Successfully shaping insurance ecosystems

Written by Julian Kawohl I Jens Lange I Markus Rosenbaum I Heike Nguyen

October 21, 2020

When talking about successful ecosystem players, the first thing that comes to mind is American or Asian tech companies such as Amazon, Google, Alibaba, or Tencent. There are also various activities in the insurance industry that deal with ecosystems. First and foremost, the Chinese player Ping An should be mentioned, from whom even the traditional companies in the insurance industry can learn a lot. In this article, we would like to show why, in our view, all insurers must develop an ecosystem strategy for themselves to have a right to play for their customers in the future.  

Ecosystems are changing the market insurances are operating in

According to experts, ecosystems will account for a turnover of 60 trillion US dollars or around 30 percent of the worldwide turnover of all industries by 2025 (McKinsey &Company, 2018). This estimate is in line with the results of our discussions with practitioners from a wide range of industries. But it is not only the sheer size of market changes that makes ecosystems so powerful. They will also change the fundamental laws of business in two ways in particular: I) Traditional industry boundaries are falling away since ecosystem cooperation and digitalization make it possible for practically every company to address every industry, and II) the separation of B2C and B2B is increasingly dissolving as a result of an increasingly transparent value chain and increased connectedness of the private and business worlds. B2C and B2B become B2H (Business to Human) and via ecosystems E2H (Ecosystem-to-Human). But what are the consequences of this new paradigm for the insurance industry?

Compared to new players like Ping An, insurers have a lot of catching up to do in terms of ecosystem services

First of all, it should be noted that the ecosystem development of recent years has created a significant need for action for the insurance sector. Dissolving industry boundaries and the dissolution of the B2B/B2C separation enable partially decentralized protection against risks in newly emerging ecosystems. If insurers do not consistently occupy the relevant positions in ecosystems, other players will take over this role. It can certainly be stated that ecosystem issues are a topic on the agenda of insurance managers. Comparing budgets and strategic impact, our observations show that companies in the software, automotive or entertainment sector, for example, are much further along in their efforts to design ecosystem offerings and bring them to market as an overall concept of “mobility”. 

However, the most significant ecosystem player among insurers worldwide can serve as a blueprint: The Chinese Ping An Group. Founded in 1988 with a focus on financial services, the Chinese giant has grown into a major internet company with diverse business areas. Today, the company is relevant in almost all areas of everyday life. 

In the following, we would like to explain what makes Ping An’s ecosystem approach unique and which success factors can be derived from this example. But first, it is important to understand the general ecosystem approach for insurers.

What does ecosystem positioning mean for insurers?

In the future, an organization’s positioning in several Life Areas and Roles will be the norm for most companies due to the Ecosystem-to-Human paradigm described above.

Insurers need to better understand the needs of their customers. Thus, they need to create intelligent ecosystem offerings. Besides, they must be perceived as preferred partners in relevant ecosystems to complement them with their offerings. In other words, insurers need to become “ecosystem-capable”.

Ecosystems are complex and capital investment need to be directed to the most promising initiatives. Hence, the most important success factor is to follow a structured ecosystem strategy. 

First, to get an overview, insurers need to review the current offering portfolio. Therefore, they must consider the Life Areas (describe the ten essential areas of a person’s everyday life) and Roles (depend on contact with the final customer) in which they are particularly exposed using the Ecosystem Strategy Map.

The figure below shows an example of the positioning of a traditional insurer.

Second, a target ecosystem positioning in selected areas must be defined, taking into account the competitive situation as well as market trends. 

Our exemplary insurance company conducts a thorough analysis of the ecosystem environment. Let’s say, they conclude that there is untapped potential in the Life Area Living in the Smart Home segment being positioned as a Realizer. 

Third, insurers need to analyze their competitive advantages and learn how it can work with partners.

Based on the target positioning as a Realizer in the Life Area Living, the goal is to work out how new offers for final customers can be made together with partners while leveraging the insurer’s assets and capabilities. This should especially take into account the company’s “unfair advantage” and strengths. Core offerings that are developed this way can later be expanded successively to other areas of the ecosystem with more partners. 

European and US insurers don’t have a clear ecosystem strategy yet

Looking at examples from the European and US insurance market, a large number of isolated ecosystem activities can be identified. However, in most cases, these activities do not indicate an underlying ecosystem strategy or a structured approach.

ERGO is a positive example in the German market of successful positioning in the mobility ecosystem. Together with Volvo Car Germany, needs-oriented offerings such as international travel, baggage, or third-party driver insurance services are offered on-demand via app under the title “Volvo Car Protection”. ERGO has succeeded in gaining a foothold in this relevant ecosystem by cooperating with a successful player in the automobile market. However, looking at the whole German insurance sector ecosystem activities is still in its infancy. 

In the US, insurance-relevant ecosystems of completely different dimensions can be found. Pharmaceutical firm CVS and insurer Aetna jointly serve the entire ecosystem of health. This means an insured person is treated in their hospitals and receive the necessary drugs from the group’s pharmacy network. Despite its impressive size and a market capitalization of almost 170 billion US dollars, this example of ecosystem positioning is based on traditional patterns along the healthcare value chain. In contrast, the Chinese insurer Ping An has completely rethought the ecosystem approach as an insurer. 

Ping An extends business model with partnerships to numerous Life Areas

Ping An has evolved from a “classic” insurer to a real ecosystem player. In addition to the fact that the entire spectrum of the actual core insurance business has been able to be handled completely digitally and via an app for years now, the company and its partners have focused their business on numerous other Life Areas, offering holistic solutions for everyday life from a single source. 

The figure below shows selected examples of the current Ping An ecosystem portfolio.

The range of offerings in the Life Areas are particularly comprehensive: Mobility (including substantial offerings for everything to do with cars), Health (including platforms in the healthcare sector), Living (including Smart City and Smart Government services), Education (online tutorials) and Work (including cloud and blockchain services for financial companies). 

The results are impressive. The medical platform Ping An Good Doctor currently has more than 300 million users. Ping An Good Doctor was one of the best-valued Chinese unicorns and, following its IPO, currently has a market value of over 15 billion US dollars. As a result of this strategy, the entire Ping An Group has become the largest insurance company in the world with a turnover of 140 billion US dollars.

Transferability of the ecosystem principles also to the corporate business

The lessons learned from the Ping An example and the success strategies previously derived apply not only to B2C business activities but can also be transferred to B2B business activities. Essential for a successful ecosystem positioning in the corporate customer business is an understanding of the challenges of business customers. Through the Internet of Things and the associated data transparency, the value chain to the final customer is becoming shorter and more direct. This applies to the B2B customers of insurers as well as to the insurers themselves. As a consequence, established insurers must increasingly design their offerings in such a way that they are based on a “customer of the customer” logic (see our Ecosystem-to-Human paradigm above). This means it is necessary to structure the portfolio in such a way that it enables business customers to be optimally positioned for their customers. This insight is not new. However, ecosystem collaborations allow for the development of completely new and innovative offerings (such as business and transformation consulting, simulation and benchmarking of industry trends and forecasts to joint operator models, etc.).  

Insurers need to reinvent themselves to make the ecosystem game successful

Nevertheless, successful ecosystem positioning will only work if insurers think much more outside the box and expand their offerings in a structured way with partners. For many traditional players, this requires an enormous change in mindset, culture, and strategy. From our point of view, there is no alternative if insurers want to continue to play a (central) role in people’s lives or for companies in the next 10 years. 

Lastly, a comprehensive strategic understanding of ecosystem positioning is increasingly becoming a categorical imperative for insurers that want to exploit growth potential in the next wave of digital transformation. The approach shown in the example of Ping An can serve as a blueprint for this. 

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Note: This article was originally published in Zeitschrift des Versicherungswesen (Magazine of insurers). A similar analysis for the banking sector was written by Prof. Kawohl, where the Russian SBERBANK was outlined as an example of a successful ecosystem strategy in the banking sector (read the article here (DE)).

Picture from Adrianna Calvo by Pexels


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