Digital ecosystems: extending the boundaries of value creation in insurance
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Imagine. You're sitting at home on a Friday night and feel like having your favourite Thai green curry. And you also need a taxi to go the pharmacy to pick up the prescription you forgot to collect earlier. Gone are the days when these needs would be met by interaction with three separate providers. Now all can be arranged through one app: Go-Jek in Asia, for example, has created a digital ecosystem comprised of transport and lifestyle services, food delivery and more. Similarly, Grab competes with a similar digital ecosystem in the same market.
Ecosystems are the new markets: they combine a variety of services and vendors on one platform to offer a holistic experience to the user. With consumers having the power of choice in the palm of their hands, the typical business to consumer relationship has been transformed. Retailers can no longer be brick and mortar establishments that rely on geographical convenience to foster consumer loyalty. Consumers have more choice than ever before and, thanks to the ubiquity of smartphones, they can access their choices from their own home, workplace and on the go. Every business market has had to adapt to this new constellation to maintain and expand their customer base. Insurance and financial services are naturally embedded into many of these ecosystems (Figure 1).
Figure 1: How ecosystems gradually expand services into adjacent domains
Many of the biggest companies today are ecosystem players: Alibaba, Alphabet, Amazon, Apple, Facebook, Microsoft, Ping An and Tencent, for example. These ecosystems have grown rapidly and dominate their respective industries for a variety of reasons. Online retail vendors are able to offer highly competitive prices due to low overheads, and the collection of huge volumes of consumer data that has enabled targeted advertising and sales in a way that was not possible prior to digitisation of the marketplace. This data is helping companies shift from simple digital marketplaces to more complex ecosystems that cross sector boundaries. Access to new sources of data is central to the success of ecosystems. The maturity of upcoming network structures, customer willingness to switch and the openness of the regulatory framework are also important factors to be considered, especially by companies looking to join an ecosystem or establish one of their own.
Many markets are of relevance to insurance, including mobility, transport, health and B2B and B2C marketplaces. Re/insurers could feature as the risk mitigation service for these ecosystems, or 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 and the internet of things (IoT). Digital and technological advances are also transforming the face of established risk markets. For example, shifting health priorities, advances in precision and diagnostic medicine, and the importance of health records are changing life and health insurance.
"No man is an island" – an adage from John Donne in 1624, remains applicable in today's very different world 400 years later. Re/insurers' success in integrating to become part of digital ecosystem communities will depend on the strength of their partners, and requires distinctive capabilities, access to data and the capability to model risks. Another asset will be data-driven customer insights through tools like behavioural economics. Re/insurers must continue to embrace both incremental and radical innovations. Used intelligently, digital ecosystems present an opportunity to the industry to reinforce its relevance for in a world of changing protection needs.
How ecosystems emerge - the stages of digital ecosystems
As we watch start-ups develop into worthy challengers for incumbents, we see them pass through similar stages of growth (Figure 2).
Nascent stage: At this stage, there is usually 1 primary sponsor connected to several individual players. Suppliers on one side and customers on the other are connected by a platform. In 2008, Airbnb was set up and provided 600 (approx.) residences for people who otherwise would not have been able to attend the Democratic National Convention. With 28 000 people descending on the town of Denver, hotels were all sold out and the only way people could attend was by staying friends in the area if they had any. Or, by logging on to a platform that connected them with people looking to monetise their spare space, or Republicans looking to flee the convention who could offer entire houses [1,2].
Formative stage: Ecosystems evolve into more sophisticated entities. The platform sponsor takes a step back as the number of users (suppliers and customers) rises and likewise the number of interactions. Members can collaborate with each other more freely, in a closed environment. The platform enables members to form informal, autonomous networks among themselves, enhancing overall interactivity on the platform. Airbnb enables people in need of somewhere to stay to speak directly to the people who have space they can hire out. The searchers can enquire about the locale and property features, and have additional possibilities, for instance with guests able to review and rate properties, and also their experience of interacting with the seller.
Mature stage: At this stage, the sponsor enhances the offerings to platform users, thereby further improving ability to participate and contribute. The sponsor provides other services which strengthens its relationship with members and increases the likelihood of customer loyalty. Airbnb has offered experiences and restaurant bookings through its platform, providing a more holistic travel experience. The company has added a B2B offering, allowing for also business travel to be booked through the platform, and it is now worth an estimated USD 30 billion . Airbnb has revolutionised the hospitality industry with business savvy and strategic development of an ecosystem.
Figure 2: Three stages of ecosystems evolution
Ecosystems can be especially valuable – and usually increase consumer spending – when they combine online and offline worlds. When you interact with your doctor online and he takes diagnostic indicators from readings on your smartphone or digitally-enabled device, and then you go to a pharmacy to pick up your prescription, this is an example of how both online and offline services come together to create a service package that makes peoples' lives easier. Too busy to see your doctor or unable to leave the house? Facetime your doctor or, in the UK, call one of the National Health Services' (NHS) online General Practitioners, available through the NHS' partnership with Babylon Health . Going away for a business trip and don't want to stay in a hotel? Hire someone else's home instead. Do you miss your pets while you are away? Buy an interactive pet toy with a camera and speaker hooked up to your smart home platform, and you won't need to miss them quite so much.
In healthcare, a customer's journey usually falls into certain stages: wellness and prevention, diagnosis, treatment and recovery and reintegration. Phases are not mutually exclusive and can overlap (eg, wellness and treatment). A closer look at Ping An's diagnostic model shows why the insurer is making such waves not only in China, but around the world. In this report, we study the interactions between the partners, suppliers, sponsors and consumers who use Ping An's service, and look at how Ping An has created and monetised its comprehensive service offering (Figure 3).
Figure 3: Example architecture showing the variety of parties involved in Ping An's health ecosystem
There are a host of opportunities for insurance in the rapidly expanding world of digital ecosystems, with new protection gaps to insure given the proliferation of new technologies across industries. Re/insurers have generally been slow to adopt new technologies, but many incumbents are now looking to upgrade their digital capabilities. In a survey, 76% of insurers agree that competitive advantage will not be determined by their organization alone, but by the strength of the partners and ecosystems they choose . Participants in the health, mobility and natural catastrophe mitigation sectors are just some of those actively reaching out to re/insurers, recognizing the ever-important need for partnerships that focus on resilience in today's ever more uncertain world.
With the ever-increasing digital interconnectivity of business and consumers, cyber risk is a main growth potential for the insurance sector, the focus being on quantifying reputational damage from a data breach or hack and hacks for ransom. These risks were negligible only a few years ago, with data breaches requiring corporate espionage or careless workers. Now, a virus sent to one machine on a network can provide the backdoor for millions of pieces of data to fall into the hands of an unauthorized person. Gartner predicts that regulatory compliance for critical infrastructure will drive IoT security spends to USD 1 billion globally by 2021, up from less that USD 100 million today .
In this, the first instalment in our planned series of digital ecosystem papers, we look at ecosystems through a non-industry specific lens. We provide a holistic overview of the landscape in which we find ourselves today and look at the implications for insurers and consumers.
 Huffington Post (05 September 2012) "Airbnb Roots Trace To Democratic National Convention Of 2008 headshot", (accessed 30 November 2018)
 Reuters (11 July 2016) "Airbnb may put lid on hotel rates during U.S. political conventions" (accessed 30 November 2018)
 Forbes (11 May 2018) "As A Rare Profitable Unicorn, Airbnb Appears To Be Worth At Least $38 Billion", (accessed 29 November 2018)
 Babylon press release (06 November 2017) "HS becomes first health service in the world to offer free, 24/7 healthcare via mobile phone as new digital service", Babylonhealth.com launches
 Accenture (18 April 2017) “Technology Vision for Insurance 2017”, Accenture.com
 Gartner (21 March 2018) "Gartner Says Worldwide IoT Security Spending Will Reach $1.5 Billion in 2018", Gartner Research