Insurance is everywhere. For one of the biggest industries in the world, it has remained a remarkably siloed sector. Individual policies are bought via aggregators and comparison sites or from insurers themselves. This perceived lack of innovation is often seen as an industry-wide reluctance to digitalization, although it’s more complex than that. Not only is the insurance industry heavily regulated, but it is also one of complex internal landscapes and networks of external moving parts. Moreover, the budgets are often tight, and the digital change that’s needed requires a core system upgrade that is deemed too expensive by all but the biggest insurers.
As we enter 2024, however, the industry is increasingly alert to the need for a new approach. Over the last few years, insurers have put significant effort into updating their offerings. They are making more products accessible online and purchasable through their own channels. Despite this, customer needs continue to outpace industry action and, as a result, a number of more agile insurtech players have entered the space, quickening the innovation further.
Fortunately, that accelerated innovation, rather than isolating incumbent insurers, has opened up avenues for collaboration and streams for new revenue. Or, at least it has for those willing to embrace the ecosystem-led approach.
An insurance ecosystem?
According to McKinsey, “an ecosystem is ‘an interconnected set of services [or products] that allows users to fulfill a variety of needs in one seamless experience.’ Ecosystems are built around consumer needs; they go beyond simple partnerships across industry boundaries to bring together digitally accessible services or products, providing consumers with an end-to-end experience.”
This is all made possible by the move to cloud data storage and wider digitalization which has opened up the market to new collaboration models.
A new era for insurers
Insurance has always been a complex, multi-stakeholder process. Now, the rise of the ecosystem brings insurers to a stark crossroads. Embrace a world of interconnected products and seamless services offered through partnerships with companies in and outside of the industry or risk obsolescence.
By proactively positioning themselves within these ecosystems, insurers can redefine their role, offering value that transcends traditional risk mitigation and becomes part of a comprehensive customer experience. This shift marks a departure from the past where insurers were the sole gatekeepers of this domain. With the dismantling of data silos and the advent of open technologies, the field has widened. This has enabled new players to craft innovative solutions.
Ecosystems, characterized by their interconnected and integrated services, provide a platform for users to access a multitude of services seamlessly.
The use cases this creates are numerous.
| Industry | Use Cases |
| Smart Home Technology | Integration of insurance for theft protection and natural disaster safeguards within smart home devices. |
| Financial Services | Travel and emergency health insurance for credit card holders; insurance linked to loyalty programs. |
| Consumer Electronics | Point of sale insurance for valuable, sensitive goods, that can cover transport, delivery, warranties and manufacturing issues. |
| Automotive | Insurance for theft, accidents, and roadside assistance within the car purchasing process. |
| Travel and Hospitality | Travel insurance included directly in booking platforms for flights, accommodations, or holidays. |
| Retail | Product insurance at checkout for high-value items like jewelry, electronics, and appliances. |
| Healthcare | Health and accident insurance within fitness memberships or wellness app subscriptions. |
| Real Estate | Home and property insurance as part of mortgage or leasing agreements. |
As ecosystems grow, insurers must seamlessly integrate their offerings. They can augment existing ecosystems or establish their own. This allows them to embed their services within other industries such as travel, housing, health, wealth protection, and B2B services.
All of these could be ecosystem areas of their own, and all require a degree of risk mitigation. In this scenario, an insurer could integrate their systems with those of a travel provider, for example, within a holiday booking experience that also includes flights, activities, car rental and accommodation – all insured within a single journey.
The raw material of ecosystem relationships is data.
The value of a connected system is in achieving a seamless customer journey, based on secure data exchange and collaboration. This needs to be reflected in the way insurers build and maintain their core systems, including:
- Event-driven architecture that can respond to state changes, allowing for real-time processing and immediate action upon various events, such as claims submissions or policy updates.
- Open platforms that can easily integrate with a range of technologies and services using standardized interfaces, for a modular approach that supports innovation and collaboration.
- Secure Application Programming Interfaces (APIs) that ensure data exchange and connectivity between internal systems and external partners, while maintaining compliance with data protection regulations.
- Scalable infrastructure that can scale up or down as demand changes, ensuring cost-effectiveness and the ability to handle peak loads without service degradation across partners.
Therefore the more streamlined and integrated an insurer’s products are, the broader the markets and opportunities they can access.
While connections between systems are nothing new, this usually meant building one-to-one APIs. In a world where scale and speed determine success, insurers need to plan with connectivity first in mind. This means investing in core systems that include the ability to integrate as standard, opening up new partnerships, markets and opportunities.
Through this strategy, insurers can transform their role in the ecosystem. They can move from traditional risk mitigation to becoming integral, value-adding components in a variety of consumer and business services.
Insurers have to act fast
Younger generations are particularly open to embedded insurance, with 84% of Gen-Z and 75% of Gen-Y saying that they would buy such a product, according to Boston Consulting Group. Without stating the obvious, these groups are only going to get older, buying more insurance as they do.
The question is, is the industry ready for that new world? Research from McKinsey in 2022 found that 81% of insurers had less than 25% of their environments on public cloud, a key requisite for implementing embedded insurance.
Insurers need the ability to add partners, tools and data sources quickly and efficiently. Legacy core systems are not built for this kind of agility. However by moving to a cloud core system, insurers can mix-and-match SaaS solutions to fit the needs of their market. This way, they can add new capabilities or launch new brands to market without the need for large-scale, expensive refactoring.
As cloud tools become the default choice for insurers, the market will be divided into companies that stay with their legacy solutions – along with the technical debt, on-premise legacy technologies and manual workarounds that these bring – and those that embrace cloud and connectivity.
To find out more, check out our latest whitepaper: Insurance, Everywhere, All at Once: Why now is the time for insurers to embrace open technology.
And don’t miss our webinar “Embedded insurance – insurance everywhere” on 25th April at 11:00am CET where Nikola Djokic, Managing Director of insurance at SAP Fioneer, interviews Yuri Poletto, Founder of the Open & Embedded Insurance Observatory, on how all parties can benefit from the new world order.