The Digital Insurance Agenda 2018 Conference indicates, that the comfort-zone of a slowly developing insurtech ecosystem with nice-to-have-partnerships, transformation theory and soft adaption of existing business models, technology and -culture is coming to an end. The dynamics of market change gain traction and the industry seems to move towards a stage of rapid change in the coming years. 

State of the Ecosystem: Cooperation as the new Normal?

According to Accenture, it is the insurance industry that will ultimately see the greatest benefit – and the highest levels of disruption – from this global innovation trend (Study: The Rise of Insurtech). But the basic notion of “disruption” seems to change for startups as well as for incumbents: More and more players seem to focus in the new opportunities through collaboration, participation and integration, rather than on the threats of being wiped out the traditional market position.

On a cultural level, conversations and controversies at DIA between startups, investors and incumbents have reached a new working mode. As Roger Peverelli, Co-Founder of DIA, observes: “Three years ago, the incumbent - insurtech relationship was a cultural clash on almost any level. Today, the understanding of different cultures, needs, strengths and weaknesses is much more common sense. Insurtechs are now creating benefits across the whole value chain.”  

Tom van den Brulle, Global Head of Innovation of Munich RE and Head of the Insurtech Hub in Munich, sees the industry at a starting position to develop real business value out of the new digital network opportunities: “The industry really made it to the next level in terms of knowledge and methodology in data management, innovation or agile working processes. But today, theory did not lead to a broader practical outcome yet.”

Still, most insurtech pitches at DIA focused to non-life insurance, a trend that is also seen in current investment deals of incumbents. But the step towards life insurance may be closer than today’s situation indicates. Many traditional providers have hesitated to invest in substantial digital customer engagement and customer experience. Startups that are truly competent in improving customer journeys or reinventing new opportunities, could deliver significant transformation benefits as partners.

Since DIA 2017, many new business models entered niches in an insurance market under siege. German incumbents, for example, started more than 200 insurtech partnerships in 2017 / 18 (according to PWC Kooperationsradar), still mostly at an experimental level. But the scope of many insurtech investors seems to change. Roger Peverelli: “The first wave of investments in insurtechs were standalone investments, with limited involvement from the business. Today most incumbents are embracing the added value of insurtechs, which reflects in more seamless cooperation and gaining real traction.” 

For Joseph Engelhart, Chief Investment Officer at Allianz X, the digital Investment unit of Allianz, connectivity is an accelerator for growth: „For us, the scalability of insurtech business models is crucial – and connectivity and networking capabilities via API and a cooperative approach enforce rapid growth.” According to Joseph Engelhart, N 26 is a striking example for a pioneer, entering a market with a basic service and opening up a portfolio of opportunities for customers, via partner offers.

Spiros Margaris, fintech venture capitalist and wefox Group advisor, sees the digital transformation of the industry reaching a new momentum: „In the last years the insurtech-market has been in a stage of orientation and evolution, but within the next three to five years it will reach a tipping point: Investment and market maturity will create a climate of exponential growth and some insurtechs, platforms and incumbents will set the new standards.”

InsurTech is not the industry’s “silver bullet”, as many observers pointed out – the real challenge for insurers is to change everyday business towards a data-driven culture of innovation – and reach the next level of collaboration and interconnection. Robin Kiera, a global thought leader in insurtech and digital transformation, comments: “Insurers must be able to think as disruptors themselves, to reshape their business model and survive in a data-driven and interconnected economy.”

Ecosystem Insurance: Breaking the Boundaries of Traditional Models

Insurers have learned their initial lessons in collaboration, but the ultimate change of the industry’s ecosystem may be far more fundamental. Simply participating in third-party hubs or investing in a few startups will not be enough. Roger Peverelli sees a systemic change of paradigms: “Connectivity and collaboration will be questions of life and death for tomorrows insurance companies. The new paradigm is ecosystems and added value, rather than size and ownership.”

Developing interconnectivity touchpoints for partners raises a multiple challenge for ecosystem players, especially traditional insurers:

Florian Graillot, founding partner of astorya.vc, Europe’s leading early stage insurtech VC fund, points towards a collaborative and integrated future for insurance services and companies: “The insurance model of the future is interconnected on many levels: to insurtechs with additional service or special expertise like AI, to partners in other industries and definitely to other data driven markets with consumer touchpoints.”

For Florian Graillot, silo-thinking and static business as usual is no longer a habit, but a risk for insurers: “Too many incumbents still try to build tech solutions on their own and too many still have only a local insurtech focus. We try to identify best in class insurtech solutions across Europe to make sure we spot the best tech/product/solution wherever it is.”

An evolved ecosystem would open up access to an arsenal of highly personalized new services, skills, knowledge, and valuable service add-ons through partnerships. The company’s innovation engine would not have to be started for single opportunities.  Customers would will enjoy an end-to-end experience for a wide range of products and services through a single access gateway. Ecosystems will include diverse participants that provide digitally accessed, multi-industry solutions.

Ecosystem-Building: Connectivity as Core Competence

An ecosystem is a vivid community with a shared notion and model of profit through collaboration, beyond differing individual interests. Building such an ecosystem or participating crates a resource of people, knowledge, skills technologies and services. But it requires to get out of the long shadow of legacy system silos and walled gardens of company culture towards collaboration on a personal, organizational and cultural level.

The key to receive the benefits of ecosystems is to move away from ruling legacy operating systems and processes. This goes far beyond a digital app or new mobile design. It is the reworking of back-office processes to optimize it for digital delivery.

As Oliver Lauer, Chief Platform Innovation Officer at AXA, puts it: “From their mindset, insurers are clearly ready for the ecosystem economy. They’ve understood. They still need the technical skills, resources, management capabilities for thinking in tech and platforms and they need to get rid of a lot of legacy”.

To connect with startups or partners from other markets, “social skills” on an organizational, technical and cultural level might become a key resource to run effective ecosystem strategies.

Cooperation is not a new phenomenon for many traditional insurers. Teaming up with service providers is common standard in many segments, car insurance for example. But the transformational shift towards a real ecosystem happens not on the level of single operational partnerships, but as an integral part of corporate strategy.

Even the insurance-insurtech-ecosystem as a whole will reach a new stadium of interconnectivity with neighboring markets in the coming years. Spiros Margaris expects a further integration with fintech: “Insurance will be a vital part of the larger ‘supermarket of fintech’, where customers will be able to collect and combine a highly personalized package of products and services on demand.”

According to PwC (Fintech-Kooperationsradar), the fintech ecosystem in many European Markets is already “too connected to fail” – cooperations have become a vital part of the financial value chain. The insurance industry will take a similar development. Given the relatively slow pace of ecosystem evolvement so far, first movers in insurance will be able to outmatch the trend followers.