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.
Next week, in Part 2, I will focus on pathways to successful ecosystem models, enabling and inhibiting forces.
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