Insurance carriers that invest in open ecosystems and best-in-class components will experience improved customer satisfaction, lower costs, and leapfrog the competition.
In 2020, the insurance industry has experienced several years of digital transformation in a few months. The days of monolithic legacy systems, built and maintained in-house for decades, are coming to an end as the market rewards dynamic carriers that leverage APIs, microservices, and web services to build ecosystems that offer the right experience, to the right people, on the right platform.
What is a digital ecosystem?
A digital ecosystem describes a loose network of interconnected applications and technologies that act cohesively to meet business objectives. Inspired by ecosystems found in nature, digital ecosystems are characterized by principles of openness, flexibility, and self-organization. APIs, web services, and microservices often work together to form the framework of a digital ecosystem.
Uber, for example, maintains an ecosystem of over 2,200 microservices. This architecture enables greater flexibility and autonomy, allowing their teams to innovate rapidly and swap out specific services without compromising the entire system.
Unlike open ecosystems, closed systems (also known as “walled garden” systems) are typically built and maintained in-house. An example of a closed system is Apple’s iOS operating system, where apps can only be downloaded from Apple’s App Store.
The Insurance Industry’s Next Great Frontier
According to research firm Novarica, the trend towards digital ecosystems in insurance is powerful, with more than 65 percent of insurers having deployed APIs/microservices as of Q4 2019. A couple of years ago, InsurTech Lemonade made headlines by launching its public API, allowing anyone to offer Lemonade policies through different apps or websites. According to research from Accenture, 84 percent of insurance executives say ecosystems are important to their strategy. Ecosystems are the insurance industry’s next big frontier for disruption.
For insurers, a digital ecosystem can encompass the entire customer journey, from quote to claim. This frequently involves touchpoints with several applications such as CRMs, policy administration systems, broker portals, and third-party data service providers. This barely scratches the surface. For insurers, however, there remains an understandable hesitancy toward adopting open ecosystems.
While carriers acknowledge the importance of adopting innovative new technologies, many find themselves tied to closed systems that struggle to “talk” to new applications. This may result in missed opportunities, declining market share, and unhappy customers while rewarding competitors who offer greater flexibility. What monolithic legacy systems do provide, however, is control: governance, security, predictability and change management. These are important concerns in an industry known for its heavy regulation.
For many CIOs, managing a cornucopia of different technologies within a digital ecosystem can seem a tough pill to swallow given security and governance concerns. However, with rapidly evolving customer expectations and a drastic increase in the overall rate of change, greater flexibility is now a must.
A recent survey of European insurers conducted by DXC Technology found that 22 percent of insurers were already part of an ecosystem providing additional services to their customers, and another 46 percent had plans of joining an ecosystem soon. The evidence is clear that the industry is shifting towards greater openness and agility, and insurers must be prepared to commit to the new paradigm.
My next article will cover three ways insurers gain competitive advantage with ecosystems.
Source: Insurance Innovation Reporter
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