October 6, 2016

Platform driven business – the new reality for insurers

Magnus Bogren

Lead Consultant, Tieto Financial Services

The era of platform driven business is here—how can insurance companies respond to the challenges ahead? In a series of two blog posts, we dig into the new digital reality for insurers. In the first blog, Magnus Bogren explains why platform driven business models require insurers to both digitize and digitalize.

The 2016 Almedalen event, one of the most important gatherings in Sweden for the public and finance sector, included over 3800 seminars presented by a wide spectrum of inspirational speakers. One particular topic was addressed in a Tieto Insurance seminar. Our keynote speaker Jan Gulliksen, chairman of the Swedish digitalization commission, defined the difference between digitization and digitalization. These two buzzwords are similar yet distinct, but in today’s world, everything is digital—so is it even relevant to differentiate between them?

To answer this question, let’s consider the following:

Digitizing means taking your existing business models and processes into a digital interface without changing the core downstream structures. This is a must for securing your existing business, but it will not take you all the way to digitalization. 

Digitalizing your business means going all digital from the start. Both your core processes and business models are built to be digital and to be used in a digital interface end-to-end from sales to administration to customer service.

Many businesses make the mistake of assuming that simply by digitizing existing processes and business models they are prepared to meet the challenges of digitalization. But the truth is they are not. Digitizing might increase efficiency and modernize interfaces, but still, the fundamental processes are still built the way they were built yesterday—and not the way they should be built today.

Understanding the new rules

The topic of digitization versus digitalization is closely related to the rise of platform driven business models. This term refers to new innovations creating value through digitalized platforms and the ecosystems they enable and create. Some of the most successful companies are embracing, and to some extent creating, this new model, including Google, Apple, Facebook and Airbnb. A great deal of the value these companies create for customers is not based on their products or services, but rather the actual platforms upon which these products or services are built—as Facebook’s Mark Zuckerberg said in August 2016: “We build the tools, we do not produce any content”. 

Why do insurance companies need to understand the new rules set by a platform driven business model? Previously, one could say that insurance companies to a full extent owned their processes. As new platforms and business models emerge, companies consequently do not fully control the customer interaction.

Dual mode perspective

In order to survive in a platform driven business environment, companies need an internal structure based on standardization and automation. Products based on standard components and designed for digitalized business models will become the new norm. For insurance companies, this means that you no longer set the rules—instead, you need to understand the rules that are evolving. You need to decide what your position will be in this new platform ecosystem—will you be an orchestrator who is in control of the platform, a producer delivering services or a combination of both?

It is important to acknowledge that businesses are transforming from product driven to innovation driven and that new innovators are taking an intermediate position between traditional companies and the consumer. As an insurance company, you need to understand how you can prosper based on your current processes, structures and position and how these new business models will affect your existing business. You need to develop a timeline for adapting to these changes and a plan for how to start.

It is no longer a matter of digitization or digitalization—you need to master both.

In the next blog post of this two part series, we will go further into the topic of platform-driven businesses and deepen the discussion concerning the dual mode perspective. 

How can you respond to the challenges ahead? If you have any questions or like to discuss your future company needs, please contact me.

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