To remain competitive, insurers should offer customers additional services beyond the core product. This requires digital platforms.
The rise of platforms that bring together offerings from multiple providers encompasses the health insurance, auto insurance, and home insurance markets. Many customers clearly want to use the platforms.
Platforms give insurance companies a relatively low-cost, 24/7 channel to reach an expanded base of potential customers. If everything is done correctly, such sites allow insurance companies to improve their economic performance by strengthening customer loyalty.
The struggle for consumer favor
Consumers who prefer large technology companies to traditional ones most often cite reliability and price as reasons for their preference. Besides, those respondents whose digital experiences with their current insurance company have been unsuccessful are more likely to choose a technology giant for their next purchase.
In the health insurance markets, diagnostic, treatment, and wellness advice are among the services platforms offer. In auto insurance, platforms offer buy-and-sell services, discounts for safe driving, and emergency support. In-home insurance, common services relate to safety, power, and buy and sell. In these markets, the pandemic has made consumers more comfortable buying insurance products and related services online.
In search of options to improve economic performance
Ecosystem services create the opportunity to influence purchase decisions or achieve greater loyalty. A properly functioning platform managed by the insurance company helps it to provide a clearly distinguished and more interesting experience for customers, as well as improve economic performance in many areas:
- reduce risk and claim sizes;
- improve underwriting;
- improve customer segmentation and appropriate pricing;
- potentially obtain pricing premiums for certain services.
Insurance software applications are useful to insurance companies in terms of another element: it’s individual customer data that can help better understand and serve them. If a company works with customers referred through a platform, it can make personalized offers to them. This increases the chance of a conversion.
The growing role of platforms and ever-changing customer attitudes lead to three key questions for insurance companies:
1. How do we differentiate ourselves?
Services and products need to differentiate themselves and attract new customers or increase the engagement of existing customers. This requires customizing the value proposition for clients whose interactions are increasingly digital and whose expectations for a simple, convenient, personalized experience are growing. Offering value-added services can help achieve this goal.
2. What is the right approach to bringing products to market?
Insurance companies must decide whether to develop and manage their own platform or become a member of another company’s platform. Running the platform on your own requires scale and a large investment before it all pays off. Large insurance companies will also have to address channel conflicts that may arise with current distribution partners.
3. What does success look like?
Determining the metrics used will help insurance companies target the right amount and type of resources and investment to their chosen platforms. Important metrics include the number of active users and partners, conversion rates, customer acquisition costs, revenue per customer, clients lifecycle profitability, and Net Promoter Score (a key loyalty metric).
Key stages of platform development
There are many types of platforms, but the ones that succeed are those where careful steps have been taken in some areas.
1. Clarify the company’s role.
Will it become a conductor of complementary services or a distributor? And what is the overall goal – to attract new customers, increase engagement, collect useful data, or something else?
2. Start with attractive bait.
The bait should be of significant value to customers compared to the current status.
For example, Discovery has launched a program to reward customers for healthy behavior through the wellness platform Vitality. The corresponding app tracks participants’ progress through data coming from gyms, grocery stores, and wearable devices. Members can exchange Vitality Points for gift cards and coupons.
3. Use partners to expand the offer.
Insurance companies can expand their customer base while reducing complexity by connecting partners.
4. Build a relevant and distinctive value proposition
Developing a core product and extended offering is only the first step; the platform must also ensure good service delivery. This usually results from an agile, test-and-learn approach.
5. Ensure good economics.
Insurance companies need to carefully consider how to monetize their participation on the platform. They need to build a pool of potential customers, drive traffic and convert the latter to real customers, all at a reasonable cost. In the beginning, it will probably be necessary to subsidize the platform, but the focus should be on how to achieve a return on investment.
Ways to monetize include, but are not limited to:
- commissions for participants;
- recruiting new customers;
- additional and cross-selling;
- loss mitigation (by encouraging healthy customer behavior or risk warnings);
- revenue sharing;
- transaction fees and licensing fees.
Platforms are no longer such an inexpensive experiment – the initial investment can reach $20-50 million. They spread and cover both new geographical regions and all new segments of the insurance markets. And soon, insurance companies should make their choice, so as not to be left with not the best partners and with limited options.
- Digital platforms are distributed in all insurance markets. Some of them offer integrated services that go beyond the core product.
- Many respondents are open to buying insurance products through platforms from technology firms and insurance companies, especially in the healthcare markets. Insurance companies hold positions in the auto and residential insurance markets.
- One of the challenges facing insurance companies is to decide whether to build their own platform or whether it is better to become a member of the platform of another organization. Another challenge is to determine what success looks like when working with the platform.
- Participants of the leading platforms acquire an attractive lure that ensures customer engagement, gives scale, and a real way to achieve profitability.