Melanie Hoppen |

Insurance companies and digital ecosystems


Insurance companies are facing tough challenges with the onset of digitization. The platforms created by big Internet groups are having long-lasting effects on consumer behavior and making it increasingly difficult for insurance companies to reach new customers. For the insurance industry, participation in ecosystems has now become key.

Very few managers can still recall the Golden Age of the insurance business. Insurance agents made a living by networking with the local population in their respective cities. They knew their customers well and were often recommended personally by others. It was common for policyholders to contact their agents directly before filing a claim. In other words, agents were the links to customers.


Strong competition

Increased connectivity changed this situation drastically. Additional sales channels emerged and had to be integrated. First came individual insurance company websites, then comparison portals. This was a dramatic turning point, for these comparison sites reduced insurance companies to mere product providers and above all simply associated them with prices. Companies who didn't want their premium products with high margins to be impacted tried to participate in the new development by offering inexpensive rates, special labels, or direct insurance.

And as in the past, insurers were under great pressure to keep operating costs to a minimum. Central service centers took over the role of on-site agents, while the automation of the application, contract, and claims processes also led to agents having less and less contact with customers.

But less contact also means less visibility amongst customers. At the same time, big Internet groups such as Google, Facebook, and Amazon are becoming a more or less constant part of the lives of customers. Amazon, for example, is now said to be extremely interested in breaking into the insurance product market. Apps and smart speaker systems have allowed these groups to become an indispensable part of the everyday lives of consumers. Many retailers and manufacturers are now starting to feel the hit. If a company is not on Google or Amazon, then it might as well not exist.

As if that weren't enough, more and more startups and Fintech companies are targeting customers with innovative insurance solutions. Their business models cater to new consumer behavior which is dominated by the use of smartphones. These new market players sell ad hoc insurance or compare the contracts of their customers which are permanently stored in their system to allow these customers to make a convenient switch.

But it's not just startups who are competing with traditional insurers to reach and win the loyalty of customers. Established branches and companies are also now discovering insurance.

  • Banks are strapped by new regulations (such as PSD2) and must develop new sources of revenue due to persistently low interest rates.
  • Energy providers are seizing upon "smart home" technology and complementing the security & surveillance industry with new types of household insurance.
  • Automobile manufacturers are also making their vehicles "smart." Electronic data transmission in vehicles can be used to analyze the driving behavior of customers and subsequently sell car insurance at rates that are commensurate with the data.
  • Telecommunications companies are tackling network security by offering customers new cybersecurity solutions.

It therefore comes as no surprise that companies from all industries are wondering just how they will survive with Google, Amazon & Co. in the picture, as these groups have succeeded in building an ecosystem around their products. For an example of the power of these groups, look no further than Apple. With its Apple watch, the company can measure the sleep and exercise patterns of its customers. The watch also comes with an app, which the company recently used to launch a study amongst users. 54,000 people took part. As a result, Stanford University was able to collect much more data than usual.


Consequences for the insurance industry

Insurance companies have two viable strategies for renewing their reach and visibility amongst customers.

  1. 1. Create interfaces (APIs) allowing them to offer their products and services on the platforms of partners. Insurance companies can quickly expand their customer base by way of platforms from the travel industry, retail industry, utility sector, and real estate market. Users can access a number of different offers, which makes it easier for an insurance company to stay on the platform while at the same time increasing its visibility. However, this is not always the safest bet. On the one hand, insurers on platforms relinquish some of their control to customers. On the other hand, they must cater to the needs of the platform provider. If another insurance company joins the platform and offers better sales conditions or more product features, then the provider will likely go with the new insurer.
  2. 2. Build individual ecosystems and platforms that showcase the strengths of the insurer. In light of demographic change and a new customer mentality, a number of options can be explored: smart home, health, security (cybersecurity), and retirement. In order for customers to pick up on new offers, insurers must not only offer distinct services, but also work with and benefit from the reputation of influential partners. The primary advantage of this strategy is that insurers maintain full control over their contact with customers and can offer products with genuine added value for consumers. Hybrid approaches are ideal interim solutions while an insurer builds its own ecosystem.


Increased IT requirements

Regardless of the strategy that is chosen, insurers will be faced with major challenges regarding their IT landscape. Platforms not only require the creation and enabling of APIs but must also allow for third parties to connect both quickly and inexpensively. Speed is therefore of the essence. Finally, while building an ecosystem, it is not only necessary to understand customers and their needs, but also to take into account important events in their lives (starting a new job, buying property, etc.) and develop services accordingly. It is vital that your core services be efficient and - if possible - fully automated.

After all, automation, efficiency, and speed are the qualities that separate the ecosystems of the most successful companies from all the others.


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