Turning The Risk Management Ecosystem Inside-out

This piece is by Silvan Stüssi, Managing Partner and Global Head of Insurance, Synpulse, and it looks at eco-systems and how they can help insurers manage all aspects of risk.

Recent economic strains have put pressure on all industries, with insurance being no exception. Yet while inflation and economic slowdowns may bite in the short-term, challenging conditions also encourage the adoption of fresh thinking.

Insurers today have an opportunity to reassess the value they provide, and the business models they adopt to create that value. As with all businesses, insurance companies are tasked with ‘doing more with less,’ and maintaining customer retention while cutting operational fat and improving organizational agility. Moreover, with customers increasingly expecting convenience, personalized products and enriched services, efficient use of technology and data will become the focal point.

Those navigating their digital transformation journeys would be wise to explore new kinds of business models such as NEOINSURANCE®, leveraging its four core principles to switch to a new model of thinking and doing business.

The ecosystem imperative

This model focuses on flexibility, scalability, and real-time adaptability, with the ecosystem concept sitting at its heart. In an ecosystem network, insurers cooperate with strategic partners, forging new and collaborating value chain models that complement traditional value propositions.

Insurers’ customers increasingly access on-demand goods and customisable, subscription-based services – anywhere, anytime and from any kind of device. This is transforming expectations of insurance delivery, putting the onus on businesses to better connect customer needs with products through avenues like embedded insurance.

The industry is largely on board with a more collaborative approach: indeed, according to EY, more than 75% of global insurance executives view digital ecosystems and other partnerships as essential to creating competitive advantage. So how can insurers go about creating a more efficient system?

In contrast to traditional insurance, where self-contained companies perform functions from data administration to the customer interface along with core risk management, an insurance ecosystem is an interconnected group of service providers and offerings centred on a customer need.

The NEOINSURANCE® model favours flexibility and agility in both the organisational and operational dimensions. It assumes extensive use of modern data technologies to anticipate customer needs. This data must be administered, analysed, shared and used across the ecosystem, integrating the respective systems – whether that’s mobility, health, travel, or otherwise – and approaches of the component firms.

A car buyer’s ideal experience might thus be to walk into a dealership, provide a signature and drive off with a new, fully insured vehicle with regular maintenance already planned. In the new setup, some customer touchpoints will also be served by non-insurance distribution and servicing partners who own the customer interface from their traditional business models.

Insurance will increasingly be embedded in cross-industry ecosystems with non-insurance entities distributing products allowing a short, targeted sales funnel, and an easy purchase experience for the customers. The key to success is to develop a business model and capabilities to bring embedded insurance to the points where risk is created and where customers are most likely to buy.

Core belief 1: change in customer access and service expectations

The NEOINSURANCE® model itself is based on four core beliefs, with customer expectations sitting at the top. These expectations are increasingly evident: customers want a frictionless and seamless user journey with a free choice of channels, appealing usability, simple handling, easy-to-use functionalities, and immediate conclusion.

Future insurance products must be tailored to instantly fulfil customer needs for risk coverage, on-demand. Products must therefore become simpler, digitally purchasable, lifestyle-oriented and individualizable. Moreover, insurers must continue in their digital transformation journey to master the bridge between on-and off-line interaction with their customers and partners.

As the ecosystem paradigm spreads, customer touchpoints will be served by non-insurance distribution and servicing platforms who own the customer interface – think furniture stores selling household and private liability insurance. All parties along the value chain must therefore work together to deliver a consistent experience from the start of the interaction to the ultimate sale.

Core belief 2: Increasing data availability, integration and exploitation capability

Whether in product development, underwriting, policy administration, claim processing or finance, the accumulation, exchange, availability, analysis and use of customer data across the entire ecosystem will be a key driver in all segments of the value chain.

What behavioural patterns can be identified in a given customer journey? What customer preferences concerning risk, service or expanded demand does the data reveal? To answer these questions, data-driven insurers need competencies in data science and experience with the internet of things (IoT), and they need to use artificial intelligence (AI).

The amount of data stored in the cloud is growing exponentially, with Cybersecurity Ventures predicting that this figure will reach 100 zettabytes globally by 2025, or 50% of the world’s data at that time – up from approximately 25% in 2015. Data capabilities are becoming a key success factor. To thrive, insurance companies must harness this flood of data and agree with customers and ecosystem partners on access to relevant data streams with the concomitant security requirements.

A heavier reliance on data sharing means that customer consent is critical. Indeed, an ecosystem can only succeed if customers are willing to share more information and place more of their financial lives within it. They must trust the brands and have confidence that their data is being securely stored and only used in ways which they have consented to.

There is clearly significant opportunity to change; according to the 2022 Edelman Trust Barometer, only 54% of respondents trust the financial services industry, 10 percentage points lower than the average for other industries. Insurers must work hard to build this trust, as they have a much bigger role to play in society and economy than just protecting against risks.

Core belief 3: Establishment of ecosystem-crucial tech

IT architectures of the future are scalable, flexible and allow functional extension independent of the core system. As a result, core systems of the future run in the cloud, are built across lines of business, use DevOps for iterative solutions, and offer open interfaces (APIs) for ecosystem partners.

A set of hurdles remain in the journey towards efficient and reliable cloud-based architectures, with most insurers still managing their IT environment on their own servers. Meanwhile, security and data sovereignty concerns, regulatory challenges and a lack of expertise are also all contributing factors.

Yet the direction of travel is clear, and the advantages of the cloud outweigh possible risks. Cloud-based models offer prompt scalability of IT services, reduced IT administration efforts, device, time and location independent access to geographically distributed IT systems and openness to simple third-party integrations. With the acceleration of digitalisation, insurance-as-a-service can be scaled faster, putting embedded insurance within reach for more companies considering it.

As a prerequisite, insurers need to continue opening their IT and infrastructure landscape, enabling plug-and-play insurance offerings to be seamlessly embedded into the production and distribution processes of their strategic ecosystem partners to reach the final customer.

Core belied 4: Rise of ecosystems

Driven by new IT capabilities and declining transaction costs within and between companies, sharp boundaries between industry and companies are disappearing and relative economies of cooperation (or coopetition) can be created.

The resulting ecosystems are nuanced variations of the basic economies of scale, informed by modern data science, through which the value chain of a company will be transformed into a value network of partners – providing an end-to-end customer proposition along the customer journey.

Hedging against challenges

Businesses around the world are confronted with rising inflation and markets turmoil. In addition to tightening their belts, insurers will need to take steps to ensure that they are reaching the right customers at the right time to achieve maximum profitability.

Insurers can combat challenges related to changing customer expectations and needs, and even capture new opportunities, by shifting from product-centric to customer-centric mindsets. As insurers look to cut costs, they can improve conversions through cross-industry cooperation and best-in-class technology, which will help them weather the storm and emerge with a stronger and more satisfied customer base.

About alastair walker 12555 Articles
20 years experience as a journalist and magazine editor. I'm your contact for press releases, events, news and commercial opportunities at Insurance-Edge.Net

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