Insurance and Technology: The Disruptive Force of Insurance Ecosystems

By Jonathan KoopmansJean-Christophe Gard, and Michaël Niddam

New insurance-industry ecosystems, driven by the advance of digital technologies, could disrupt the industry and put unprepared insurers at risk, according to a new report by The Boston Consulting Group and Morgan Stanley Research.

The report, Insurance and Technology: The Emerging Role of Ecosystems in Insurance, defines the new ecosystems as digitally enabled networks of companies, individual contributors, institutions, and consumers that interact in new relationships to create combined services and mutual value.

Noninsurance companies in the ecosystems—including Web businesses, car manufacturers, and utilities—could threaten incumbents across the industry’s entire value chain, the report says. The new entrants will profit from stronger client relationships, deeper customer insights, and better control of risk objects.

Insurers that fail to adapt to the new entrants and shifting environment are in peril of being marginalized as mere providers of capital for shrinking risk pools, according to the report.

Several catalysts will contribute to the growth of insurance ecosystems, according to the report. Among them are the rapid adoption of digital technologies and connectivity—such as the Internet of Things and wearables—and rising consumer expectations for tailored and sophisticated products. As a result, insurers will need to cooperate with noninsurance businesses to develop and deliver relevant new offerings.

The study identifies three distinct categories of insurance ecosystems that will likely be pivotal to the future of insurance, many of them driven by new players:

  • Segment of one” distribution, delivering personalized offers that are based on deep customer insight; these ecosystems will often be driven by retailers or start-ups

  • “One-stop shop” ecosystems, orchestrating a broad array of services that fulfill an integrated set of customer needs—such as “everything I need to lead a healthy life”

  • Connected-object ecosystems, offering real-time monitoring of key risk objects, such as cars or homes; these models have the potential to significantly reduce insurers’ risk exposure

Device connectivity is growing exponentially and will play a particularly strong role in the new ecosystems, the report says. In 2020, for example, 80 to 100 percent of shipped cars will have embedded connectivity. Yet for connected cars—and many other emerging ecosystem products—insurers will be competing to collaborate with only a limited number of relevant global partners. Therefore, to forge partnerships, insurers must invest in developing technological capabilities and demonstrate their capabilities.

While the report portrays a bearish future for incumbents that fail to react, it sees opportunities for proactive insurers: “those that specialize, reengineer business processes and technology, and partner intelligently.”

The report builds on a study released last year by BCG and Morgan Stanley, Evolution and Revolution: How Insurers Stay Relevant in a Digital Future, which was based on interviews with more than 50 senior executives of insurers and technology providers and a proprietary survey of insurance consumers in 12 countries. That study found that the insurance industry has been slow to respond to the growing threat from technology and was falling short of consumers’ high expectations. It concluded that a step change in customer engagement was needed.