1、Insurance on the platform The positive impact on costs and revenues Research Insights Stuck inside the box While some insurers are making strides in customer centricity, digitization, and innovation, the industry overall is still stuck in a traditional mode of thinking about products, processes, and

2、 systems. Escaping the barriers Participation in platform business models and their corresponding ecosystems enables insurers to engage in new cost and revenue plays, transcending their regular business operations. A culture change We recommend three approaches for insurers to improve their future r

3、eadiness: experiment with platform point solutions, switch to a platform-compatible service paradigm, and get serious about nontraditional products By Christian Bieck, Fuad Butt, and Patrick Sheridan Talking pointsReluctant adaptation The insurance industry has never been famous for rapidly embracin

4、g change. As recently as last decade, a researcher proposing simplification of U.S. insurance regulation wrote that “the insurance industry has not introduced a single entirely new property and casualty insurance product for individual customers” since 1959.1 Even today, innovation generally is view

5、ed as incremental changes to business as usual. As the chief operating officer of a Canadian insurance company recently stated, “remarkable change can occur without ever really changing the core coverage of the product.”2 Yet to the industrys credit, the narrative has been shifting. Insurers are act

6、ively discussing strategic innovation at large-scale industry events such as the Connected Insurance conferences or Insurance Innovators Summit events.3 And many insurers are increasingly committing their strategies and real-world initiatives to customer centricity, digitization, and innovation. For

7、 example, Switzerland-based Zurich Insurance Group addresses all three areas in its annual report, where it outlines a high-level strategy: focus on customers, simplify, and innovate. One of the resulting initiatives was the creation of a new unit, Zurich Customer Active Management, to provide analy

8、tics support.4 This unit uses artificial intelligence (AI) to generate insights from customer data and interactions. These insights can be used to create proposals and solutions specifically tailored to the customer, identify next best actions, and generally improve the customer relationship.5 The i

9、ndustrys recent strategic shift is an overdue reaction to the building pressures insurers face due to changes in the competitive environment (see Figure 1). On one side, customers especially the younger generations expect insurers to offer highly personalized products that complement their digitally

10、 oriented lifestyle. Many customers are renting instead of owning, and they expect protection not insurance to be part of a larger package. 1 The rise of platform business models Platforms are business models that create value by establishing the infrastructure to facilitate exchanges between two or

11、 more interdependent groups. The total market value of platform economics, i.e., the market interactions running through platform business models, is estimated to be about one-third of all global commerce, or USD 60 trillion, by 2025.9 In the insurance space, the models might be B2C platforms, produ

12、cing new products or services, or multi-tenant B2B platforms that help improve the bottom line by sharing cost. Platforms allow insurers to reach new customers with new products; the ecosystems that are formed around platforms can enable new partnerships, give rise to new ideas, and enable new ways

13、of working. On the other side, insurance incumbents face a crop of new competitors that cater to customers changing needs. Digital giants can use their vast treasure troves of data and customer access to offer personalized services. For example, China-based internet giant Tencent is selling insuranc

14、e via its chat service WeChat.6 Organizations from adjacent industries are including insurance in their packaged approaches, such as Care by Volvo, a two-year subscription service that includes use of a car, along with general maintenance, assistance, and insurance.7 And insurtechs often even push i

15、nto new insurance markets, such as Stockholm-based BIMA Mobile, which offers microinsurance via mobile phone to 31 million users in Africa, Asia, Asia Pacific, and Latin America.8 To better understand how insurers are reacting to the changing environment, the IBM Institute for Business Value intervi

16、ewed 1,000 insurance executives in 35 countries globally (see the Study approach and methodology section). We were specifically interested in how insurers view platform business models (see sidebar: The rise of platform business models) and whether they consider them a driver for change. Figure 1 In

17、surers are caught in a big squeeze Insurer Changing customer buying behaviors Access, not ownership Always connected High personalization New disruptive competition Digital giants Adjacent players Insurtech startups Tough market conditions Aging portfolio Low interest rates Slowing global economy So

18、urce: IBM Institute for Business Value analysis. 2 Many insurance customers are renting instead of owning, and they expect protection not insurance to be part of a larger package. Our survey shows that insurers have grown more aware of the disruption coming their way and they are starting to prepare

19、. More than three quarters of respondents tell us platforms are disrupting the traditional insurance value chain, and the same percentage say they have adapted their strategy in response to this disruption an increase of 23 percent from the previous years survey.10 A large majority of surveyed execu

20、tives agree that the insurance industry needs to diversify beyond traditional coverage (see Figure 2). Insurers seem to understand that next-generation consumers want to be to protected before something bad happens they want preventative coverage that helps them avoid negative incidents or condition

21、s in the first place. And when an accident does happen, these consumers expect their insurers to help as quickly and broadly as possible rather than simply pay out a claim. Figure 2 Insurers are starting to look at nontraditional revenue pools Services insurance should provide over the next 10 years

22、 Strategic myopia Executives recognition of the need for diversification and strategic innovation is encouraging. While the pace of change in insurance might still lag that of other industries, there is growing awareness that change is both possible and necessary. Yet insurers are still heavily focu

23、sing their innovation efforts on classic coverage products. Almost all respondents 96 percent say they plan to increase their investment in product innovation over the next three years, which for most insurers means tweaks to existing products. And 85 percent of insurance executives see traditional

24、products, not risk prevention or quick help, as their organizations main source of value over the next three to five years. In addition to a continued focus on traditional products, insurers still remain tied to their traditional ways of working. They view legacy IT systems as a central part of thei

25、r business model. Seventy-six percent of our survey respondents cite back-end systems as part of their organizations core competency. Additionally, 75 percent of respondents view their back-end systems as a differentiating factor. If this were true that is, if insurance systems really were a differe

26、ntiator they should generate a measurable and positive impact on business outcomes. For legacy systems to confer a competitive advantage, however, the differentiator would not be the systems themselves, but rather what the insurer could do with them: build innovative products to distinguish the orga

27、nization in old or new markets, lower time-to-market, or produce better and faster service. Achieving these results requires built-in system flexibility. So all other things being equal, we expect insurers with newer systems would actually be more successful; similarly, insurers with fewer systems a

28、nd insurers that have to spend less to maintain their systems would likely be more successful. . Risk prevention Emergency services Healthcare 19% 80% 70% 24% 6% 61% 20% 19% Disagree Neutral Agree Source: 2019 IBM Institute for Business Value Platforms Survey. 3 Insurers are still focused on traditi

29、onal products and still remain tied to their traditional ways of working. The majority of insurers in our sample have between two and eight policy administration systems, with the oldest systems between 3 and 20 years of age. Overall, survey respondents spent an average of 6.7 percent of their IT bu

30、dget annually on maintenance of current legacy systems, whether they are large insurers with more than USD 1 billion gross premium written (GPW) or smaller organizations. Translated to real currency, this means an annual average spend on legacy systems of USD 9.5 million, with those in the top decil

31、e of our sample spending USD 16 million or more. On average, respondents expect their average spending to increase by 85 percent over the next three years to USD 17.7 million. In total, the 1,000 respondents in our survey spent the staggering sum of USD 9.5 billion on their legacy systems maintenanc

32、e, an amount comparable to the annual domestic output of a small country such as Haiti.11 (See Figure 3.) None of this spend appears to correlate with performance. The average annual growth rate over the last three years for organizations in our sample is 3.3 percent, with no significant relationshi

33、p to systems spend. Similarly, growth did not change with age or number of systems. In addition to looking at growth as a success factor, we checked whether there is a parallel between time-to- market and legacy systems spend. Again, the answer is no: the average time-to-market for new products acro

34、ss all lines of business is almost 3 months (81 days), with the fastest being 2 weeks and the slowest 6 months, irrespective of spending, system age, or system count.12 Figure 3 Insurers spend almost 7 percent of their IT budget on legacy systems maintenance 10% 20% 30% 40% 50% 60% 70% 80% 90% Avera

35、ge today Average in 3 years USD million Percentile Today In 3 years 35 30 25 20 15 10 5 0 Insurer spend on legacy systems maintenance Source: 2019 IBM Institute for Business Value Platforms Survey. 4 In summary, our data does not support the notion that existing systems lead to the flexibility and d

36、ifferentiation insurers seem to think they do. The money these organizations spend keeps the systems working, but it does not appear to meaningfully impact enterprise success. So, what is the path forward? How can insurers break with traditional thinking and, instead, branch into nontraditional prod

37、ucts and thus revenues and drive broader innovation? This is where platforms come into play. Visual acuity Platform business models break with the traditional value chain approach of the past by creating ecosystems of contributors and users within the platform. This in turn allows new products, new

38、ways of working, and new innovation approaches. Business leaders in many industries are already heavily involved in business platforms. According to our recent global survey of banks and other financial services institutions, the most successful banks also have the highest percentage of revenue from

39、 platform business models.13 Insurers are also quite aware of the benefits platforms can bring them (see Figure 4) they just need to connect the dots. Rather than looking at back-end systems as a differentiator, we suggest insurance executives focus on the competitive advantages platform participati

40、on can offer. Platforms can help deliver customer value and facilitate expansion into nontraditional products that extend beyond pure coverage. A majority of insurance executives tell us platform business models can provide benefits and enable products and services that wouldnt be possible using oth

41、er approaches. . .provide intangible benefits to participating organizations that are not possible with other approaches .enable new products and services that are not possible with other approaches .enable participating organizations to focus more effectively on the core value they offer to custome

42、rs and business partners .share a purpose that transcends individual business goals 79% Platform business models. Figure 4 Insurers understand the benefits of platforms 75% 73% 72% Agree Source: 2019 IBM Institute for Business Value Platforms Survey. 5 Indeed, insurance participation in platforms is

43、 expanding. All of our survey respondents say their organization participated in at least one platform. This is more than double the participation recorded in the previous survey from 2018.14 . .merge all old business and close down systems of record .acquire and/or administer one or more new produc

44、t lines .acquire and/or administer all new business 65% 64% 53% Cost play Insurers are considering platforms to. .enter a new geography 23% Cost or revenue play Revenue play Figure 5 Platforms can help insurers with new or existing business Source: 2019 IBM Institute for Business Value Platforms Sur

45、vey. According to a majority of insurance executives surveyed, platform business models can enable products and services that wouldnt be possible using other approaches. Insurers can participate as providers, contributors, or users in revenue-producing B2C platforms or cost-saving multi-tenant B2B p

46、latforms. The majority of our respondents are looking at platforms to support old and help acquire new business (see Figure 5). 6 Case study: ERGO closed books15 All-lines insurer ERGO Group is one of the largest life insurers in Germany. Like many incumbents, ERGO was looking to save costs on its c

47、losed books business. Closed books portfolios generate no new revenue as no new policies are sold; however, they still need to be maintained due to the long-term nature of life insurance, often 40 years and more. Due to its scalable nature and transaction-based (rather than fixed-cost) structure, a

48、platform business model is uniquely suited for closed books. Under- standing the platform model benefits, ERGO elected to build a multi-tenant administration platform for closed books for its German-speaking markets. The platform includes a mobile-ready digital front end and AI-based analytics tools

49、. In addition, it is equipped with the interfaces to integrate an open third-party ecosystem of payments or blockchain partners, allowing ERGO to manage closed books from other German life insurers as well as its own. Shifting costs On the cost side, the most obvious use of platforms is to shift legacy systems cost from fixed to variable, while at the same time increasing flexibility. These are typically multi-tenant B2B platforms (see Case study: ERGO closed books). Eighty-one percent of exec