The rise of insurance ecosystems in 2020

This is the first in a four-part series on how major insurance companies are leveraging ecosystems across the insurance industry. You can read the second part on the need for customer obsession in the insurance industry here. 

In 2013, Accenture conducted the first Disruptability Index study. It highlighted industries that were most vulnerable to digital change in the coming years, predicting that every business would have to evolve digitally in the future. At the time, insurance was facing a low level of disruption, but ranking highly on susceptibility in the future.

Now, seven years later, industry-wide shifts – signaled by a pivot to digital and the widespread adaptation of what giants like Amazon call customer obsession – mean that new technology solutions are uniquely poised to disrupt industries that have long resisted change. Late last year, Accenture released another study on ecosystems, touting them as a source of major disruption to the insurance industry and forecasting hundreds of billions of dollars lost in a scenario where carriers failed to adapt and grow. The rise of automation and insurtech mean major players are now preparing for a fundamental shift in the relationships between brokers, insurers, and consumers.

How the insurance industry is being disrupted by technology

These changes cause disruption at significant touchpoints in the customer journey, with Accenture reporting that the highest levels were in the areas of products and services (60%) and customer service (57%). For most consumers, dealing with insurance still means resigning themselves to hours of wait times, back-and-forth with agents, and inefficient problem resolution. This is all the more surprising in a world in which customers can have all their needs met right from their phones. As consumers receive and grow accustomed to better, more thoughtful service, their expectations also evolve to demand the same from industries that have traditionally dragged their feet on the way to rapid process digitalization.

Altogether, insurance’s hesitancy toward rapid process digitalization is surprising, given the interwoven nature of data, IT, and insurance. Traditional insurance companies are in possession of a wealth of consumer data that can be used to improve products, services, and the day-to-day lives of the consumer, but this is limited in practice by the passive nature of the broker-consumer relationship. Meanwhile, emerging insurtech and start-ups have a lack of experience in the world of traditional insurance, but leveraging approaches and data from each other through the use of ecosystems would fill in the gaps for both to meet the individual needs of every consumer.

How an ecosystems mindset can benefit both traditional insurance and insurtech

“If insurers fail to create their own ecosystems, they run the risk of being limited to the role of a pure risk cover provider. Other players may then be in a better position to provide a more nuanced and valuable customer experience, to impose their brand, and to own the customer relationship.” – Accenture

Accenture and McKinsey have also suggested that partnerships are the right approach for both insurers and start-ups to establish ecosystems together, and insurers seem to agree; fifty-four percent of surveyed insurance executives reported actively seeking ecosystems, with the insurance industry registering the highest interest. Insurers were already realizing the urgency to innovate and partner with smaller players, as evidenced by the 2019 Efma-Accenture Innovation in Insurance Awards in which nearly a third of the participating companies were startups. Insurance and insurtech companies also submitted over 400 more innovations for those awards in 2019, up 23% from the previous year. 

Traditional insurance companies have been slow to make the shift to ecosystems despite these acknowledgments, often citing the cost of integration, loss of productivity, and disruption to business operations as main concerns. There was also no pressing need to innovate on a large scale, but the onset of the pandemic pushed industries to digitalize faster than they had envisioned at the beginning of 2020. The partnerships that traditional insurance companies now form with startups and emerging technologies will determine how quickly they adapt to meet consumer needs and service expectations in a market that is steadily becoming more competitive. And ecosystems offer insurance companies a great opportunity to be part of infrastructures that are already disrupting the state of traditional insurance.

How ecosystems can build relationships between insurers, brokers, and consumers

Ecosystems and platforms can be used to collaborate with different technologies to adapt to new processes. McKinsey advises insurers to focus on technology and organization to build scalable, linkable systems that carriers can use to take advantage of the new technologies that they are beginning to implement. 

As the future of insurance hurtles towards platforms and ecosystems, McKinsey also stresses the importance of the repository of customer data and the distribution power that insurance giants bring to the landscape, but makes it clear that ‘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.’

Ecosystems can also enable insurers, brokers, and consumers to build more meaningful experiences by reducing the friction that many customers have come to associate with insurance experiences. This is the foremost concern for insurers who recognize that customers want true, interconnected services at every step of the customer journey and lifecycle – even if they don’t know it yet. A drive to surprise and delight the customer will differentiate the winners from the losers in the coming decade, and a fundamental aspect of that drive is a willingness to innovate rapidly.

The second post in this series discusses customer obsession, the Amazon approach, and how ecosystems are a perfect opportunity for insurance to digitalize. You can read it here.

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