Approximately 5 minutes reading time
In our blog “This is why platforms are successful”, we have seen that the value of a platform lies in the connectivity – the ability to match buyers with suppliers - while in the ‘old model’ the process of bringing together supply and demand was basically seen as an overhead. With a platform, you are essentially able to create a market for yourself without any competition.
Gartner has seen that insurers are getting more and more involved in the platform economy. Whereas the focus used to be on digital optimisation, insurers are now starting to switch to a digital business transformation model. Insurers are moving into an era of integration and intelligence. In other words, they are going through a complete metamorphosis. It sounds great, but where do you start? Do you need to set up your own platform, or can you simply plug into an existing one?
Amazon Web Services
Generally speaking, it is always better – from a strategic perspective – to make the most of your own strengths and capabilities. That is why the emergence of platforms has got the issue of core competencies back on the agenda of executive boards. In the 1990s, the focus on core competencies meant that companies started to outsource any activities they were not outstanding at. A couple of decades later, the main issue now is how you can strengthen your distinctive capacity. Most insurers will not be able to outperform platforms in terms of speed, but they might be able to offer differentiation in other ways. Perhaps in a way that you might least expect.
An obvious example is Amazon. A lot of consumers still see this company as just an online store, but over the past ten years it has developed a new and very lucrative earnings model for itself. Amazon ‘discovered’ that the technical infrastructure it used for its online store was so good that it could be used to offer other services and products under the name Amazon Web Services. This is now the most profitable activity of the company.
A platform strategy without a platform
In order to have a platform strategy, you don't necessarily need to have your own platform. Of course, it can be very tempting to become the epicentre of an ecosystem full of customers, suppliers, and perhaps even competitors. But you can still profit from the power of a platform by simply plugging into other – existing – platforms. After all, that is how many of the big names in the platform economy first got started. Take Airbnb, for example. It is now one of the most successful platform companies in the world, but it originally started with a portal on an existing platform - Craigslist – a popular website in the US similar to eBay.
Insurers can plug into existing platforms
Insurers who decide to integrate with existing initiatives can use this as the launchpad for a long-term growth strategy. However, they have to make sure it will be easy to interface and integrate with other systems. The exchange of information about products and services has to be seamless: an insurer basically has to become a plug & play organisation where all the different components can be linked together, from information about smoke detectors in homes to distribution channels via Google.
The key concept here is Application Programming Interfaces (API). The APIs are now a vital part of all types of processes and sectors. They make it possible for the services of different parties to work seamlessly together with each other.
IoT as the accelerator
APIs are now an essential feature of countless value chains, products, and services in virtually all markets and domains. And the Internet of Things (IoT) can accelerate this process in a big way. One of the possibilities relevant for insurers, for example, is that connected devices will be able to turn off the oven in a home as soon as everyone leaves (and thus prevent a fire), or use sensors to proactively predict when there is a risk of water pipes bursting. Liberty Mutual and American Family Insurance are already working on these types of solutions in partnership with Nest.
Creating connectivity
The possibilities will differ from one insurance company to the next. And the possibilities will continue to evolve, although we just don't know how yet. But one thing is certain: if insurers want to remain relevant for their customers, then they will need to have a presence in the new ecosystems. That means preparing for a future where your competitive strength will largely depend on the strength of the ecosystems you inhabit together with your partners. Because ultimately: the value in the platform economy lies in the connectivity.