The continued shift towards digitisation will result in a paradigm shift for the insurance industry.
New technologies, greater use of data and the mobile-first lifestyles of consumers is seeing the pace of change increase exponentially.
According to a McKinsey article, Insurance beyond digital: the rise of ecosystems and platforms, “in the early years, companies that digitised were at the forefront of the industry. Today, digitisation has permeated every level of the competitive landscape.”
Insurers cannot avoid this proliferation of the digital, McKinsey states.
Rather, as traditional industry models become outdated, future insurance business models should rely more heavily on platforms and ecosystems.
The former, according to McKinsey, is a business that allows multiple partners to connect, interact and exchange value.
As an example, Amazon, Facebook and more were built on platform models.
Ecosystems, rather, is defined as an interconnected set of services that allow all parties to interact and fulfil their specific needs through a single, integrated experience.
According to McKinsey, “ecosystems will account for 30% of global revenues by 2025”.
The benefits of digital ecosystems are vast, it says. They give greater opportunity to realign global markets, for example, and act as gateways that reduce friction for customers that tend to switch between related services.
Ecosystems also allow the integration of data cross a series of services.
McKinsey states that insurers will be able to play multiple roles in a modern digital ecosystem, thus reinventing their digital strategies.
In a January 2020 article, McKinsey elaborates on this, suggesting that “ecosystems have the potential to open new revenue streams for insurers”.
For example, it explains that using the various touchpoints, data and services along the traditional insurance value chain could result in lower operational costs, increased customer retention and reductions in claims.
It has also been recognised that participants in ecosystems have the capability to scale at a faster rate than if they were operating alone.
A successful ecosystem strategy could also facilitate the expansion into adjacent or new market sectors for insurers - an opportunity that can be increased by offering complimentary services such as hybrid solutions or working with partners.
McKinsey outlines several questions any insurer should ask before considering the development of an ecosystem strategy:
Read more about Insurance ecosystems by McKinsey here.
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