The effects of a false sense of security
The insurance industry faces many challenges that threaten its continued survival in the long term. Overall, it is therefore important to face the challenges and develop long-term strategies. This also includes the development of new business models and a holistic focus on the needs of customers. This is the only way insurance companies can assert themselves in the market and be successful in the long term.
The structure of the insurance industry as such has grown healthily in the past. High market entry barriers due to strong regulations and supposedly complicated and difficult-to-copy products ensured that the industry was rarely attacked from within. Long contract periods and very regular cash flows also contributed significantly to the fact that insurance companies believed that they were sailing in safe waters for a long time.
The massive shift in profit pools away from the insurance industry
“Due to the constant change in distribution channels, the margin now remains with the player who controls the end customer interface!”
However, in recent years there has been a significant shift in the distribution of profit pools away from the insurance industry. This development was supported, among other things, by: by shifting information search to social networks that concentrate massive customer flows, such as Google, Facebook or Tik Tok. These platforms now serve as “bouncers” and primary information providers and capture a large portion of the available margin from many industries, including the insurance industry, through advertising revenue. Some of this is expected to be replaced by AI and Chat GPT in the future.
Device manufacturers such as Apple, Samsung and Xiaomi also occupy the end customer interface and even make Google pay a lot of money to be the preferred search engine on iPhones.
The comparison options via providers such as CHECK24 and verivox lead to the commodification of the offering in the insurance industry.
Overall, the shift in profit pools away from the insurance industry shows that the industry must adapt and embrace new ideas to continue to be successful. Companies that are digitalized and innovative have the chance to benefit from this change and strengthen their market position.
Reduce dependency on lead suppliers and salespeople
A high level of dependency on lead suppliers and contact sellers often poses challenges for insurance companies. Because when unforeseen changes occur in the industry, such dependencies have a serious impact on the business.
Real prevention of margin churn is possible
Are your own application routes on the website the key?
In a market that is increasingly characterized by digitalization, some see the key to success in their own application processes on the website for insurance companies. Through this method, insurers aim to not only reduce dependence on lead providers, but also improve customer experience and increase the efficiency of the application process.
In reality, however, even the most optimized and user-friendly online interface as well as high investments in SEO and online marketing cannot prevent search engines from still providing the majority of traffic. This creates an absolute dependency on third parties such as Google, Bing & Co. As soon as the algorithm changes – and this happens regularly – if you focus on SEO, valuable traffic can be history overnight. Large portals like CHECK24 always have a competitive advantage over individual providers due to their higher conversion rates and cross-subsidization options and can therefore offer more for positions at the top of the search engines and thus direct the available traffic to them.
Prerequisites for preventing falling margins
Many insurance companies have other answers to the challenges and are working on solutions such as bancassurance or embedded insurance. But even in doing so, they only slow down the effects of the fundamental problems.
A real solution for the sales of tomorrow must meet two central criteria
- Sales must still exist tomorrow
- Insurance must have real control over distribution
Consequently, only purchasing, participating in and/or building non-insurance value chains can ensure that competition does not penetrate the value chain through which insurance is sold using X-Selling.
Best practice in the control and use of non-insurance value chains for insurance sales – the global newcomer #1 – Ping An
Ping An is a Chinese holding conglomerate with a wide range of products and services, including insurance, banking and wealth management. Over the past 35 years, the company has grown from zero to a global leader in the insurance industry. Ping An has expanded its presence around the world and has become the most valuable insurance brand in the world, with a market capitalization of over $200 billion and annual revenue of over $110 billion.
What sets Ping An apart from other companies in the industry is its ability to leverage innovative technologies such as facial recognition and artificial intelligence to improve customer experiences and streamline operations. These technologies enable Ping An to respond more effectively to customer needs and provide personalized insurance offerings within other value chains. In addition, Ping An has taken a pioneering role in developing digital products that are easy to use and tailored to customers’ needs.
As a global leader in the insurance industry, Ping An has also focused on creating an open ecosystem based on collaboration and partnership. With a strong network of partners and suppliers, Ping An is able to offer a wide range of solutions and value chains for its customers, going beyond pure insurance products.
All in all, Ping An’s rise shows that a company can become a leading global player in the insurance industry through innovative technologies and a strong focus on cross-industry customer needs with the aim of “creating living environments”. Ping An has proven that it is possible to combine tradition and innovation and thus compete successfully on the market.
“Mindset shift” necessary in the European insurance industry
A real “mindset shift” is necessary in the European insurance industry. Insurers are increasingly recognizing that they must adapt to remain competitive and meet the changing expectations of their customers. This requires a new way of thinking, moving away from the traditional structure of the insurance business and towards a more customer-centric approach.
An essential element of this “mindset shift” is a shift in focus from a strong perspective on one’s own industry and the optimization of the insurance customer journey to a cross-industry view of the “lifeworlds” of potential customers, in which insurance is only part of the service is. An example: Dog owners want a healthy dog and are looking for solutions to help their animal prevent illness and recover. Dog health insurance is just the paymaster of the actual intention. Therefore, it should not be sold and provided separately from the health care and recovery value chain, but rather as an integral part.
How can cross-industry value chains work?
Value chains are an important concept in the business world and describe the journey a product or service takes from creation to sale. Value chains are usually only viewed from the perspective of a single company and its product. However, in our view, this is no longer sufficient to fully serve customer needs. Insurance companies should therefore broaden their perspective and think of their own services as part of a cross-industry customer experience.
The collaboration between insurance companies and non-insurance value chains can work through several economic mechanisms:
- Use of customer relationships or insurance data for non-insurance services or the sale of non-insurance products
- Obtaining information about customers of non-insurance products and services and their expectations in order to use this information to sell insurance
- Provision of a joint range of services (e.g. product bundles)
- Participation of the insurance company in (high) surpluses & interest from non-insurance business
Which non-insurance value chains are most compatible with an insurance company?
Every insurance company has different product and customer focuses. It is therefore not possible to give a general answer as to which non-insurance value chains an insurance company should be involved in. Here are some examples of how cross-industry value chains can work:
Holistic solution provider for individual mobility
Today, individual mobility is more than just selling a car. It is also about combining various needs for financing, insurance, maintenance and energy supply. In this context, from the customer’s perspective, it is crucial to have a holistic solution provider in individual mobility who understands the needs of customers and offers individualized solutions.
Some insurers have recognized the resulting potential and have taken the first steps to become part of the mobility value chain. For example, HUK has set up the HUK Autowelt and the HUK Autoservice in order to gain a foothold as an insurer in both the car trade and service and to earn money from these parts of the value chain. The interesting thing about these developments is that HUK can act as a lead generator for the car world and can also benefit from the car service’s network when handling claims. Both ventures are therefore synergistic with the core business. Other insurance companies can follow this example.
Installation of photovoltaics as a synergistic business model
Synergies can also be achieved in the market for photovoltaic systems. The market is booming. The market has recorded sales growth of over 20% since 2018 and even increased by 40-50% last year (source: Destatis, DevelopX analysis).
Sustainability and renewable energies are becoming increasingly important, not only for ecological reasons, but also from an economic perspective. The financing volume from private PV installations amounted to more than 2.8 billion euros in 2021. More and more companies and private households are choosing to install photovoltaic systems on their roofs in order to generate their own electricity and thus reduce their electricity bills.
Insurance companies can use several starting points to gain a foothold in this market. On the one hand, they have access to information about their customers’ properties and their use. On the other hand, insurance companies can provide large amounts of capital to finance photovoltaic systems. Cleverly combined, this can be used to enter the PV market, earn money from this market, generate higher customer loyalty for insurance products, promote X-selling and credibly convey sustainable action as an insurance company in the market.
Insurance companies as market participants in the pet supplies sector
When it comes to pets, Germans are very passionate and loving. The needs of animals are diverse and can vary depending on species and breed, which means that the demand for specialized products and services is also increasing.
In 2021, 47% of German households have one or more pets (source: ivh, Statista, DevelopX analysis). Regardless of whether it is about the health and well-being or the entertainment and employment of pets, the market for pet supplies remains strong in Germany.
In order to participate in this as an insurer, a pet ecosystem could be built in which an insurance company both brings in and sells its own products and also earns money from satisfying the needs of other sub-sectors, such as pet food and accessories. Due to the high need for food, exercise and equipment, frequent touchpoints arise in a pet ecosystem that can be used to sell products and for X-selling.
In summary, the insurance industry has historically been a relatively safe and stable market due to its high barriers to entry and the complexity of its products. However, with the emergence of new technologies and changing consumer preferences, the industry has been facing increasing challenges and shrinking margins for years.
To remain competitive, insurance companies must embrace innovation, adapt to changing customer needs and explore new business models. Only those who are prepared to develop further and take entrepreneurial risks will be successful in the coming years and will not allow their margins to be taken out of their pockets through commoditization.