5th November 2021

At their best, ecosystems create something of an air of magic. Think back to the first time we discovered a phone could be synced to our laptop or our calendar could populate travel and restaurant reservations from our emails without us having to so much as think about it. Even the most privacy-conscious find it difficult to resist the effortless ease offered.

For providers who succeed in getting consumers hooked, ecosystems create value that works both ways. According to research from McKinsey Digital, as of last year, six of the world's top seven companies by market capitalisation were ecosystem companies. Topped by Apple, the technology giants have undoubtedly led the way when it comes to building ecosystems that work for consumers and retailers alike.

Little wonder then that this space is increasingly attracting attention across a wide range of sectors, with the latest ecosystems cutting across traditional sector boundaries to offer a seamless customer experience. According to McKinsey, 70% of customers value ecosystems because they simplify the purchase journey.

Ikea is a case in point. Earlier this year, it took a 49% share in Ikano Bank as it seeks to expand its in-store and online banking services. Clearly, this is more than dabbling in the arena of ecosystems. And with good reason. Juniper Research estimates that the market for embedded finance - or Banking as a Service (BaaS) - is projected to be worth $138 billion in five years' time; which should provide the justification needed to invest in building ecosystems.

Similarly, in the insurance sector, CDL's investment in building an insurtech ecosystem delivering end-to-end insurance experiences, driven by data insights, product personalisation and deep consumer engagement is designed with one goal in mind: powering growth for its partners.

Breaking the traditional model where consumers typically hold three to six insurance policies, each with a different provider, and treat insurance as a grudge purchase remains the elusive goal for most insurance retailers.

Yet as the first proactive insurance models launch to market, their success in driving uptake and creating a new model of engagement with consumers is beginning to attract attention. (See this British Gas success story as one early illustration.)

McKinsey points the way to features that tend to be predictors of success in this space. Real commitment, deep strategic thinking and vision are essential starting points for effective ecosystems. It points out that the number of companies attempting ecosystems and those who have succeeded in translating their efforts into significant financial gains are two very different things: fewer than 10% of companies establishing ecosystems are able to increase turnover by more than 5%.

There are a few reasons for this. Firstly, volume helps. Businesses with a significant customer base to tap into are more likely to be able to derive value from their efforts.

Secondly, data and digitisation are key. These are generally pre-requisite when it comes to designing elegant, time-saving propositions that delight consumers and offer real benefit in terms of cost savings or convenience gains.

And thirdly, investing in building true partnerships is vital. Choosing the right partners is one aspect of this, as is having a truly shared vision for the consumer experience being created. Carefully identifying customer pain points ensures a strategic approach to adding real value, while paying attention to the quality of the delivery is equally essential.

Trends such as the rise of open banking and APIs mean it's easier than ever before to plug in partners, and decisions need to be made about when to refer the consumer to a third party and when retaining control is intrinsic to the customer experience.

Amazon is a great example of this - in some cases simply providing a marketplace, and in others, taking full control of supply, creating a world-leading logistics operation to enable Amazon Prime and even faster services.

This is where ecosystems go way beyond traditional ideas around ‘cross-selling', instead building a lasting relationship with consumers that they will not readily give up.

And this is where the thinking of insurance providers needs to be. Moving beyond ancillaries and add-ons to looking at the whole consumer experience - starting with customer journeys that harness data to identify what a consumer needs (picking up devices from WiFi network for example or using image recognition to retrieve data on items being insured) then creating in-app experiences that offer easy, personalised and often refreshingly disruptive propositions.

Achieving this relies on harnessing proactive triggers and adopting a fresh approach to risk and reward: intelligent use of data holds the key to establishing a new relationship with consumers - and to effectively adding value and/or saving them money.

Adjusting cover to offer savings mid-term is one way to do this - for example recognising when mileage is lower than predicted or adjusting the premium to reflect the true valuation of a vehicle as it depreciates over time.

On the other side of the equation, not every provider needs to build their own ecosystem. As in the banking sector where embedded finance and BaaS is growing rapidly, insurance retailers are uncovering new opportunities by partnering with new brands to deliver value in new spaces.

And with a well-established community of high volume partners and a market-leading insurtech ecosystem founded on an unrivalled data and analytics platform, CDL offers transformational opportunities to players in this space.

To find out more about how we could help you delight your customers, while deriving greater value back, contact us today.