To thrive, carriers must adopt an ecosystem mindset

In preparation for the future, insurance carriers have been accelerating their efforts to keep pace with trends that are reshaping the other financial services sectors. That’s because they know that a major disruption is on the horizon. According to PwC’s Global Fintech Report 2017, 52% of carriers continue to see the insurance industry as the second most likely sector for disruption after consumer banking.

The report goes on to note that, with the evolving perspective on the sector, 45% of insurance carriers engaged with insurtech companies in 2017 compared to 25% in 2016. Additionally, 84% of carriers plan to increase partnerships with insurtech companies over the next 3 to 5 years.

The challenge facing carriers is that the ongoing drive towards digitization and the reshaping of customer expectations are blurring the lines between industries. These dynamics mean that carriers must innovate rapidly with insurtech being their underlying tool.

Shifting to an ecosystem business model

The reality for carriers is that digitization is causing a radical shift in traditional financial sector boundaries. This puts carriers in the position of needing to transform from operating in an insurance platform model into an insurance ecosystem model.

The platform business model allows producers and consumers to connect to it, interact with one another, and create and exchange value. Think Facebook. An ecosystem business model, on the other hand, is an interconnected set of services that allow users to fulfill a variety of needs in an integrated experience. Think Apple.

Thriving in a world of ecosystems

McKinsey predicts that, based on current trends, 12 large ecosystems will emerge by 2025 that will account for 30% of global revenues, or $60 trillion. This prediction comes with a sobering truth. Whether or not insurance carriers evolve, the ecosystems will develop. It’s up to carriers to decide what role they want to play within the inevitable ecosystems.

To thrive in a world of ecosystems, carriers will have to rethink their business models and examine opportunities to partner with players in other sectors. The ecosystems that offer the best possibilities for profitable interaction include mobility, housing, health, wealth protection, and B2B.

The value that ecosystems bring to the table takes three forms:

1.   Ecosystems reduce friction, allowing customers to switch across related or even unrelated services. Amazon is an excellent example. Starting off as an online bookseller, Amazon sells almost everything and now offers Amazon Prime. Amazon Prime gives members access to digital books, music, streaming of original programming, and voice shopping through Alexa.

2.   Ecosystems leverage networks. Google Nest is an excellent example. Google created an ecosystem of smart-home products. With the information it gathers, Google Nest can provide customers with a report card of their energy usage. It can also provide consolidated information about energy demand to utility companies.

3.   Ecosystems integrate data across services. Healthcare data companies are leveraging data in ways never before possible. For instance, they are able to extract high-fidelity data from healthcare companies and, through data analytics, apply their knowledge in ways that improve human health.

Partnerships will be critical

Unquestionably, carriers must look at partnerships with insurtech companies as a positive thing. That’s because the concept underlying the rise of ecosystems involves multiple organizations forming symbiotic relationships that deliver a level of value that they could not achieve on their own.

Thus, partnerships with companies like WeGoLook help carriers become ecosystem players. By partnering with the insurtech company, carriers can instantly scale their workforce through the use of WeGoLook’s 40,000 on-demand Lookers. This allows carriers to leverage an on-demand workforce that extends their capacity to process claims.

Final Thoughts

Making the transition from a platform to an ecosystem business model requires a dramatic shift in how carriers define their role in the overall economy. It’s necessary for carriers to act as more than risk aggregators with a passive relationship with customers that leaves them open to commoditization. Instead, carriers must adopt an ecosystem perspective and form relationships with players both inside and outside the insurance industry.

Adopting an ecosystem mindset will be a tough journey for carriers. The winners will be those who understand this evolving landscape and take the necessary steps to create new revenue sources.