Why ecosystems could be the end and the beginning of insurers as we know them

At a recent Insurance Innovators Conference , a dominant theme was ecosystems in insurance. Specifically, what role insurers should play in relation to other companies offering products and services to consumers. One of the more eye-catching views expressed was that insurers should embrace other businesses owning the customer relationship whilst they focus on growing a profitable book of business – essentially becoming nothing more than a white label service provider.

Whether insurers should relinquish their direct relationship with customers has been a topic of discussion for a while now, but it seems to have been given new life by the pandemic. This is in no small part due to the fact that the brands of many insurers have taken something of a battering. As such, some commentators feel more emboldened in their assertion that the historic brands of many insurers don’t appear to be as worthy of preservation as they might have done previously. 

Should I stay or should I go?

I have touched on the issue of how insurers can continue to remain relevant before, but the fundamental question here is should they?

More and more consumer facing brands are entering into the insurance space, confident that they can make it work. There is also evidence, according to CapGemini, to suggest that consumers are comfortable with the idea of getting their insurance from the Googles of this world. Only recently, Tesla CEO, Elon Musk, claimed that the insurance arm of the business could comprise between 30% and 40% of the future value of its car business. People may scoff at what look like ambitious projections, but the fact that they are even couched in these terms shows that insurance outsiders see a clear market opportunity. 

If companies such as Tesla, or Amazon, do make a committed run at entering the insurance market, insurers are going to have to decide what role they play; do they stand fast and compete, collaborate and take a back seat, or get run over?

There are pros and cons on all sides of the argument. For some insurers, the idea of relinquishing the responsibility for managing customer relationships, marketing, sales, and everything that goes with it, will be appealing. Why not just focus on risk management, pricing efficiency, and building a profitable book of business? Moreover, it appears there will be a large market opportunity for such an offering, given these consumer facing brands have little to no in-house insurance expertise and so need partners to provide this.

There are, of course, others who will not want to fade into the background. Insurers are perhaps the original consumer brands, dating back to when seventeenth century houses showed they were insured with fire insurance plates or marks. Why should they give up a historic legacy of customer engagement? If battle lines are to be drawn in the competition between insurers and new market entrants, it will be contingent on insurers to develop ecosystems of their own to innovate quickly. 

Partner up

What I am referring to in this instance is an ecosystem of specialist service and technology providers that can fill in the gaps where insurers need to scale up a capability to maintain or grow market share. Whilst many people are quick to write insurers off when discussing their chances against a Big Tech competitor, we should remember that the business of insurance is difficult, complex, highly regulated and often incredibly human. Many would-be challengers will find their weaknesses and reputations exposed as a result. What this means for insurers is that in some respects they have the upper hand, as they already understand this complexity, but now they need to get better at acting on it. In creating an efficient ecosystem of partners, they should be well placed to stave off the advances of their competitors.

Insurtech as a source of innovation

To successfully build this ecosystem, insurers need to leverage insurtech partners as innovation sources. Dutch insurtech FRISS is a great example. FRISS automates around 200 general insurers’ fraud and risk detection processes with AI-powered detection solutions. In 2021, FRISS forecast that this would net insurers an estimated $2 billion in fraud savings in 2021 alone.

This is not innovation virtue signalling

In identifying the right partners, insurers should think about what they need. This is not a case of cherry picking the most cutting-edge technology for the sake of a flashy announcement that belies the fact there is little value creation. These relationships should be highly strategic and focused on improving the delivery of carriers and the outcomes for customers. Insurers and insurtechs need to be focused on business goals, and the means by which to achieve them.

 A marriage of cultures

 Insurers also have to pay closer attention to their internal culture. Creating some connective tissue between the carrier and the ecosystem partner, such as a dedicated innovation unit, is highly advisable. Insurers also need to look at their technology stack and assess whether they are able to facilitate seamless integration. Cloud computing capacity and DevOps expertise are both crucial to making these partnerships work. 

Playing the long game

Insurers need to enter these partnerships with a long-term mindset. This means rigorous due diligence regarding whether each insurtech partner will be able to scale with the insurer as they grow. Assessing and re-assessing an insurtech partner’s plans for growth is fundamental. Assigning a partnership success manager is also worthwhile for managing the insurtech relationship and ensuring they are delivering value. In doing so, insurers can make sure innovation and collaboration are kept on course.

Ecosystems, as understood above, are going to be an increasingly dominant theme in the insurance industry for years to come. It is up to insurers to decide what part they want to play and what value they bring to those relationships. Some insurers will decide to take a back seat and let another business take ownership of the customer relationship, others will procrastinate when it comes to getting their house in order, leaving themselves with little choice but to fade away quietly.  However, for those that want to remain, they should not go it alone; survival will be contingent on arming themselves with the customer-centric innovation that a healthy ecosystem can provide.