As part of a monthly series, Post looks into the future at how the insurance industry might change, focusing on a specific issue. For this instalment David Worsfold looks into the evolution of insurance eco-systems
Eco-systems emerged as one of the business buzzwords of the early 2020s. It quickly superseded big data, connectivity and artificial intelligence as the most talked about aspect of the digital revolution. Few fully understood the profound impact the reshaping of commerce – and especially customer relationships – implied by this term would have on their business.
The insurance eco-system has evolved as quickly in the 10 years since 2020 as it had previously done in the last century, a pace of change that has left some behind but should have been no surprise given the corporate landscape at the beginning of the decade.
Even by 2020 seven of the 10 largest global companies by market capitalisation were already ecosystem players: Alibaba, Alphabet, Amazon, Apple, Facebook, Microsoft and Tencent. Others were following close behind and demonstrating the power of connected, customer-focussed technologies to be game changers.
Uber, founded in 2009, already operated in more than 630 cities across 80 countries, while Airbnb had amassed an inventory of one million rooms a staggering 50 years faster than Marriott.
Many insurers made the mistake of seeing these as potential competitors rather than as future partners. For some insurers and brokers corporate arrogance prevented them from seeing these as platforms they could partner with.
This background led McKinsey & Company to make a bold prediction in the middle of 2020.
“The pace of change has accelerated thanks to tremendous increases in the volume of electronic data, the ubiquity of mobile interfaces, and the growing power of AI. In the early years, companies that digitised were at the forefront of the industry. Today, digitisation has permeated every level of the competitive landscape. Society’s growing reliance on digital technologies is not only reshaping customer expectations but also redefining boundaries across industries. Insurers cannot avoid this phenomenon: as traditional industry borders fall away, the future of insurance stands to be greatly influenced by platforms and eco-systems.”
Now, in 2030, it is estimated that over $85trn of all global revenues – approaching 50% – are generated within eco-systems such as those for healthcare, housing, education, wealth and protection and mobility on the consumer side, and business to business services, plant, machinery and property, and marketing in the corporate world. These are dynamic, overlapping and constantly changing as radical new technologies emerge. Insurance is a key service proposition within them.
Huge public and private investment has been omnipresent in these changes, with the introduction of 6000 miles of smart roads across the UK taking their place in a mobility eco-system. Millions of new homes built in the last decade have been smart and connected and a huge government-incentivised investment programme is now running to retrofit older properties with the same technologies. These are among the key developments that finally forced insurers out of old silos of traditionally defined cover, although it was not until 2027 that the Insurance Companies Acts were finally overhauled by parliament to free insurers of the constraints of definitions first created in the early 20th century.
Alongside this, major UK population centres were transformed into smart cities, creating a more holistic digital eco-system in which insurance companies now work as part of an interconnected collection of service providers. This was accelerated by the fall-out from the coronavirus pandemic which left many city centres bereft of commercial activity. Faced with an almost blank sheet of paper in planning their revival, new businesses emerged, more residential property was built and transport was revolutionised with driverless electronic vehicles the norm.
This was the platform that forward-thinking insurers latched onto, says Ed Downs, head of financial services and insurance solutions marketing at Marklogic.
“The advancements in telecommunications bandwidth, cloud computing power, and autonomous IT over the last decade have enabled the most successful insurance companies to efficiently develop digital insurance products and services for delivery through new eco-system partnerships. Every device manufactured is now a smart device connected to an eco-system of providers that use the data to make our companies, governments, and people safer and more productive.”
5G is the backbone that enables so many of these smart inter-connected technologies. 5G’s low latency and huge bandwidth will supercharge the Internet of Things and should fulfill the promises of AI and augmented reality across lots of devices we interact with every day.
With all of this additional data flying around from all our connected devices, privacy laws will become even more important, as people take an active role in reclaiming some of their privacy, even as they are opting in to sharing certain data with corporations in exchange for real benefits.
Insurance customers now buy through apps used to manage wider needs; whether it is a motor app that allows them to manage their road tax, smart travel tolls, MOT and insurance in one place; or a property app that covers everything from energy bills, wi-fi connectivity, grocery shopping and insurance.
There is a huge amount of data coming from and being fed back into these systems. This has been successfully integrated into the wealth of legacy data established insurers hold. This once held them back, making them vulnerable to insurtech start-ups unencumbered by legacy systems but now it is a driver of growth and genuine 360 customer engagement. Unleashing the power inherent in legacy data was a game-changer for many insurers, says Downs.
“Forward-looking insurance companies continue to recognise the need to upgrade their legacy data architectures to handle ever-growing forms of big data, become more agile in delivering data-driven solutions, and build integrated applications. All of our insurance customers have used our data platform to radically improve integration and access of their customer’s multi-structured data and develop more engaging digital applications for policy, claims, and asset management.”
Vivek Vasudeva, chief information officer insurance solutions, Verisk: It is evident when it comes to insurance ecosystems, insurer and broker partners are evolving from suppliers to partners, a trend that is progressing – but it needs to accelerate.
A number of factors are likely to help this acceleration such as the fact custom tight integrations are shifting to API loosely coupled ones and insurers as brokers seek to take advantage of digital opportunities.
The trend will also be advanced as players evaluate which non-core insurance activities they can shift to ecosystems such as payment and new lines of business development, and increase their reliance on third party claims and policy systems providers to provide out of the box ecosystem integrations to speed up the digital relationship model.
This begs the question: What are the key characteristics to look for when choosing partners to be part of an insurance eco-system?
Among the key attributes insurers and brokers should be looking at are the level of leading edge technology and continued technology investment. Indeed they need to ask is technology core to the potential partner’s business model?
They also need to be confident any partners will be around in five years’ time, is well funded and well managed. And if not, can they integrate their technology or acquire them?
Finally, someone needs to be easy to do business with – both from a technical and business perspective; offer flexibility and a rapid response; be complementary to their business model and effective as an extension of whatever the insurer or broker does.
Looking at the types of organisations that are likely to integrate into insurance eco-systems, there is a strong likelihood that non-traditional businesses will start to connect. For instance Apple (smart devices), ATT/Verizon (5G), Tesla and connected vehicles from General Motors, Ford and others will connect to insurance industry as ecosystem providers. In time it is not impossible to envisage that the insurance industry will become an ecosystem for some of them.
So by 2030 we could have a situation where ‘insurance’ will not necessarily be the ecosystem for the entity being insured. Instead they will be coordinated through different ecosystems touching relevant third parties depending on their needs. For example, Amazon will do replacement, Verisk/banks will make payments, artificial intelligence will assess damage and insurance companies will provide risk assessment and funds/reserves. Only when specialised insurance knowledge is needed will the insurance experts coordinate the ecosystems.
Indeed there is likely going to be a category of business that does not exist today that weaves ecosystems together more efficiently and collects transaction fees for doing so. Consumers will appreciate the peace of mind knowing that the purchase includes all aspects including replacement/repair of damages without consumer having to take much action beyond consenting at key decision points.
The impact on the service proposition has been profound. Service propositions that seemed innovative in 2020 are now commonplace, says Robin Challand, claims director at Ageas.
“We’ve created an unrivalled network of partners, who along with our customers are connected through our digital ecosystem. Claims assessment and replacement goods are being autonomously assessed and dispatched.
“For example, if a customer’s laptop is accidently damaged, the digital ecosystem will upload information from a connected device, the damage will be assessed instantly, and a scan of our network of partners will find a suitable replacement.
“It’s ordered instantly and arrives by drone that same day, thanks to our partnership with one of the UK’s biggest delivery firms. The old laptop is taken away for dismantling and recycling as part of our sustainability programme.”
In this way insurance is not seen as a stand-alone product any more, especially among younger people who want to simplify their lives. And that includes commercial business owners too with the generation once described as millennials now taking their places in senior management, around boardrooms tables and as business owners.
The dynamic pricing that has been essential in delivering insurance that facilitates modern lifestyles, not merely sets prices and transfers risks, means insurance has become the ecosystem for the home, auto, commercial entity and is part of the home, auto, commercial offering.
This has enabled the insurance industry to move on from the concerns over pricing practices regulators had throughout the 2010s, although that has been replaced by a renewed focus on the digital underclass.
Many insurers and brokers have accepted their role as either a partner in a broader non-insurance eco-system, or have built their own micro eco-systems by forging their own relationships with non-insurance businesses which can be easily transplanted into the broader eco-systems. Insurers have had white label deals for decades with notable brands, but these relationships are now so much deeper that many insurance brand names have disappeared from public view. Many have gone down this route through necessity as trust and service issues had weakened customer relationships. Others have survived because they embraced the changes early on, says Downs.
“As symbols of trust and security, insurance brands will continue to carry value in the digital world of 2030 for businesses and consumers. However, there will be fewer brands due to consolidation with the ‘winners’ offering the best experience, indicated by highest NPS [net promotor score], and greatest distribution of innovative and integrated digital offerings, such as on-demand auto policies priced based on telematics data. The common success factor for the winning brands is companies that built data-driven cultures by overcoming organisational constraints and investing in the most flexible technology to modernise and optimise existing infrastructure for more agile data integration, access and usage.”
This has created a virtuous circle with the boundaries between claims and underwriting no longer relevant. Instant data about claims – from that household laptop or through telematics to major natural catastrophes where fleets of drones and robots take to the sky in hazard-strewn disaster areas – immediately informs and adjusts pricing.
The Association of British Insurers is now working closely with the government’s new Department for Digital Transformation and the revamped Financial Engagement Agency to develop solutions to ensure everyone gets access to affordable insurance, regardless of their digital capabilities. Insurers do not want to attract the same opprobrium as the banks did when they prematurely tried to abandon cash in 2026, a scandal that hastened the demise of the Financial Conduct Authority and its replacement by the FEA.
This has challenged insurers to embrace new skillsets, says Lyn Nicholls, HR director at Ageas.
“Data, digital and AI are all key parts of everyone’s roles in 2030, and as a result our approach to leadership has adapted and evolved.
“With technology and data much more sophisticated now than it was 10 years ago, we’ve worked hard to develop our people in these areas and ensure Ageas remains a leader in the UK general insurance market.
“For the last decade we’ve focused on balancing technical skills with leadership and learning agility, through our talent programmes, recruitment and development offering. Our efforts to develop a more inclusive business, coupled with flexible working arrangements, has enabled us to attract a broader range of candidates.
“With data being so important, we have mapped all roles to data personas and have established development pathways for each, ensuring all our people have access to data development options which suit them and their roles.
“We have also reshaped our leadership development pathways, making the development available through different learning methods. The Covid-19 outbreak of 2020 taught us a lot about how to deliver leadership training remotely and now it’s a blended mix of in-person and virtual learning.”
She says Ageas is not alone in seeing these new skillsets thrive and take their place in senior management.
“Ultimately, this has helped us attract a broader range of skills to the business, to grow our talent from within and encourage cross function mobility and development. In fact, some of the senior leaders within Ageas today have risen through the ranks over the last decade as part of our leadership development pathway.”
There will be no let-up in the pace of change and the evolution of eco-systems, says Downs. He says the future for insurers that want to remain in control of their own destinies will be determined by their ability to identify and own the “table stakes” required to stay in the game. If they haven’t got these, then they will not be a player.
“Insurance eco-systems will continue to evolve throughout the 2030s and beyond, with interconnected digital risk services governed by data security and sharing arrangements considered ‘table stakes’. Individual insurance companies that made investments in the early 2020s to drive adoption of an eco-system culture are generating the highest returns in the 2030s.”
Now listen to the podcast
Post content director Jonathan Swift sat down with Vivek Vasudeva, CIO insurance solutions, Verisk, to discuss the possible road map between now and 2030. This includes the evolution of collaborations, the involvement of insurtechs and non-traditional insurance players and how data flow is key to the success – or otherwise – of insurance eco-systems.
To listen, search for the Insurance Post Podcast on Acast, Apple podcasts or on your usual podcast provider.
Alternatively, you can stream it here.
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