In the last decade, digital platforms have experienced immense growth, giving rise to sophisticated consumer ecosystems across nearly every industry. In insurance, new entrants have been particularly successful in capitalising on this trend, with some of the most recognisable, like Revolut and WeChat, graduating from start-up to household names in just 10 years or less.
Insurtech start-ups make up a tenth of all companies that have achieved unicorn status in the global fintech space, making the sector among the industry’s strongest players.
Data from the Centre for Finance, Technology and Entrepreneurship (CFTE) 2022
Interestingly, the shift towards ecosystems goes beyond just tech-led unicorns. In fact, it reflects a broader move away from vertical integration and towards compelling new value propositions from independent, specialised and modular players.
The result? A radically changed economic landscape. We’re seeing this already in a range of sectors from eCommerce and hospitality, to health and mobility. And within the next decade, no sector will be left untouched.
The consumer ecosystem
For insurers, there are two main ways to engage in the ecosystem economy: as an orchestrator or as a complementor.
Orchestrators act as the ecosystem’s linchpin by offering a unique anchor proposition. They establish the ecosystem’s standards across customer experience, technology, data and operational excellence, and design the commercial model to which complementors and consumers adhere.
Complementors are specialists in making the ecosystem’s value proposition more compelling and engaging. Every ecosystem hinges on the versatility of its complementors. An ecosystem can house hundreds or thousands of complementors, depending on its nature and market (e.g. smart-home systems, large marketplaces or mobile operating systems).
Orchestrator vs. Complementor
What’s exciting in this space, is that there are already some strong examples of insurers that are now orchestrating large, successful ecosystems, such as Ping An-Good Doctor and Discovery Ltd-Vitality. However, it is a common misconception that “leading the way” as the orchestrator of an ecosystem is the only real way to prosper in the ecosystem economy. The role of the orchestrator is a demanding one – requiring a strong brand, a highly entrepreneurial culture, an open technology platform and operating model, and a unique way to attract customers into the ecosystem. For most insurers, building these capabilities is likely a daunting undertaking. And success is far from guaranteed for those that do try.
Looking at the odds of success, many insurers opt to play as complementors instead. As a lower-risk entry point, and one that is better aligned to the core competencies, it is a more viable pathway to building a consumer ecosystem.
House purchase ecosystem
Above is an example ecosystem, built to deliver a smooth experience for a customer purchasing a home. The orchestrator (a mortgage aggregator in this case) delivers the ideal bundle of services with the help of its complementors so that the customer can satisfy all their needs through a single ecosystem.
Unlocking the potential of an ecosystem, as a complementor
As a complementor, it can be tempting to focus on entering the most established and successful ecosystems. It’s the allure of unlocking a once-in-a-lifetime opportunity of their magnetic power and exponential growth. While this might work for some, a strategy like this is not sustainable for the entire insurance sector.
Firstly, amongst the large established ecosystems, power firmly resides with the ecosystem, and competition amongst insurers to win mandates is high. This can lead to razor-thin margins and exacting standards around the service offering. For some insurers, this sacrifice will be worth making due to the scale of the opportunity. For others, it may mean focusing on the long tail of smaller-scale ecosystems, which can collectively still represent a substantial opportunity.
For instance, let’s look at the data from a 2019 Statista report on the most popular mobile shopping apps in the US. eCommerce giants like Amazon, Walmart and eBay reach 80%, 46% and 33% of the population on their own, respectively. Being a complementor in an established ecosystem with any of these leading orchestrators would ensure reach, but would also entail stiff competition with other insurers for a slim margin and limited access to new customer pools.
On the other hand, if an insurer were to complement multiple small-scale orchestrators (think Groupon, Etsy, Domino’s, Wayfair, Macy’s and Home Depot) in their ecosystems, they would reach approximately the same number of people (~80%), make better margins and access more customer pools with less competition.
Secondly, the ecosystem landscape is far from mature, and only 15% achieve sustainability in the long run.
This makes it hard to identify the winners and losers. And with many ecosystem startups backed by patient venture or private capital, it can take years to distinguish between the two. So, by the time a winner has emerged, the opportunity to participate in their ecosystem may have already gone.
Embracing the ecosystem economy
Participation in a portfolio of ecosystems is critical for insurers looking to capitalise on the rise of the ecosystem economy. However, this approach can only be effective if the technology platform and operating model can readily scale to dozens, and potentially hundreds, of different ecosystems in a low-cost way.
While this enticing opportunity may already be on the digital transformation roadmap for many insurers, by the time it arrives, potential first-mover advantages in the ecosystem economy may have slipped away. In recognition of this, many of the leading ecosystem insurers globally – such as Swiss Re and Wakam – are taking a greenfield approach to embedded insurance.
By liberating these ventures from the core insurance business, they have been able to focus on leveraging ecosystem-specific solutions and partnering with digital ecosystems at a breakneck pace.
For insurers looking to join established players, the ability to customise and tailor the experience for each ecosystem will be critical. Ecosystems do not want to be used as just another distribution channel. Instead, they are increasingly looking to co-create unique propositions that use insurance (alongside other products and services) to deepen customer affinity. This will result in greater demand for customisation and co-creation of insurance products and experiences.
The implications of this on the technology and operating model architecture will be profound. Across the insurance sector, ecosystems have typically been designed with a focus on efficiency and stability on large enterprise platforms instead of flexibility and agility at scale. To meet the needs of the ecosystem economy, insurers will therefore need to augment their platforms with new, specialist capabilities. This is a resource-intensive undertaking, and many insurers spend years testing and rolling out these products in order to enter the ecosystem economy, by which time an opportunity may have passed.
By partnering with a data-driven embedded insurance specialist, insurers and business service providers alike can release new, targeted and customisable insurance products to market in half the time. A dedicated insurtech platform like Kanopi is a plug-and-go option that acts as a conduit, allowing insurers and other ecosystem players to co-create value by offering smart insurance as an intrinsic part of the customer journey – without the hassle.
Overall, the ecosystem economy is set to have a formidable impact on insurance, with sector-level impacts on distribution, customer ownership and product innovation.
For insurers willing to make the bold steps into this new world, the rewards from new markets and profit pools will be unparalleled. But in the process, insurers will need to prepare themselves to be similarly transformed, in terms of value chain participation, technology, operating model and culture. Partnerships with ecosystem providers and specialist enablers that can accelerate this internal transformation will therefore be critical.
Kanopi is one of the top 50 companies globally, championing embedded insurance and helping insurers every day. We do this by enabling them to overcome the hurdles of legacy infrastructure, integrate with multiple third-party platforms and build seamless user journeys for customers.
Building a strong digital strategy is the first step to success in a highly competitive insurance landscape. Get insights straight from industry experts and leading insurers in Kanopi’s on-demand virtual roundtable: Innovating for resilience