Digital ecosystems: understanding the implications for the insurance industry

Digitization has created networks of interconnected but autonomous firms that are part of digital ecosystems. Digitization is here to stay and the trends and challenges related to it are irrevocably changing risk markets and insurance. However, its impact extends beyond the insurance value chain itself to the whole business ecosystem in which re/insurers operate.



Sectors like consumer retail, transportation, and healthcare have already been materially transformed due to digitization. As a result, we see the rise of digital ecosystems or networks of businesses that can support each other and supplement each other's capabilities.

This is driven by technology advances:

that have lowered costs of coordination between parties.Many successful present-day businesses are ecosystem players: Alibaba, Alphabet, Amazon, Apple, Facebook, Microsoft, Rakuten, Ping An and Tencent . These ecosystems have grown rapidly because the technology that underpins them has matured and coalesced to lower costs of co-ordination. Semiconductors have enabled cheap and abundant computation, the internet has facilitated rapid connectivity, the IoT is building ubiquitous sensors, big data is creating huge volumes of information, and machine intelligence allows ecosystems to handle and predict from huge datasets that are both structured and unstructured.

Access to new data, and regulatory openness:

just some factors shaping the future scope of ecosystems. Although many ecosystems began as simple digital marketplaces, some are migrating across sector boundaries to create larger ecosystems incorporating many families of services, eg, B2C mobility players expand beyond transportation of people into complex B2B services. Key factors that can shape the scope and influence of such ecosystems include, maturity of upcoming network infrastructure, access to new sources of data, customer willingness to switch to these structures, and finally regulatory openness to new models of business.

Ecosystems relevant to re/insurers include mobility, health, and housing:

both B2C and B2B. Potential ecosystems that are of interest for the re/insurance industry include mobility, healthcare, housing, and B2C and B2B marketplaces, among others. Re/insurers could feature as the risk mitigation service for these ecosystems or could constitute their own sub-ecosystems that cater to individuals and institutions. Emerging digital risks also create new protection gaps and new business opportunities around topics such as cyber security, IoT risk, counterparty risks, business interruption, and system failure.

Re/insurers' involvement will depend on strength of their partners:

within such ecosystems. However, re/insurers will have to redefine the role they can play in structures that comprise a heterogeneous assortment of businesses from different sectors. This environment requires distinctive capabilities and relies heavily on access to data and the capability to model risks. True leverage will only be created in combination with other assets, such as, key partnerships – both with suppliers, and other firms that allow re/insurers access to ecosystems, as well as the knowhow to generate data driven customer insights through tools like behavioural economics.

Re/insurers need to pick strategic options:

what define "how and where to play" in the world of ecosystems. Insurers can adapt to these developments by developing at least three different set-ups. (1) Modular producer: providing plug-and-play products or services that can adapt to a variety of platforms or ecosystems. (2) Ecosystem bundler: Creating relationships with other providers that offer complementary or sometimes competing services, and (3) Ecosystem owner: More aggressive insurers could act as active ecosystem owners or orchestrators.

Such innovation will be crucial in responding to the future risk environment:

re/insurers have time to adjust to the changing risk environment, shifts in customer attitudes and accelerating advances in technology. Re/insurers must continue to embrace both incremental and sometimes more radical innovations. Utilised more fully and intelligently, digital ecosystems present an opportunity to the industry to reinforce its relevance to its clients whose tastes and protection needs are changing.