The three roles for re/insurers in digital ecosystems
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In Singapore you can book a taxi, hire a bicycle, order takeaway and arrange finance for your business all from one app on your smartphone.
Grab is like South-East Asia’s answer to Uber, but more so: it is one of the world’s most advanced examples of digital ecosystems.
Such ecosystems are predicted by McKinsey to account for 30% of all global revenues by 2025.
In most cases they are evolutions of online platforms, including Grab, which began life connecting taxi drivers with people who wanted to travel.
But as it grew, it expanded to bring in a much greater variety of services, such as food and finance, to a wider pool of customers – all operating within the same Grab ecosystem.
As digital ecosystems evolve and mature, they have the potential to become spaces where participants share resources, data and expertise.
This collaboration can help participants “create mutual networks to collectively deliver products and services that they could not offer on their own and which are more valuable when used together rather than separately”, according to Swiss Re Institute’s new report Digital Ecosystems: extending the boundaries of value creation in re/insurance.
Implications for re/insurers
The rise of digital ecosystems offers great opportunities for re/insurers.
For example, the creation of new services within ecosystems can create new protection gaps – such as the insurance of people using an app to car share – while the digital nature of these ecosystems increases the need for effective mitigation of cyber risk.
They can also offer a huge wealth of information to allow re/insurers to understand risk and their customers better than ever before.
Dr. Evangelos Avramakis, Swiss Re Institute Head Digital Ecosystems R&D and co-author of the new report, says new insights from data shared in ecosystems, subject always to compliance with applicable data protection laws and regulations, will allow re/insurers to create highly customised and personalised insurance policies.
“As ecosystem parties exchange data with re/insurers, this will bring further insights into consumer behaviour and the behaviour of the platform providers,” he says.
“It means reinsurers and insurers can better customise their products to the needs that are really happening within the ecosystems, and personalise insurance policies in a much better way than we have previously.”
However, digital ecosystems also pose a huge challenge to the way re/insurers operate, requiring changes in the way products and services are brought to market.
“We have to translate our product into the ecosystem environment, providing the appropriate product and service that really makes sense for them,” says Avramakis.
“If it’s not easy, if it’s not really convenient, if it’s not very efficient, then we will struggle. So we cannot do business in the same way as we did before.”
The biggest potential change for re/insurers operating in ecosystems is a loss of control over and lack of visibility of their sales channels.
“In the ecosystem world, you plug into a wider environment where you don’t control the customer interaction,” says Avramakis.
“This is being done or being managed by the ecosystem owner, and not by the re/insurance company. So this means if you need to adapt in this new field, you might need to change your business model, because the sales agent might be relevant, but not in the same way he was before.”
As re/insurers consider the suitability of their business model for an ecosystem environment, they have a decision to make over what kind of role they want to play in the ecosystem.
Swiss Re’s Digital Ecosystems reports outlines three roles that insurers can play in digital ecosystems, summarised below.
1. Modular producers
At an entry level, re/insurers can act as modular producers, providing solutions that easily plug into a wide a variety of ecosystems. The products they offer will typically be sold into the ecosystem as white label offerings.
A good example of such a solution is iptiQ. Developed by Swiss Re, iptiQ does not sell directly to the consumer.
Instead, it acts as a white label digital platform for the life and health insurance sector that allows re/insurers to easily create new and highly customisable products.
iptiQ combines Swiss Re's automated underwriting system, Magnum, with data analytics and customisable customer-facing web applications.
All the data from customers using the platform runs through the analytics software and is used to improve both the automated underwriting and the customer experience.
2. Ecosystem Bundlers
Re/Insurers with more complete knowledge of end consumers could play a wider role in ecosystems. Such insurers typically “own” the customer relationship and currently operate as omni-channel businesses with an integrated value chain which allows them to offer a multiproduct, multichannel customer experience.
Such re/insurers could design their business to play the role of an Ecosystem Bundler with modular and flexible aggregation of products and services. Here re/insurers create relationships with other providers that offer complementary (or sometimes competing) services. A bundler could aggregate all of these services and plug them into a wide variety of ecosystems as, for example, a complete ecosystems insurance package.
3. Ecosystem Owners
More ambitious re/insurers could aspire to be Ecosystem Owners, creating their own branded platform. As Ecosystem Owners, insurers could use their customer knowledge and data to match customer needs with third-party providers who offer plug-and-play products in the ecosystem.
A good example of an insurer already doing this is China’s Ping An. It has expanded its reach to offer healthcare consultations, car sales, property listings and banking services to more than 350 million online customers through a single customer portal called the One Account, according to McKinsey.
This new activity generates customer traffic for Ping An’s core insurance services and gives it access to huge volumes of customer data, which is the company’s key competitive advantage.
In fact, access to the data and insights being generated by ecosystem parties will be the key to success for re/insurers no matter what level of role they choose to adopt. For example, highly accurate and competitive underwriting of Grab or Uber’s taxi fleets will only happen if re/insurers can access data about the drivers, cars and roads on which journeys are taking place.
To find out more about what ecosystems mean for re/insurers, download a copy of Swiss Re Institute’s new report Digital Ecosystems: extending the boundaries of value creation in insurance.