As insurance purchases become less à la carte and more integrated into customer buying and experience journeys, business as usual may no longer suffice. Carriers will need to take a close look at their relationship with end customers in the context of purchasing journeys (for instance, buying a car, going on vacation, buying a home) and decide how to embed solutions and services alongside insurance coverages.
In our recent State of the P&C Industry Report, we analyzed the forces that will shape the industry in the years ahead. Among the top forces is ecosystems reshaping distribution.
A shift to solutions and services and the growth of ecosystems
The shift to ecosystem distribution will vary significantly by product, depending on three factors: the nature of the risk, customer behavior, and competitive landscape. As ecosystems connect services and break down boundaries, the definitions of when and how risks occur will change, as well as how they are managed.
In a best-case scenario, ecosystems act as a frictionless gateway to an array of services. Ecosystem orchestrators and participants, such as car-sharing service vendors, could also collect and integrate massive amounts of data from different services. Participants can use this data to become and stay relevant in the eyes of the customers, offering them an array of services and products tailored to their needs. How willing these players are to enter and compete in ecosystems, as well as their attitude toward risk management services, will significantly affect the future distribution landscape.
Compared with traditional personal insurance distribution channels such as intermediaries (independent and captive agents) and direct channels, ecosystems account for only a small fraction of the total premiums distributed. We estimate the current share—in the shape of affinity, sponsorship, partnership, or service vendors—to be 10 to 15 percent, with high variance across countries and products.
However, in the next 15 years the emergence of platforms or ecosystems in place of traditional industries will continue. Customer demand for immediacy and convenience will fuel the growth of these ecosystems, which will account for 30 percent of global business revenues by 2025.
Taking a longer view, we anticipate that by 2030, close to 25 percent of personal lines premiums could be distributed by some form of ecosystem—be it mobility, housing, healthcare, or others.
Today, auto insurance is still largely distributed through traditional channels, except in select geographies where service providers in the mobility ecosystem have a significant share. In China, for example, car dealerships account for 45 percent of distribution. While the mobility ecosystem’s share of distribution is currently estimated to be 10 to 15 percent, in the next 15 to 20 years we expect it to reach at least 30 percent. The nature of auto risk will quickly evolve given new forms of ownership (such as car sharing) and liabilities (such as software errors from autonomous vehicles). Customers will increasingly turn to ecosystem participants (including OEMs and sharing-economy platforms, such as Uber and Lyft) as a main point of interaction for service, including insurance. With access to different mobility data, it is both attractive and necessary for these service providers to play a larger role in risk management.
Personal property or homeowner’s insurance
Today, homeowner’s insurance is largely intermediated by brokers and agents, but a small fraction— estimated to be less than 10 percent—is distributed directly by emerging participants of the housing ecosystem such as banks (for instance, bancassurance in Europe and Latin America), mortgage providers, or home security and service providers.
However, the shift from traditional distribution to the ecosystem model will be slower for personal compared with auto, as the nature of personal property risks will largely remain the same. Key ecosystem participants such as banks, smart-home service providers, and sensor technology vendors will likely try to include services such as risk management as part of their future value proposition.
Accident and supplemental health (A&H)
Currently, distribution for the A&H ecosystem channel is estimated to be less than 5 percent. Penetration is greatest in developed markets where customers have high digital maturity, such as the United Kingdom. Developing countries with major ecosystem orchestrators (Alibaba’s Ant Financial and Zhong An insurance in China) have played a significant role innovating in the underserved health market.
The complex nature of A&H products means that customers will continue to need a knowledgeable intermediator such as independent or captive agents or an employer-sponsored program to help them navigate the complicated product landscape for purchase. Major supplemental health risks—including critical disease, long-term care, and short- and long-term disability—will also remain complex (if not more so) and less commoditized compared with auto and home.
Historical regulations that separate healthcare providers and insurers will likely continue and limit the health ecosystem’s direct competition in the insurance market.21 As such, the future role of ecosystems in the A&H value chain is uncertain, especially considering major market changes such as the partnership among Amazon, JPMorgan Chase, and Berkshire Hathaway. We estimate a slower shift to A&H ecosystem distribution, with an expected share of about 10 percent by 2030.
Other personal products
Ecosystems already play a prominent role in distribution for most products in personal lines, including travel, pet, and personal liability (such as umbrella and mortgage guarantee). In the United Kingdom, for example, 50 percent of travel insurance is distributed by banks as part of credit card services, and 12 percent by retailers and affinity groups such as travel agencies. Overall, we estimate today’s ecosystem distribution already accounts for 30 to 40 percent of the market.
Personal products will likely see the fastest shift to ecosystem distribution, which could handle 50 to 60 percent of premiums. Managing risks such as travel delay or personal liability will increasingly become an integral service that ecosystems such as hospitality, mobility, or finance will need to provide for their customers. For instance, customers that book a trip using a credit card could also get travel insurance to cover delays, lost luggage, and even accidents.
Implications for insurers
This significant shift of the distribution landscape raises several questions for P&C carriers that have a considerable footprint in the personal lines segment.
Carriers should study their relationship with customers and sharpen their value propositions. The traditional wisdom of insurance brand equity and marketing will likely face serious challenges. How will customers make a decision when insurers, auto dealers, and ride share companies are all trying to sell them auto insurance?
Insurers must reconsider their cost structure and capital allocation. How should insurance companies recalibrate their distribution spending to balance the efficiency captured from ecosystems and the capital required to gain the right to play? Cost competitiveness is a must for product providers that do not yet own the last mile or the consumer brand.
New technology architecture is required to participate in the ecosystem operating model. The plug-and-play approach in ecosystems is very different from an insurance company’s historical infrastructure, which was typically engineered for stability and security. How should carriers invest to catch up?
Data amassed via ecosystems can provide direction for new offerings. Ecosystems integrate data collection and allow participants to rapidly innovate on their products and services. To stay relevant in the customer decision and purchasing experience, how will carriers capture value from the enormous pool of data they can access?
A new operating model requires a reskilled workforce. An increase in ecosystem distribution would also call for a meaningful change in how carriers manage and reskill their frontline distribution workforce. The skills and knowledge of today are likely a poor fit for a future where distribution relies on the use of data-and-analytics tools.
The growth of ecosystems, along with other forces, will have significant implications for insurers in the next decade. Carriers must prepare to reinvent themselves to succeed in the future.