Why insurance companies should be pragmatic about entering the platform economy

In the insurance industry, the hype surrounding the digital platform economy and ecosystems has been replaced by a certain degree of disenchantment. But insurance companies should still move fast to take their first practical steps towards relevant business models. A rigorous rethink, humility and realism are all needed here.

9 minutes to read

Many of the world’s most valuable companies – including Apple and Amazon – are based on digital platforms around which ecosystems have formed. They have managed to become the global standard for certain areas of life – such as smartphone use or shopping – and, as a result, they have been able to make the rules for other companies. It's no surprise, therefore, that insurance companies, too, dream of building their own ecosystems. This was certainly one of the reasons for all the hype in the industry a few years back around both digital platforms and ecosystems, with people discussing them almost euphorically at events and in innovation workshops. But a bit of practical consideration and some initial attempts later, companies had to accept that neither brand charisma nor technological maturity is enough for success of that magnitude. Only a few insurance companies so far have made major investments – in the form of spin-offs or joint ventures, for example.

Giving up hope would be a big mistake

But giving up hope because of this disenchantment would be a mistake. Insurance companies should instead be highly realistic, pragmatic and tenacious on their platform economy journey. For example, the role of the orchestrator, i.e. the manager and coordinator of the relevant ecosystems, which is a difficult one to play, isn’t the only one that offers outstanding opportunities. There are other promising roles, too. On the other hand, it is important to enter the specific ecosystems at an early stage. Since the development process is complex and uncertain, creating an ecosystem is an unpredictable undertaking – and the costs of missing the entry point are high. Artificially pulling ecosystems out of a hat is impossible, as they grow organically, so it is important to grow with them from an early stage. ‘If you are not connected to ecosystems, you will lose access to end customers in the medium term’ is one company’s summary of the situation in a qualitative study on the topic conducted by Zühlke on the Swiss insurance market.

If companies are to find a promising path for themselves, they should be familiar with the fundamental principles of successful platforms so they can draw the right conclusions for positioning themselves. That is why successful ecosystems are always formed around a central customer need, such as the customer wanting a quick and convenient shopping experience, or journey from A to B. The goal is to provide the customer with a seamless user journey – preferably from a single point of sale. This in turn means that, in many ecosystems, insurance companies are unable to take centre stage from the customer’s point of view. This is the case wherever insurance is not the primary product with an emotional connection to the customer – such as in the tourism or mobility sectors. Here, for example, users book their holidays and buy insurance as an add-on. A key conclusion of Zühlke’s Swiss study is: ‘While insurance companies play a role in almost all areas of life, they are rarely the stars of the show from the customer’s point of view. So they must think carefully about how they position themselves in the various aspects of life.’

Likewise, companies must be clear that an ecosystem’s added value lies in the fact that many participants join forces to create a value proposition that one company alone could not provide. Take, for example, a comprehensive health ecosystem app: if you had to guess what it would have to do to inspire potential customers, you'd quickly come up with a wide range of digital services, such as tracking vital data, offering online fitness classes, providing AI diagnostic tools and sending medical reports, to name just a few examples. A single company is simply incapable of offering services like these all on its own. Collaboration between hospitals, doctors, technology manufacturers and health insurance companies is absolutely vital here. Other insurance companies could showcase themselves in this environment, too.

Given the high demands that customers have of platforms, companies should also be humble and realistic, and ask themselves: What am I really good at? What can others do better? For example, car manufacturers wanted to take on the orchestrator role in the ‘in-car entertainment’ ecosystem and developed their own proprietary systems. Ultimately, however, Apple Carplay and Android Auto established themselves as the standard solutions. Simply because users found them more manageable. So it is very important, at this point, to carefully consider the following questions: What are my skills? Who are my competitors? And what would I have to invest to become competitive in a certain area?

Suppliers as opposed to orchestrators

Another thing that becomes clear is that the central principles of ecosystems and the realistic opportunities for insurance companies are often diametrically opposed to how companies see themselves. For example, companies are often very confident because of their established culture, so they are not all that interested in playing second fiddle in an ecosystem. They are also concerned about losing their interface with customers when taking such an embedded insurance approach. After all, one thing that professionals and managers in the insurance industry learn from the very beginning is that companies that lose contact with their customers become replaceable. Nevertheless, the following rule also applies here: evolving ecosystems will not adapt to insurance companies’ logic.

So, if insurance companies focus on a mix of what is realistic and what is promising, they'll realise that the supplier role is particularly exciting for them in many areas right now. But to be capable of stepping into this role, insurance companies must first of all meet the technological requirements. Key questions that need answering include: Can I make my product available with the right interfaces and as a completely digital solution? Can I generate the data I need? And can the processes be handled quickly enough? Because the seamless integration into the ecosystem that is required is only possible if a company can do all these things.

An ecosystem innovation mindset: fundamental principles for success in ecosystems

Companies need nothing less than a fresh mindset if they are to harness the amazing added value of ecosystems for themselves. This involves decision-making and behaviour patterns that often conflict with how companies saw themselves previously.

Strict customer focus

An ecosystem is not about what a single company would like to achieve. It all boils down to meeting an existing customer need in the best possible way. Only then will the services the company is offering be successful on the market.

Look outwards

If you would like to be successful together with others in an ecosystem, you have to open up, make targeted inroads in new areas and – together with partners – identify pressing customer needs and find solutions to them.

Create transparency

In an efficient ecosystem, the players know the other participants’ strengths and are also capable of realistically assessing their own strengths and weaknesses. Having an inflated image of oneself is detrimental here.

Take on other roles

In most cases, a company will be unable to be the initiator or orchestrator of a system itself. That is why it is important to be open to other roles – such as the supplier role – even if this goes against the previous thought patterns in the company.

Create a sound technological base

A fundamental prerequisite for getting involved in a digital platform and becoming part of an ecosystem is smooth technological interfaces and processes. Otherwise, the company will not be considered as a partner.

Move forward one step at a time

As a rule, ecosystems are not formed at the push of a button; they grow organically. So it is important to get started with pilot projects early on – to gain experience or potentially even lay the foundation for an ecosystem.

Company seeking an ecosystem

Companies that wish to take on a supplier role in an ecosystem have two options: to integrate into an existing ecosystem, or put out feelers early on so they can get involved in emerging new solutions. In this case, networking is particularly important – and here, we are talking about networking specifically beyond the company’s own insurance bubble. There may be potential in the likes of the health sector and in the logistics sector. What is interesting from this point of view is involvement in relevant industry associations, for example.

HDI is one example of this approach from the industrial insurance sector. The insurance company has specialised in the IoT (Internet of Things) and is seeking to benefit from the opportunities that the networking of machines and other objects in the industrial sector entails. It is looking into how it can improve its calculations in future with the generated data and, at the same time, would like to position itself as an innovative insurer in the relevant ecosystem. With the company HDI Th!nx, the HDI Group is also positioning itself as a developer of IoT business models, with a view to developing new products and services together with customers.

In contrast, in the private-client sector, Mobiliar – a Swiss insurance company – has ventured into the orchestrator role. The vision behind ‘Liiva’, its new platform, is to integrate all the relevant residential property functions and applications into a single shop for owners of private residential properties – from the property search, financing options and new property insurance to property sales. The plan is to continuously develop the Liiva platform to form the core of the ‘private residential property’ ecosystem. The goal is to incorporate additional services, including ones from third parties such as building contractors, tax advisory firms and architecture firms.

It is important that companies take such specific steps in which others, not least technology partners, play an important role, too. As an innovation service provider, Zühlke developed the Liiva platform over an eight-month period, thus enabling the company to further develop the service quickly. It is equally important to look for strategic partners and to find answers to very specific questions: What contractual solutions do I need? What collaboration models are there? This is the only way that companies can get to a point where they can go beyond innovations devised through ideas workshops and work on specific solutions. It suddenly becomes clear that a small project team in an innovation hub that does not receive the support it needs from the organisation will be unable to get a solution like this up and running. Doing so requires suitable (lean) structures and adequate investment.

In addition to strategic considerations and networking, it is therefore especially important that companies start specific projects and develop them one step at a time – even if the major end goal has not been defined in detail yet. If, on the other hand, they do not take action, other competitors from the fintech and big tech sectors will in get there first and grow with the emerging ecosystem.

This article first appeared as a specialist article in "Versicherungswirtschaft".

Markus Reding, Head of Insurance and Partner
Contact person for Switzerland

Markus Reding

Head of Insurance & Partner

Markus Reding leads the Market Unit Insurance at Zühlke Switzerland. For more than 20 years he is responsible for innovation, strategy, product management, software engineering, and business development in various leadership positions and has practical experience from numerous digitization projects. Meeting the challenges and market trends in the insurance industry with innovative solutions is what drives him.

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Gabriele Baierlein
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