultimately, they will become the dominant way for all types of financial services players to connect with their customers over the course of the next decade.

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