Interactive digital platforms as insurance ecosystems

For some years now, the terms platform economy and ecosystem have been excessively used in presentations and articles. The idea continues to fascinate the insurance world, but disillusionment often sets in quickly.

The appeal of ecosystems

In an article on the subject of ecosystems, no one can avoid mentioning one name, even if at first glance the company has nothing to do with insurance: Amazon. What the company has created can serve as a blueprint for an ecosystem. This basis makes it a sales platform with a significant global presence. The "Amazon Prime" loyalty program, which offers a wide variety of services, is utilized to keep customers loyal. Everywhere you look, there are additional offers and complementary products for which you have to pay. In Amazon's view, its customers would ideally not need any other providers. They are enmeshed in a dense network of services and options.

With this system, Amazon generates countless opportunities for interacting with customers, and in doing so maintains a rapport with them that other companies struggle to compete with. And it is precisely this that yields the option of integrating further partners so that they can participate in Amazon's business. Apple makes use of this model as well. The classic "lock-in" effect, only packaged in a more customer-friendly way.

Spurred by speculation that Amazon might enter the insurance business in a big way, insurance companies in Germany, Austria, and Switzerland have been exploring the idea of platforms and ecosystems with the aim of creating similar systems.

On an abstract level, an ecosystem is a socio-technical system that includes not only digital and technical systems, but also organizations and people and their relationships with one other. This is how the German research company Fraunhofer IESE described it. The benefits within the ecosystem exceed the sum of the individual services offered by the companies participating in the ecosystem. This is an essential difference when compared with traditional partnerships or networks.

No more thinking in terms of sectors

Even in the basic definition of an ecosystem, what is noticeable is that it primarily concerns people and relationships. There isn't even any mention of "products." One key point: in order to be a successful part of an ecosystem in the first place, it is important to break away from thinking in terms of sectors and products. Few customers are likely to get up in the morning with the thought of needing insurance that day. But what begins right after getting up is a transition into one of the different aspects of their daily lives.

• Health and fitness: from yoga as a ritual, to jogging, to going to the gym in the evening.
• Mobility: routes for getting to work, shopping, activities for one's free time.
• Work and profession: what most people spend the majority of their days doing.
• Finances: another important element that is likely to play a role on an almost daily basis.

In fact, these are already the aspects of daily life that insurers have currently identified as particularly relevant. Accordingly, one can already find current developments here. For example, in order to build an ecosystem, Zurich Group has created a in-house business unit that deals with health and well-being. The Swiss insurance group Baloise is working on a mobility ecosystem and partnering with startups.

A look at China, where WeChat plays a central role on users' smartphones, shows the important role that digital ecosystems can play in the lives of insured persons. Accordingly, many insurtechs and insurance companies are also active there.

From participant to orchestrator?

There are different ways in which insurers can use digital ecosystems for their own benefit. First of all, there is the role of the participant. Through its solution, the company is part of an existing ecosystem that has already been established.

A key partner covers different lifestyles within the ecosystem, providing comprehensive solutions and high value in an area where it is not only prominently featured, but regularly utilized by users.

As an orchestrator, an insurer takes on the role of Amazon or WeChat and docks third-party solutions into its ecosystem. In doing so, they also achieve the ecosystem's greatest economic benefits - though this goal is also the most difficult to achieve.

Potential obstacles for insurers

There are some hurdles insurers may face in using or building ecosystems.

• Own expectations: the road from making the strategic decision for an ecosystem to orchestrating your own ecosystem is a long one. Often, however, the desire to have one's own ecosystem is the all-dominant goal. As a result, it's hard to avoid disappointment when an app that addresses health-related well-being or monitors customer contracts finds only a limited number of users.
• Too little relevance: if (potential) customers do not appreciate the efforts enough, it may be because the insurer has overestimated their own relevance in people's lives. This is often because the benefits of the applications, solutions or initiated platforms are too low. This is generally the case when too much thought has been given to products and real solutions during development.
• Technology: a high level of digital maturity is required to construct and utilize a digital ecosystem. Partners must be able to dock onto the system via simple APIs. Or the company's own solutions must be easy to integrate into existing systems. In order for customers to enjoy using the system and use it frequently, it must be easy to operate. And in the case of many companies, this is something that is still fundamentally lacking (keyword: legacy systems).
• Development strategies that are too rigid: an ecosystem thrives on change and responding to the changing needs of participants. Software development must also be able to respond to this. Here, agile management methods offer the best answer. But not every insurance company is where it could be.

Against this backdrop, it is advisable to not only critically review one's own prerequisites, but to also start with smaller partnerships in order to gain experience and to test the relevance of one's own strategy with respect to the different aspects of customers' day-to-day lives. This is the only way to reap the benefits of ecosystems in the longer term.

For a personal discussion about the integration of ecosystems into your own system of processes, please get in touch with our expert Karsten Schmitt, Head of Business Development at adesso insurance solutions.