In established ecosystems as much as 75% of the value is in the customer relationship, with the underlying products priced at wholesale margins.
Successful ecosystem players have been able to rapidly improve their products-per-customer, or share-of-wallet, figures. These are strong metrics for assessing the depth and value in customer relationships. Typically, these have moved from an average of 1.3-1.6 products per customer to 2.5-3 products during the last few years. Given how difficult it has historically been for organizations to improve in this realm, these numbers clarify the opportunity. They also suggest the threat of non-participation in ecosystems.
Products-per-customer metrics have stayed so low for so long partly because of the customer preference for relationships with multiple providers. They get current accounts, life insurance, general insurance and investments from different companies. But what if one of those firms could deepen relationships and enhance the value, they offer enough to induce customers to consolidate all existing and new products to just one supplier? And what if that supplier is not you? Those hard questions frame the competitive stakes that senior executives must confront in considering how to move forward.
The immediate-term outlook for ecosystems
We don’t think it’s an exaggeration to say that financial ecosystems have the potential to change the whole basis of competition in the industry, pitting companies in different sub-sectors against each other. The ultimate goal is to become the primary financial relationship holder for customers. Fundamentally, that’s why it’s imperative for insurers to work urgently on their ecosystem strategies, a topic we’ll explore in greater depth in subsequent articles.
Overall, insurers that innovate with ecosystems will be able to increase their revenue and share of wallet with more flexible products. Insurers that fail to act or that move too slowly will be vulnerable to both new and existing competitors. To say ecosystems are a game-changer is both literally true and something of an understatement.
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Summary
The age of ecosystems has arrived in insurance, which means senior executives and boards must take immediate-term steps to ensure success in an environment with fundamentally different competitive principles.