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Digital insurance [ecosystem] paradigm

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Rudolf Schmid

on 21 October 2016

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Transcript of Digital insurance [ecosystem] paradigm

Possible pathways for the digital strategy of traditional insurers
The digital insurance [ecosystem] paradigm
Advanced analyzer
Uses Big Data and advanced analytics to add value in underwriting, marketing, claims triaging and elsewhere in the business
Organizational structure and culture promote innovation and creative thinking
Builds analytics into processes to enhance decision making
Doing business with the customer in an contextual manner for customer empowerment
Convenient and easy to understand processes (e.g. purchase, claims handling)
A buying journey that augments a single customer experience across online, mobile and social channels (i.e. the community)
A responsive design in terms of simplicity, control and even education and funability
New players often strictly apply an all-embracing approach for customer-centricity
In the next two years, insurance organizations plan to forge closer collaboration with partners. That means delivering a great digital experience happens only in the context of a company's ecosystem of partners all of which need to share data and services in context of
increase in customers’ use of digital for after-purchase inquiries and servicing,
shorter product development,
more auto-underwriting and auto-adjudication
Traditional insurer forge closer collaboration with partners in context of digital ecosystems
Effective operator

Maximizes opportunities for straight-through, once-and-done processing, but in ways that enhance the customer experience
Works to simplify processes, using digital technology to automate where appropriate
Reduces the operating expense base across all back-office activities
Digital distributor

Promotes omnichannel distribution directly or through a digitally enabled agent
Integrates online and mobile channels seamlessly with contact centers and agents
Minimizes risk of churn by customers looking for digital solution
Customer-centric insurer

Redesigns critical customer episodes to deliver best-in-class digital experience
Obtains deep understanding of customers’ needs and preferences, as well as moments of truth
Designs products from customers’ perspective
Realizes better economics from improved customer retention and advocacy
The [Digital] Customer
Redesign for the online world get rid of complexity and into transparency
Digital ecosystems in insurance
"Segment of one" distribution
Delivering personalized offers that are based on deep customer insight; these ecosystems will often be driven by retailers (e.g. Alibaba) or start-ups (e.g. Bought-by-Many)
"One-stop shop" ecosystems
Orchestrating a broad array of services that fulfill an integrated set of customer needs—such as “everything I need to lead a healthy life” (e.g. Discovery's Vitality program)
Connected-object ecosystems
Offering real-time monitoring of key risk objects, such as cars or homes; these models have the potential to significantly reduce insurers’ risk exposure
Source: GLOBAL DIGITAL INSURANCE BENCHMARKING REPORT 2015, Pathways to success in a digital world, Bain & Company
Share of digital active customers
Redesign for the online world get rid of complexity and into transparency
Example #1
Swiss Re's digital platform for selling and servicing life and health products online
are able to purchase, amend and terminate insurance policies and report claims
online
benefit from
fully automated
primary insurance processes
are able to report claims online which are then processed
instantly
receive excellent information at
every stage
thanks to e-mail communication
are able to review all information in their
digital dossier
can easily request premiums for the insurance products they are interested in; they get a single offer that represents
optimum value
for money
are able to choose from
multiple
insurance policies, if necessary
receive a
digital policy document
after the policy is concluded; the premium is collected through direct debit
Illustrative
Example #2
Tabaos' Business Model
Insurers will probably not manage to build dominant IoT ecosystems!?
Defining business ecosystems
Ecosystems are dynamic and co-evolving communities of diverse actors
Ecosystems typically bring together multiple players of different types and sizes in order to create, scale, and serve markets in ways that are beyond the capacity of any single organization—or even any traditional industry. Their diversity—and their collective ability to learn, adapt, and, crucially, innovate together—are key determinants of their longer-term success.
... who create and capture new value
Enabled by greatly enhanced connectivity across specialized capabilities and resources, ecosystems develop new, co-created solutions that address fundamental human needs and desires and growing societal challenges. While forging superior ways to create new value, ecosystems also increase the importance of discovering new business models to capture that value in a world of commoditization and “de-monetization.”
... through both collaboration and competition
Competition, while still essential, is certainly not the sole driver of sustained success. Participants are additionally incentivized by shared interests, goals, and values, as well as by the growing need to collaborate in order to meet increasing customer demands, to invest in the long-term health of their shared ecosystem, from which all can derive mutual benefit..
Asymmetric Business Models
The weapon of software-driven companies like Apple, Google
An asymmetric business model [ABM] is a business model that crosses industries, by forcing profits to migrate from one market to another.
Transfer value across industries
Apple / Google built ecosystems, not just platforms
Source: Business ecosystems come of age, Deloitte, 2015
Based on economics of complements
Cause disappearance of industry boundaries
Source: Insurance and Technology - Insight: The emerging role of ecosystems in insurance, Morgan Stanley and BCG, 2015
Source: VisionMobile, 2014
Paradigm of competition between industries
Google is asymmetrically disrupting industry after industry
How will disaggregating forces across the value chain transform the insurance industry?
A number of emerging forces will lead to pressure on the insurance industry across the value chain
As a result, the insurance value chain will be increasingly disaggregated in the future, changing the nature of the insurance business
How will disaggregation across the value chain change the insurance landscape in the future?
How will an ever more connected world impact the value delivered by insurance providers?
Connected devices and platforms emerging across cars, homes and lifestyles present an opportunity to improve and expand the telematics insurance models
Proliferation of connected insurance models will create channels for P&C and health insurers to better understand and engage more closely with their customers
How will increasing levels of connectivity impact the value delivered by insurance providers?
Scenario 1: Personalization of insurance policies
Scenario 2: Active management of the insured’s risks
Scenario 3: Broker of personal data
Apple's business ecosystems
The emergence of ecosystems could threaten insurers all along the value chain – Morgan Stanley / BCG (2015) see a risk that other industries profit from a deeper client relationship and better control of the risk object, whilst insurers are marginalized as mere providers of capital to shrinking risk pools.
Emerging ecosystems threaten traditional insurers along each point of the value chain
Potential value shift
Pipes
Pipes have been around us for as long as we’ve had industry. They’ve been the dominant model of business. Firms create stuff, push them out and sell them to customers. Value is produced upstream and consumed downstream. There is a linear flow, much like water flowing through a pipe. We see pipes everywhere. Every consumer good that we use essentially comes to us via a pipe. All of manufacturing runs on a pipe model. Television and Radio are pipes spewing out content at us. Our education system is a pipe where teachers push out their ‘knowledge’ to children. Prior to the internet, much of the services industry ran on the pipe model as well.
Platforms
Had the internet not come up, we would never have seen the emergence of platform business models. Unlike pipes, platforms do not just create and push stuff out. They allow users to create and consume value. At the technology layer, external developers can extend platform functionality using APIs. At the business layer, users (producers) can create value on the platform for other users (consumers) to consume. This is a massive shift from any form of business we have ever known in our industrial hangover. In contrast to pipes, a platform requires us to build with both producers and consumers in mind. Building YouTube, Dribbble or AirBnB requires us to build tools for producers (e.g. video hosting on YouTube) as well as for consumers (e.g. video viewing, voting etc.).
Insurance Disaggregation
Connected Insurance
Streamlined Infrastructure
Emerging platforms and decentralized technologies provide new ways to aggregate and analyze information, improving connectivity and reducing the marginal costs of accessing information and participating in financial activities
Automation of High-Value Activities
Many emerging innovations leverage advanced algorithms and computing power to automate activities that were once highly manual, allowing them to offer cheaper, faster, and more scalable alternative products and services
Reduced Intermediation
Emerging innovations are streamlining or eliminating traditional institutions’ role as intermediaries, and offering lower prices and / or higher returns to customers
The Strategic Role of Data
Emerging innovations allow financial institutions to access new data sets, such as social data, that enable new ways of understanding customers and markets
Customer Empowerment
Emerging innovations give customers access to previously restricted assets and services, more visibility into products, and control over choices, as well as the tools to become “prosumers”
Niche, Specialized Products
New entrants with deep specializations are creating highly targeted products and services, increasing competition in these areas and creating pressure for the traditional end-to-end financial services model to unbundle
Emerging Payment Rails
Cashless World
Emerging Payment Rails
Smarter, Faster Machines
Process Externalization
Empowered Investors
Crowdfunding
Alternative Lending
Shifting Customer Preferences
Clusters of innovation exerting pressure on traditional business models in financial services
Source: The Future of Financial Services - How disruptive innovations are reshaping the way financial services are structured, provisioned and consumed; WEF, 2015
Key Propositions
Innovation in financial services is
deliberate and predictable
; incumbent players are most likely to be attacked where the
greatest sources of customer friction
meet the
largest profit pools

Innovations are having the
greatest impact
where they employ
business models
that are
platform based
,
data intensive
, and
capital light

The most
imminent
effects of disruption will be felt in the
banking sector
; however, the
greatest
impact of disruption is likely to be felt in the
insurance sector

Incumbent institutions will employ
parallel strategies
; aggressively
competing with new entrants
while also leveraging legacy assets to provide those same new entrants with
infrastructure and access to services

Collaboration
between regulators, incumbents and new entrants will be required to understand how new innovations alter the
risk profile of the industry
– positively and negatively

Disruption will not be a one-time event, rather a
continuous pressure to innovate
that will shape customer behaviours, business models, and the
long-term structure of the financial services industry
Challenges
New financial products and services are creating significant regulatory uncertainty and fueling perceptions of regulatory arbitrage


Decentralized systems, such as the blockchain protocol, threaten to disintermediate almost every process in financial services


Outdated identity management protocols create risks and inefficiencies for both service providers and consumers
Apple's business ecosystems
Apple & Google emerged out of ashes of dead platforms
The mechanics of asymmetric business models
What do Apple, Google, Amazon, Tencent and Line have in common? If we break down their business models, we see that they all have the same, surprisingly simple, yet powerful mechanics:

[1] Find markets that are complementary to your core products.
[2] Boost demand in those markets by making products radically cheaper or more accessible for customers.
[3] Create an unfair advantage by bundling your core products with this new demand.
Asymmetric business models can create powerful competitors out of nowhere, disrupt giant companies at the top of their game, uproot previously successful business models and upturn entire industries.
Google, for example, uses them to disrupt industry after industry: from mobile (Android), to television (Google TV and Chromecast), enterprise software (Google Apps), personal computers (Chromebook), travel (Google Flights), energy (Nest) and transportation (Android Auto and self-driving cars).
Apple’s Portfolio of Businesses on the PMS Map
Source: INSEAD Blue Ocean Strategy Institute 2012
E-Mobility Ecosystem
Source: Advanced Mobility, IBM
Reinsurance business models for the future
Some of these models build on existing strengths, be this advanced analytics, access to key customer data or exceptional reach, scale and capital efficiency. But even if companies have these capabilities, they will need to broaden their business horizons as they strive to keep pace with changing customer demands and take advantage of new and untapped opportunities.
Source: Reinsurance 2020: Taking control of your destiny, PwC, 2013
"Segment of one" distribution platform [generic target picture] example
Open health care ecosystem
Certain fundamental roles will be needed to shape and scale a broad, open, consumer-driven health care ecosystem. It is important to understand how they differ from those in today’s marketplace and from each other. Each role, while interdependent, operates with a distinctly different economic model, skill set, and basis of competition.
Mobility business ecosystem
Individuals currently buy insurance products on product platforms (public health insurance marketplaces and insurance companies’ sales offices), but consumers and providers will have demand for, and possibly create new exchanges for, other types of
medical and well-being products.
Vitality #1
Vitality #2
Block chain: making a hash of it
Healthcare use case #1
Blockchain Technology Provides Tamper-Proof Data Management for Medical Records Company

By using Factom’s immutable ledger to verify and time-stamp medical records and claims for HealthNautica’s clients, including hospitals and physicians, both parties hope to achieve efficiency in claims processing as well as ensure data within the medical records remains unchanged.
The State of Insurance Technology in Ten Visuals
https://medium.com/@VentureScanner/the-state-of-insurance-technology-in-ten-visuals-9d4365bfc92d#.37fhvqxi0
Full transcript