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An ongoing drive toward digitization has put the insurance industry on the verge of a paradigm shift. The pace of change has accelerated thanks to tremendous increases in the volume of electronic data, the ubiquity of mobile interfaces, and the growing power of artificial intelligence. In the early years, companies that digitized were at the forefront of the industry.
Today, digitization has permeated every level of the competitive landscape. Insurers cannot avoid this phenomenon: as traditional industry borders fall away, the future of insurance stands to be greatly influenced by platforms and ecosystems. A platform is a business model that allows multiple participants producers and consumers to connect to it, interact with one another, and create and exchange value. Sangeet Paul Choudary, Geoffrey G.
Recognized experts and champions shaping the evolution of social innovation. Since innovation from insurtechs actually aims to contribute to the insurance value chain except distribution for large players , insurance executives should view potential partnerships with insurtechs as positive. Assessing information system design theory in perspective: how useful was our initial rendition? Options include offering innovative hybrid solutions in insurance and services offerings with partners from other industries for example, predictive maintenance, smart parking, and preventive care. Although the inclusion of new addressable markets could offset lost revenues, insurers must take a more holistic view of the developments and opportunities available. Please re-enter recipient e-mail address es.
Parker, and Marshall W. The most successful companies in the digital era, including Alibaba, Amazon, and Facebook, were all designed on platform business models. An ecosystem, meanwhile, is an interconnected set of services that allows users to fulfill a variety of needs in one integrated experience. Consumer ecosystems currently emerging around the world tend to concentrate on needs such as travel, healthcare, or housing. Business-to-business B2B ecosystems generally revolve around a certain decision maker—for example, marketing and sales, operations, procurement, or finance professionals.
To succeed in ecosystems, insurers will have to take a hard look at their traditional roles and business models and evaluate opportunities to partner with players in other industries. They must also understand how ecosystems will shift value pools and change the nature of risk. Adopting an ecosystem mind-set will be an arduous journey for many insurers, but those that understand this evolving landscape can take the first steps to creating new revenue sources. Extensive use of digital technologies in everyday life has become the new normal.
It is common to vacation in Airbnb properties, to hail an Uber ride from a cell phone, and to order dinner via GrubHub or Seamless. Apple is now much more than a technology manufacturer, and Facebook is a way of life. Customers wake up to a world in which their every need can be addressed through their smartphones. Putting customers at the center of every digital activity has not only scaled adoption but also allowed companies to capture previously unimagined value. Seven of the ten largest companies by market capitalization are ecosystem players—Alibaba, Alphabet, Amazon, Apple, Facebook, Microsoft, and Tencent—and that only hints at the power of digital.
Uber, founded in , now operates in more than cities across 80 countries, 3 3. Airbnb amassed an inventory of one million rooms a staggering 50 years faster than Marriott did, and WeWork has sublet ten million square feet of office space globally since its inception in McKinsey research shows that while digital technology propels some companies to become clear market winners , it depletes corporate earnings and overall value for many others. Yet while cyberrisk has long been among the top ten business risks across industries, cyberinsurance—which can cover data destruction, theft, identity recovery, business interruption, and post-incident public relations, among other things—is far from attaining maturity, primarily due to three factors:.
Covering cyberrisks could put insurers in a precarious situation in which a traditional approach to risk aggregation might prove inadequate. If insurers were to adopt a broader view of risk prevention through partnerships, they could orchestrate risk management in a cyberrisk ecosystem that includes not only insurers but also cloud providers, cybersecurity specialists, and enterprises with confidential customer data. This cyberrisk ecosystem could overlap with a broad spectrum of other ecosystems—most of which are still in the early stages of building resilience to cyberattacks.
Insurers tend to think of coverage as their only cyberinsurance product, but they could establish a robust infrastructure by building partnerships with all the stakeholders. These alliances would enable insurers to move both up the value chain to prevention using readiness diagnostics and preventive recommendations and down the value chain to post-breach response and support from specialist providers in case of attacks.
By , as this revolution gains speed, McKinsey expects 12 distinctive and massive ecosystems to emerge around fundamental human and organizational needs Exhibit 1. The actual shape and composition of these ecosystems will vary by country and region, both because of the effects of regulations and as a result of more subtle cultural customs and tastes. The ecosystems most relevant to the insurance industry—and that thus represent the most salient entry points—include mobility, housing, health, wealth protection, and B2B services.
For insurers, shifting from an industry to an ecosystem perspective requires a significant change in how they define their role in the economy. Currently, insurers act primarily as risk aggregators. They have a passive and limited relationship with customers, which increases their exposure to disintermediation, disaggregation, commoditization, and invisibility.
If insurers were to lose their distribution and customer relationships, they would be left with few options to reinvent their business models. Ping An, a giant Chinese insurer with more than one million employees and agents, has expanded its reach to offer healthcare consultations, auto sales, real estate listings, and banking services to more than million online customers through a single customer portal called the One Account.
Ping An serves an enormous and dynamic consumer market, making the company a directionally relevant example for global insurance organizations that seek to replicate its success in other markets. Insurers can play multiple roles in an ecosystem. For example, the personal-mobility ecosystem offers a range of opportunities to expand into areas such as vehicle purchase and maintenance management, ride-sharing, carpooling, traffic management, vehicle connectivity, and parking. Mobility is in the midst of a significant tech disruption , with Lyft and Uber leading the charge in on-demand services, and giants such as BMW entering the fray with car-sharing club DriveNow.
Most of the traditional automotive players seem to be at a disadvantage in the mobility industry and face a pressing need to reimagine their roles. Some are starting to see opportunities to move toward an ecosystem mind-set.
As a tractor-manufacturing company founded close to two centuries ago, John Deere is an unlikely contender for the role of digital-ecosystem pioneer. Starting with smart capabilities catering to the needs of farmers, the company introduced a complete farming solution that offers services including John Deere Farm Connect, a field- and water-management provider that combines data with services such as predictive maintenance, tracking and geo-fencing of assets, and improved dispatching.
With these innovations, John Deere optimized product usage while quadrupling search-engine traffic to its redesigned website and increasing lead generation for dealers. As an orchestrator of the agriculture ecosystem, John Deere might consider using its understanding of the industry to help players across the value chain assess, mitigate, and manage risk.
Innovation has caused significant disruption, resulting in the emergence of four natural stakeholders in the ecosystem: original equipment manufacturers OEMs , high-tech players, insurers, and telecom providers. As mobility evolves, first movers will have the opportunity to transition from stakeholders to orchestrators in three key areas: customer relationships, network and service management, and analytics. Insurers already have a strong foundation in mobility thanks to their current customer base, distribution power, and stock of personal data from auto insurance policies.
To position themselves as true ecosystem players and to fend off moves by other stakeholders, insurers need to build capabilities in a number of areas, including mobile sensors, analytical tools, and customer interfaces. For example, insurers have made significant inroads using telematics, but profit pools are still under threat due to stiff competition. As more OEMs conceptualize line-fitted telematics devices and ride-sharing providers such as Uber grow ever stronger in network management, it is incumbent on insurers to move from risk aggregation to risk prevention.
At the same time, executives must understand that while insurance products and related security services will always be at the core of the insurance business, services such as telematics are a way of developing meaningful customer relationships. Insurers could work with OEMs higher up in the value chain to develop products that address the added risks auto manufacturers might bear as the market embraces autonomous vehicles.
As individuals relinquish control over their vehicles during driving, insurers could shift coverage from personal lines to commercial lines, hence widening the scope of engagement. A stronger relationship with OEMs and high-tech players could allow insurers to assimilate risk into existing offerings: pay-how-you-drive and pay-as-you-drive modeling, loyalty and gamification, emergency and breakdown services, crash assistance, and theft reporting.
As ecosystems enable and necessitate a focus on risk prevention, forging partnerships will be a critical priority. For reference, executives need look no further than their recent efforts to partner with Internet of Things IoT providers, which they pursued in an effort to offset their disadvantage from a lack of customer touchpoints and engagement. Insurers should embrace a similar mind-set to assemble fruitful alliances. The industry has already seen a number of high-profile partnerships between established insurers and tech and analytics start-ups.
Progressive, for example, partnered with Zubie, a vehicle-tracking and engine-diagnostic device, to give customers visibility into how their driving habits affect their premiums. Manulife is collaborating with Indico Data Solutions to develop a deep-learning tool that analyzes unstructured financial data. Digital Partners DP , a global venture established by Munich Re to win the confidence of and subsequently partner with insurance disruptors, is nurturing an ecosystem that supports the development of start-ups, including Trov, an on-demand insurance provider, and Wrisk, an insurtech venture that delivers motor, travel, and home insurance directly through smartphones.
Insurers have been targeted in all parts of the value chain by insurtech companies as much as by other industry players.
Although these newcomers are populating every part of the value chain Exhibit 2 , their focus to date has been on the more easily accessible slivers of the industry—mainly distribution, particularly in property and casualty insurance. Since innovation from insurtechs actually aims to contribute to the insurance value chain except distribution for large players , insurance executives should view potential partnerships with insurtechs as positive.
The rise of ecosystems involves multiple firms coming together in symbiotic relationships to achieve greater value for themselves than they could capture alone. For example, in its bid to participate in the health ecosystem , Apple launched the Healthkit open platform, which offers Apple device users the option to share their health and activity data across affiliated applications on their smartphones. Open architecture digital infrastructures such as cloud computing, real-time payment mechanisms and connectivity via smartphones have changed the financial services landscape materially.
They offer a common connected environment where stakeholders - clients, industry partners, market infrastructures, other industry segments and even competitors — can engage and interact with each other. These ecosystems are fuelled by emerging digital technology such as cloud-computing, blockchain and IoT, and they are driving the creation of new solutions as well as causing disruption across many industries.
According to Raof Latiff, head of digital, Institutional Banking Group at DBS, digital ecosystems are now an essential part of the financial firmament allowing various stakeholders to connect and collaborate in ways that are reshaping traditional banking and business models. Ecosystems define new business models that connect banks, buyers and sellers automatically, and facilitate transactions enabled by APIs.
The world-wide reach of Grab is also another example of how digital ecosystems interact on a number of levels. The evolution of collaborative platforms like Grab and WeChat is likely to further accelerate as businesses increasingly recognise the synergy and benefits they bring, by providing end consumers with more choices and better user experiences, while presenting service providers with new business opportunities.
No longer are consumers relegated to the far end of an increasingly complex production arrangement. Technological advancements have enabled the collection and aggregation of data, providing insights into consumer needs and behavioural patterns.
The book provides strategic roadmaps for enterprises in the digital world, and a Business Modelling in the Dynamic Digital Space. An Ecosystem Approach. Business Modelling in the Dynamic Digital Space An Ecosystem Approach Digital business models are on the one hand new, e.g., in Start-Ups, or emerge.
Technology also facilitates the connectivity for the end-to-end value chain, supporting real-time transactions and information flows. For example, in the automotive industry, blockchain technology allows the interconnectivity of the various players within the ecosystem — from the producers of car components and large frame manufacturers, to the car dealers, and end consumers - facilitating data and financial flows, and providing traceability and provenance across the entire business chain. In some cases, ecosystems of producers empowered by newly accessible and affordable technologies, are actually leading the evolution of innovative, scalable solutions.
In the commodities space, companies are using technology in their supply chains to improve efficiency by tracking consumption of resources such as water, commodities and chemicals, as well as in developing end-to-end traceability for their entire supply chain. Furthermore, APIs are leading a whole generation of technology that enables real-time connectivity and data flows through market infrastructures. Today, companies are leveraging them externally. As a result, travel claims settlement times were reduced by four days. Digital processing also helped reduce cheque payments.
DBS is a leader in adopting digital solutions, collaborating with members of our ecosystem including governments, industry and technology partners as well as clients, to make banking simpler and invisible for customers.