The Ecosystem Advantage: 5 Key Questions for P&C Insurers

Why compete with top-notch insurtechs when you can collaborate with them instead? After all, policyholder needs are evolving fast—and so are the opportunities to leverage an endless stream of new innovations by forming an insurtech ecosystem.

Think about it this way. In 2021, insurtechs in the property and casualty space attracted a record $9.4 billion in capital investment. During the first quarter of 2022, they also clocked the highest participation in early-stage capital investment ever recorded. And it’s easy to see why. Their advances in applied AI, mobility, data analytics, and other technologies are rapidly transforming the industry.

For incumbents, that can represent a threat—or a massive opportunity. According to Accenture, the revenue gap between innovation leaders and laggards in the P&C sector could top 37% by the end of next year. As much as $200 billion in revenues will be driven by new risks, products, and services between now and 2025.

As it turns out, a go-it-alone approach to grabbing the biggest piece of the action isn’t a sound strategy for either insurtechs or incumbents. Here’s why collaboration is quickly becoming the name of the game.

Ecosystems: Endless Opportunity—for All

Take an array of different innovations that dozens or more insurtechs bring to the table. Add what only insurers can offer: regulatory expertise, historical and experiential data, and the reliability and support that are foundational to the entire customer life cycle. Mix into new combinations to create whole new value propositions. Reap and repeat continuously.

That’s the idea behind an insurtech ecosystem. More than a set of alliances, and further reaching than even the most robust partnership program, ecosystems offer a powerful way for insurers to rapidly deploy amazing new insurtech capabilities without interruption. But that’s only if it’s done right. To be successful, here are five questions every insurer should ask before building an ecosystem of their own.

Okay, So What Exactly Is an Ecosystem?

An ecosystem is a defined network of pre-validated solutions from an array of world-class providers that can be rapidly utilized on their own, or in combination, to deliver differentiated offerings that provide a competitive advantage.

Maybe it’s the embedded travel insurance offered by Norwegian Cruise Line or the Apple warranty on your iPhone 14. Perhaps it’s the usage-based insurance (UBI) that rewards you for driving that snazzy new Tesla so very safely. Or it could be the smart-home sensorsthat proactively monitor for water leaks to help you avoid costly claims. Maybe it’s all of the above.

Whatever the case, the ecosystems involved in these and a growing number of other insurance offerings deliver value that far exceeds what is otherwise possible by each of the participants on their own.

Why Are Ecosystems So Important to Future Insurance Models?

Ecosystems are foundational to today’s most innovative operating models, and tomorrow’s. Usage-based, “pay as you drive” auto coverage, for instance, is predicated on ecosystems that can span telematics, mobile connectivity, automobile or smartphone manufacturers, and more, all tied into insurers’ core systems.

According to JD Power, ownership in UBI policies was adopted by 49% of consumers who were offered one in 2021. And Forrester says UBI could account for nearly 20% of all auto policies by the end of 2023.

Meanwhile, InsTech London projects that the embedded insurance market will top $722 billion by 2030—six times its size today. In fact, McKinsey estimates that up to 35% of all personal lines premiums could be generated through ecosystems during that same period. For auto, it could reach 30%—or more, if Elon Musk has his way.

Harnessing the power of an ecosystem approach requires a modern, cloud-connected insurance platform enabled by API-connected applications, embedded analytics, and workflows that leverage the full value of external and core system data. Today’s most robust platforms also offer expansive marketplaces of prebuilt, pre-vetted insurtech solutions that enable insurers to build ecosystems that fit their specific needs and launch new capabilities quickly and without interruption.

How Do You Get Started Building One?

Start by aligning your ecosystem strategy with real business challenges. What pain points need to be solved? Understanding that insurance has one of the highest ratios of cost of labor to final price, a good place to start is by identifying areas where you can release trapped value within the existing delivery chain. In our experience, that typically means a focus on claims since it typically has the highest volume of manual processes.

Yet while important, there are additional possibilities. As Bryan Falchuk, author of The Future of Insurance, recently put it, “You can’t efficiency your way to success over the long term.” While streamlining back-office processes is valuable, Falchuk says, customer-facing innovation is what sets you apart. Decide if your ecosystem strategy is to focus on optimizing internal processes, customer-centric innovation, or (ideally) both.

What’s the Best Way to Choose Partners?

Insurers need to be intentional in how they select insurtech partners for their ecosystem. This is not (just) about finding the next whiz-bang technology. It’s about sourcing the technologies that fill in critical pieces of the puzzle needed to achieve your ecosystem strategy.

According to Accenture, this includes:

    Skill: Select ecosystem partners that give you access to a wider range of capabilities like personalization or digital engagement, for example

    Scale: Bring on partners who have greater size and reach in the areas you need it, such as cybersecurity or data

    Scope: Source partners that extend your insurance offering into new areas or enable you to introduce whole new services

What Are the Secrets to Success?

An ecosystem isn’t a library of static assets. It’s a living, breathing community of collaborators that must be actively nurtured—and continuously refreshed. At Guidewire, for instance, we recently created an insurtech incubator to ensure that the value propositions enabled by the solutions within our ecosystem continue to be relevant to insurers.

What’s your go-to-market strategy? Develop a roadmap for getting there. In our experience, it’s critical to include a regular cadence of ecosystem asset drips. We even created a pitch day competition set to launch later this year to provide an opportunity for our customers and partners to learn about the insurtechs in our program, and even vote on the best value propositions (you can follow the fun here).

Coupled with the right platform, a robust ecosystem can help insurers meet ever-changing customer needs, protect and expand market share, and achieve sustainable business growth—by collaborating with insurtechs instead of competing with them.