The Ecosystem Rush : Why Its Such A Rage
Part 1
Friction in daily customer transactions has been diminishing. Regardless of whether they are at work, home or on the go, customers connect to digital ecosystems to fulfil needs. Globally, insurance customers tend to have similar preferences for connected services. They need safety, prevention, convenience and rewards for good behavior. Since they are accustomed to receiving tailored online experiences, they expect that insurers will know who they are, what they need and when they need it. This tailored online experience requires an ecosystem that can provide a gamut of services.
Digital ecosystems enable upstarts to access established markets. The bigger enterprises create value for participants by creating and orchestrating these networks. Doing so, they boost loyalty among existing customers, attract new customers and reduce price sensitivity. Complementary offerings make it simpler for customers to obtain full solutions.
An ecosystem is an interconnected set of services that let users fulfill variety of needs in one integrated experience. The idea of business ecosystems is not new. Even Lloyds at London, founded in 1686 is a classic example. However, over the last decade, digital ecosystems have come up with super apps and platforms, which substantially reduce costs of development and distribution of apps and complementary products. Based on an MIT Sloan research, companies whose dominant business model is ecosystem driver, experienced revenue growth approximately 27 percent and profit margins 20 percent above average.
The ecosystems that insurance is increasingly becoming a part of are mobility, housing, health, and wealth protection, brief examples of which are presented next.
Manulife Move, an ecosystem program launched in 2015, lets customers plug in and get insights into their health, receive rewards and support while getting risk coverage. They can access a basket of services geared towards health and wellness.
The benefits for Manulife have been a)in distribution and reaching customers previously outside their channels and b)frequent customer engagement and enrichment of products.
The mix of tech and customer expectations is impacting insurance by altering traditional ecosystems of agents and brokers, with insurance getting embedded and sold across a broader network including automotive, transportation businesses, healthcare and more. Partners break down market boundaries to make these ecosystems operate fluidly, yielding higher value for insurers from new revenue streams and multiplier effects.
In auto insurance, as demand for connected cars and lifestyles has risen, first mover advantages will accrue to those who pioneer ecosystems with automakers, insurers and service providers. In Brazil, Porto Seguro, a loyalty leader in P&C insurance, has created a constellation of 20+ companies that offer customers roadside assistance, residential repairs, vehicle loans, consumer financing, credit and investment advice. They have been able to steadily gain market share without competing aggressively on price.
Another example is ZhongAn in China with an ecosystem model connecting them to most airlines and housing providers, among others. With a fourth of the population in their database, they can provide customers with tailormade solutions and risk assessments. Bill Song, COO says, “There is a great distance between insurance and the people. We have to be closer to the customer. We cannot compete with giants like Google. They understand the customer much better than possible for us. They dominate the traffic. They will just let the insurance company bear the risk, if we don’t change. We can try to digitalize ourselves and set up new kinds of relationships through ecosystems.”
Carriers will have to excel in new habits of forging relevant and timely digital connections with customers, thus making it easy and satisfying for them to meet needs. To get there, distribution strategy and ecosystem approaches will be fundamental to bring together a range of capabilities, channels and partners to find growth through scale in reach and brand engagement.
Originally published at: https://dailyfintech.com/2020/09/10/the-ecosystem-rush-why-its-such-a-rage-part-1/
Part 2
The future of several service industries may be headed towards ecosystems. Or so, a McKinsey study would make one believe. As per their research, as many as 12 large ecosystems yielding 30% of global revenues could become a reality in the next 5 years.
In Part 1 of this article, examples of ecosystems in insurance were presented along with few compelling reasons for heightened industry-wide interest to initiate or join ecosystems. In this concluding part, pathways to ecosystems with enabling and inhibiting factors are discussed.
Not all carriers need to build ecosystems. There would be ample room for those that thrive as leaders in low-cost underwriting, efficient policy administration and flawless claims experience. They compete on price and as part of ecosystems, might serve as suppliers of white label products, where customer acquisition and experience would be controlled by dominant players.
It is a widely considered view that generalist mid-sized carriers would be hit particularly hard, if they lack agility in adapting to new market realities. They would either get acquired by ecosystem leaders or struggle to maintain growth and margins. We already see examples of leaders from adjacent markets active in M&A. In Asia, Navi’s acquisition of DHFL GI and PayTm’s acquisition of Raheja QBE insurance are two recent examples.
Senior leaders are cognizant of this threat and many are indeed actively preparing to tackle the challenge. Two thirds say they expect ecosystems will help their organization grow revenue by 11–25% in the next 2 years. However, as focus detracts and bias tends towards incremental operational improvements, it can spawn missed opportunities. The path forward requires new business models to match dynamic ecosystem demands and reshape customer perceptions. Products correspondingly need redesign to allow bundling and unbundling. The GAFA challengers with their insurance plays are signs of a coming shakeup.
The choice of business model depends on the role carriers play in the ecosystem. They can opt to be producers or bundlers or owners. Producers provide white label products to fit into many ecosystems. Bundlers have more complete knowledge of customers and operate as omni-channel businesses with integrated value chains. Owners use relationship and data insights to match customer needs with offerings sourced from third party providers with plug-and-play products.
A successful example of an owner is Bayer subsidiary, The Climate Corp, which grew its digital agriculture platform by 20X to more than 95 million paid subscription acres in 4 years. In the process, it curated services from close to 65 partners on satellite imaging, soil assessment and drone mapping.
Some of the enabling factors for success stories have been:
- Differentiated Value (From trusted brands, superior customer experience)
- Optimized Operating Models (From revamped partnership processes in Procurement, QA and Legal)
- Open Systems (From sharing and scaling via APIs)
- Curation Strengths (From a range of domains and partners).
While these factors are important to the success of an ecosystem, a foundational element is trust. Trust can make or break an ecosystem. A trust incident involving one player can erode substantial value.
Ecosystems enable rapid digital business growth using non-linear models that embrace network effects. In the coming years, the industry is expected to witness consolidation. A small number of very big players and several niche specialists will come to dot the landscape. As ecosystems proliferate, attendant benefits of new risk categories, exposures and insurance opportunities will begin to emerge. Insurance companies will be key to these networks due to their risk expertise and ability to work with regulators, data protection and privacy issues.
Those in insurance ecosystems can prepare to reap high returns by putting their digital houses in order so their propositions can seamlessly bundle with complementary offerings and by carefully choosing partners with shared goals.
Originally published at: https://dailyfintech.com/2020/09/17/the-ecosystem-rush-why-its-such-a-rage-part-2/
