Insurers often pontificate about being "customer first." They love nothing more than to create and then count touch points and one-off innovations that show they are delivering on their customer-centric ambition.
Frankly, that's okay. Progress, while often slow and painful, is progress nonetheless. Even in moderate failures, such as adopting one-off digital experiences without fully baking them across channels, or allowing customers to make low-level, mid-term adjustments to policies, there's still critical learning.
However, insurers' efforts raise some critical questions about what customer-centricity truly means:
- What does knowing your customer, personalizing your offering, and shifting the policy paradigm look like in an era of multi-banked and multi-insured fragmentation?
- How can you maintain viability while appreciating the significant shift required in enterprise design from policy-centrism to customer-centrism?
- How do you dramatically reduce the time between gaining a customer insight and acting on it?
- How can you manage the ever-changing ecosystem to make sure you:
- Keep up with fraudsters?
- Deploy new technologies at low-risk?
- Adapt to regulatory changes increasingly requiring insurers to keep pace with customers?
- Treat them fairly and manage your own supply chains to deliver better and faster on your promises?
Those questions are best wrapped up into one fundamental question: Who has the 360 view and relationship stance to become a true ecosystem business?
The answer: those that act on customer insights fast and continuously.
After all, there aren't many examples of genuine ecosystem businesses in insurance. It's the Apples and Amazons that set the frame for competitive success and market dominance in the ecosystem paradigm, and without doubt drive the expectations of consumers.
You could argue that ecosystems have been tried in insurance, that even Amazon failed and had to close its U.K. Insurance Store. However, the Insurance Store wasn’t a failure. It was a relatively low-cost, high-learning opportunity. Amazon is still in insurance and expanding its presence rapidly.
Tesla is another good example: a business that exhibits many of the characteristics of big ecosystem drivers but has struggled to manage data from its cars into its repair networks. However, it hasn’t given up. More likely, it’s learned and will now optimize its approach.
See also: Convergence and the Insurance Ecosystem
Then there are the insurers that are making ecosystems work. Despite sensible concerns over long-term profitability, Lemonade has managed to reach one million customers in just four years. In fact, it claims to be the first option for first-time buyers and renters, and second for people under 35.
wefox is another. Since its founding in 2015, it's increased its revenue annually, achieving $800 million in 2023. It currently has nearly three million customers in its core markets of Germany, Austria, Italy, Poland, the Netherlands and Switzerland. Rapid growth, for sure.
So, what sets these ecosystem businesses apart, and what can we learn from them and apply to insurers more broadly? They aren’t “incumbent” businesses with a lot to lose and an unwavering focus on sustaining their existing business models/source of premiums.
This is important. If you can’t adapt quickly in today’s market, you risk decline, which is playing out in real time.
The average tenure of old-economy companies on the S&P 500 is plummeting, and incumbency has never seemed to be worth less. Although not as disruptive as it’s been in other sectors, this looming threat to incumbents is present in insurance, and can only grow.
But this threat is also a massive opportunity. The market forces acting on incumbent P&C insurers today have never been higher. Regulation is now starting to bite, and regulatory changes in the U.S. will follow the Consumer Duty in the U.K. These are requiring insurers to treat customers fairly, and long term they'll force insurers away from price-led and into new business models.
Equally, the road is running out for insurers, even with scale, to outpace the competition on price alone. It’s increasingly unviable even in medium-term views. Instead, understanding the value of a customer, focusing on building mind and wallet share and increasing retention is a far better strategy.
Which leads us barreling toward the framing in the title because ecosystem business models, and the enterprise design they sit within, hold many of the answers to success.
Insurers continue to be overwhelmingly built around policy-centric systems and then try to build intelligent orchestration on top so they can create effective customer relationships. This creates a legacy effect, not only in technology terms but also in how insurers operate and how people interact within the organization, as well. This is what we call the legacy trap, and it has two primary impacts on insurers.
First, change is complex and expensive. The policy-centric wiring often means that insurers don’t know if customers have one, two or 20 products with them.--not without abstracting that data, orchestrating it and acting on it. If you can’t get this basic work right, how can you expect to achieve meaningful changes in your customer relationships, mitigate risks, embed yourself in their lives and sell beyond insurance?
Second, that wiring in an ever-growing ecosystem of partners is vastly more complex beyond the application programming interface (API). Integrating with legacy systems is usually straightforward. But orchestrating two-way data exchanges and incorporating a partner's value back into operational, employee or customer experiences can be extremely complex, somewhat akin to performing heart surgery.
Technology isn't the issue. The issue is mindset and organizational design. How can you be customer-centric if your business is designed to put the policy and not the customer at the center of it? You can't.
Organizational design drives technology. Get the design correct, and you get the technology right. You need to have a clear vision of the customer and business outcomes you want to create, and a detailed plan of how it'll be achieved. The technology follows.
There’s an obvious answer to this. It’s transformation done properly. Foundations of MACH-based core technology, built around the customer, data fluid and intelligent. These are the drive-trains in the engine of an insurance business that treats data as a perishable asset, constantly mining it for insight and acting on it. This engine provides adaptability in a way that'll drive the truly differentiated and hyper-competitive insurers that'll dominate over the next 10 years.
From the customer’s perspective, there’s real value. Communication from the insurer through mobile apps, text, portals and dashboards can be used to mitigate risk, reward and influence behavior, lower maintenance and operating costs and reduce marketing noise.
See also: The Great Unbundling
Performance metrics, comparisons, rewards and other gamification techniques will create even more customer engagement.
The challenge for many insurers will be the limitations of their back-end insurance core systems. Historically, these legacy systems have been purpose-built to support the policy only, creating data and functional silos that impede innovation.
With the right customer-centric mindset, organizational design and technologies, it's possible for ambitious insurers to break free from the commoditization of insurance and offer excellent customer experiences, creating more positive, frequent and valuable customer interactions.
Faster horses are about to give way dramatically to the mechanization era and the P&C insurance ecosystem models emerging. I, for one, can't wait!
