Mastering the Age of Recombinant Innovation
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Monte Carlo 2022

Mastering the Age of Recombinant Innovation

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Policyholder needs are evolving fast – and so are the opportunities to leverage a continuous stream of game-changing innovations from insurtechs. But while some P&C insurers see this as merely a matter of forging more partnerships, others are discovering the greatest advantages come from building an insurtech ecosystem instead.

To be sure, insurtechs have been getting hammered lately. During the first half of 2022, venture capital investment in insurtech plummeted 50%. The sector has also suffered from the broader sell-off of tech stocks. And surging M&A activity suggests a period of consolidation is afoot.

Yet opportunity abounds. Despite turbulence in the near term, insurtech is well-poised to deliver solid growth and profitability in the decade ahead, according to Gallagher Re. The firm estimates the insurtech market will grow from $16.6 billion today to $165.4 billion in 2032—a CAGR of 26%. The reason is simple: insurtech advances in applied AI, mobility, data analytics, and other technologies are rapidly transforming the entire industry.

 At the same time, nearly 9 in 10 incumbents face mounting pressure to harness technological innovation – or risk falling behind. Accenture projects the revenue gap between innovation leaders and laggards in our sector could top 37% next year. As much as $200 billion in revenues will be driven by new risks, products, and services through 2025.

But instead of viewing each other as adversaries, incumbents and insurtechs alike are recognizing that a go-it-alone approach to grabbing the biggest piece of the action isn't a sound strategy. Here's why ecosystems are quickly becoming the name of the game.

More Than Mere Partnerships: The New Mixology of Innovation

Take an array of different innovations from dozens of insurtechs. Add what only insurers can offer: regulatory expertise, historical and experiential data, and the reliability and support so central to the entire customer lifecycle. Mix into novel combinations to create whole new value propositions. Reap and repeat – continuously.

That's the idea behind an insurtech ecosystem. Far more than a partnership program, an ecosystem is an interconnected network of pre-validated technologies, services, and data from an array of world-class providers that can be rapidly utilized on their own, or in combination, to create competitive advantage.

This is no small feat. A cloud-connected insurance platform combined with an expansive marketplace of prebuilt, pre-vetted insurtech solutions is required for insurers to build ecosystems that fit their needs and quickly launch new capabilities.

The Foundation for Tomorrow's Insurance Models, Today

In fact, ecosystems already drive today's most compelling operating models. Usage-based insurance (UBI), for instance, includes "pay as you drive" auto coverage that's predicated on ecosystems spanning telematics, mobility, automobile or smartphone manufacturers, and many others – all tied into insurers' core systems.

According to JD Power, UBI policies were adopted by 49% of consumers offered one in 2021. And Forrester says UBI could account for nearly 20% of all auto policies by the end of 2023. But that's just for starters. Increasingly, Toyota, Tesla, and other auto manufacturers are teaming up with insurers to embed the purchase of UBI and other forms of coverage directly into the car buying process.

By 2030, McKinsey estimates that up to 30% of all personal lines premiums could be generated through embedded ecosystems that give insurers access to whole new customer pools spanning numerous industry categories. Think the homeowners' coverage sold with that Ikea sofa or the Apple warranty on your new iPhone – and much more.

The ecosystems involved in these and other insurance offerings will deliver far greater value than what's possible by participants on their own. That's not just the power of ecosystems. That's the future of the insurance industry.