It is clear that traditional end-to-end business models are breaking down in every industry, including insurance. In the digital era, the standards of service are continually rising, making it increasingly more difficult for any single firm to deliver the seamless experience that customers expect. As customer demands for flexibility and integrated experiences grow, more insurers are recognizing and leveraging digital ecosystems to reinvent their products and services. With benefits such as better risk management, reduced claim cost and new sources of revenue, digital ecosystems can drive greater economic value and relevance for today’s insurance companies.

Executive Summary

With benefits such as better risk management, reduced claim cost and new sources of revenue, digital ecosystems can drive greater economic value and relevance for today's insurance companies. Most insurers, however, are not yet ready and even lack the foundations to successfully execute insurance ecosystems. But that shouldn't be an impediment, according to authors Matteo Carbone and Atanu Sarkar. Here, they explain how and why insurers should have a plan for incorporating ecosystems into their business models so they can better compete.

However, most insurers are not yet ready and even lack the foundations to successfully execute insurance ecosystems. Rooted in legacy systems and siloed business structures, the majority of insurance organizations will likely struggle in transitioning from traditional insurance offerings to tailored, ecosystem-driven customer experiences. Nonetheless, insurers should have a plan for incorporating ecosystems into their business model to better compete in the growing digital landscape. It’s time for all insurers to become InsurTechs.

As opposed to the traditional business model where insurers create and distribute end-to-end products and services, an ecosystem model is characterized by unified/digital platforms that incorporate third-party products and services, as well as collaborate with segment-focused distribution partners. To deliver meaningful value, carriers must either bundle value from others with their products (e.g., providing IoT-based real-time risk mitigation services) or provide value to a bundle that someone else is creating (e.g., insuring the service performance delivered by an IoT service provider). Based on the IoT Insurance Observatory research—a think tank focused on North America and Europe with almost 60 members, including many of the largest insurance and reinsurance groups and prestigious tech players like ValueMomentum—the adoption of IoT is a business transformation that requires a robust and articulated set of capabilities as represented in the following figure.

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