Insurers find it increasingly challenging to differentiate themselves in the eyes of their customers. In response, some innovative insurers are adopting a radically new approach – looking beyond their standard insurance products and offering an ecosystem of value-added services that provides consumers with a one-stop shop to address their broader needs. This allows insurers to overcome the low-touch nature of their industry, creating opportunities for more frequent interactions with customers, which has a remarkable correlation to customer loyalty.
Working with Research Now, Bain & Company surveyed more than 170,000 insurance policyholders in 20 countries to gauge how loyal they are to their carriers. This year’s insurance loyalty report, Building Connections – and Profits – With Ecosystem Services, revealed a significant trend: the growth of purchaser interest in ecosystem services.
Insurers are discovering new ways to build loyalty by offering their customers an interconnected array of services that extend beyond insurance.
Of those interested in ecosystems, nearly 90 percent of respondents in China and over half in Australia said they would be willing to switch providers if their desired services were offered – an indication of the extent to which these services have the power to attract new customers.
“We are seeing a growing polarization in the insurance sector between low-cost providers on one end, those who are redefining the very nature of what it means to be an insurers on the other, and commoditized players in the middle,” said Henrik Naujoks, who leads Bain’s insurance work globally.
“While the ecosystem approach may not be a good fit for every insurer, those that do want to become the central player, must move fast and decisively to fend off the competition.”
A way to break free from the commoditization trap
Customers using ecosystem services said they are willing to pay higher premiums if ecosystems services are included – a strong sign that companies can use an ecosystem strategy to break free from the commoditization trap.
As an example, Bain found that within the Chinese home insurance sector, up to 80 percent of survey respondents would be willing to pay more for additional services.
Additionally, Bain found that many of these ecosystem services help people live healthier and safer lives, which, not coincidentally, can lead to fewer insurance claims and potentially boost insurers’ profitability.
In Asia, insurance customers are open to having their insurers provide services beyond insurance – e.g.~80 percent of customers in China are interested in ecosystem services and this has seen a strong increase since 2016, especially in auto and home insurance.
Large gap in ecosystem service usage
The study also showed that there is still a large gap in ecosystem service usage across Asia Pacific: China and Indonesia lead with up to 80 percent of customers using at least one service and 25-30 percent using more than three services.
Japan is nascent and has the lowest usage with only ~2 percent using three or more services.
Another finding is that in Asia, offering ecosystem services leads to higher customer loyalty. Across markets, the Net Promoter Score – a measure of customer loyalty – of satisfied users is, on average, 50 percent higher than for those who are not offered any services. This is particularly true in Asian markets, especially Japan and China, where the loyalty gap is as high as 60 percentage points.
Meanwhile, ecosystem services attract new customers and reduce price sensitivity. In China, nearly 90 percent of those surveyed would consider switching to another insurer if their current carrier doesn’t offer the services they want. Around 80 percent of customers in China who are using ecosystem services are willing to pay a higher premium.
What customers want
The Bain survey shows that insurance customers around the world have clear, and strikingly similar, preferences when it comes to ecosystem services: they’re looking for safety, prevention, convenience, and rewards for good behavior.
However, the ecosystem concept is still in its infancy, especially in most developed markets – an average of fewer than less than 10 percent of customers said they have used more than three ecosystem services.
Those who do use these services are overwhelmingly pleased. However, careful selection of services, the right partners, and a convenient customer interface are critical to avoid disappointments.
Building the ecosystem
As they get ready to venture into the ecosystem, insurers will face a series of critical, and often challenging, decisions. Bain’s experience shows that these strategic choices are best tackled early on, beginning with a three-pronged strategic approach:
· Define your role in the ecosystem. Given your specific position in the market, what are the opportunities to establish an ecosystem? Do you want to be a sole owner or a co-owner of the system, or would it make more sense to be a supplier, with no ownership stake? Would joining with a partner such as a technology company, retailer or big data provider bring benefits such as a new pool of customers or fresh data and insights?
· Select your target customers. Do you want to focus on your base of existing policyholders or do you open your services and ecosystem fully or partially to prospects that are currently not and may never be policyholders?
· Create clarity on how to make money. Do you expect ecosystem offerings to cover their costs? Do you want them to generate a separate revenue stream? Determine what the economics of the ecosystem should look like for your company, customers, and partners – at the outset and over time.
“The industry has historically been slow-moving, but that doesn’t mean that things are not changing,” said Naujoks. “Companies that succeed in the future will be those that successfully redefine the very nature of what it means to be an insurer.”