Disruption via technology has been rampant in the fields of media and entertainment but technology has taken a while to latch on, especially within financial services. Banking is currently undergoing disaggregation via several modules that were once core, such as payments and lending. Insurance is at its nascent stage and rife for disruption as several players continue to compete and bite into each other’s profit margins.

Competition vs.Coopetition

“I’m going to destroy Android, because it’s a stolen product. I’m willing to go thermonuclear war on this.”

This quote from Steve Jobs is just a glimpse into how nasty competition can get. This was partly needed and partly not. Do we need similar levels of competition within the insurance space? Can we remain profitable and compete in today’s dynamic, technologically disruptive arena? Can all players in an ecosystem equally consider all options and invest in ideas with a high probability of success? No, it would be impractical to even think so! Ideally, we need to spread our investments wide and far and rely on experts within subdomains that complement our overall strategy and vision.

If we follow this thinking and extrapolate this thought further, there are several venues available within coopetition¹ that could benefit both parties, the simple premise of collaboration between business competitors. Coopetition can help in the following areas broadly:

1. Overcoming product development costs
   New product development and customer acquisition costs almost always rank among the highest spent categories in many industries. The strategic importance of new products is far more critical now in the insurance market as those customers who preferred the ease of behaviour-led discounts and portfolio manageability are staying less and less glued to a single insurance company. From a technology point of view, InsurTech entrants focus on new product development and can easily complement an existing insurance provider’s portfolio. From an insurer’s point of view, the due diligence steps for selecting a firm remain complex. Collaboration will benefit larger insurance companies as it reduces lengthy development costs and the associated time spent on testing and retesting specific solutions until they are market ready. It also reduces the time to market and overall marketing costs as customer-focused products are introduced sooner in the market. The collaborative approach for smaller players helps them overcome regulatory hurdles, which would otherwise have engulfed them in a downward death spiral, while slowly eating into their daily operating costs. The collaborative competitive approach helps reduce risks by educating newer firms about the possible risk scenarios and taking essential steps before and during development to ensure most if not all risks are mitigated.
2. Collaborating and competing on a universal market
   There is no doubt that competition in the global insurance sector will increase, driven both by InsurTech firms and technology giants. For example, Tencent Holdings’ insurer unit is the latest to receive a licence, which enables the dominant operator of China’s social network to sell insurance to WeChat’s 900 million users. The time to prep our firms is now! The universal market of the future is inevitable and we should prepare ourselves to embrace a universal market where patents, prices, and customers are exposed. The primary objective with exposing patents and collaborating with competitors serves an underlying cunning and greedy purpose even within a universal market – the ultimate goal of earning higher profits and eventually amassing enormous wealth for oneself. But how could a pie grow without additional dough? Dough in this case stands for talent, money, reach, and many correlated factors that directly impact the profitability and competitive relevance of a firm. The universal market provides easy access to larger distribution networks and equips insurance agents with abilities for quoting, binding, and issuing customized insurance products to target customers in minutes rather than hours, days, or weeks.
   Some of the questions that will rise in a universal market scenario are:
   
   • Who are the current players and how can we collaborate to maximize value?
   • Which relationships are complementary to my firm and if I do collaborate what value would my firm derive?
   • Who are my competitors in this space and can I really collaborate in a mutually beneficial way?
   • How can I strengthen my firm’s relationships with suppliers, customers, and integrators via the universal market?
   • Can I use the existing network and knowledge to sustain my firm’s competitive advantage?

   These are only a subset of questions that might crop up in one’s mind while participating in a universal market. We need to take cues from our environment and constantly look “outside the box” to initiate, leverage, and redefine relationships with customers, suppliers, competitors, and partners.

3. Awareness of entropy

   The second principle of thermodynamics states that everything in the universe traverses from a state of order to one of disorder, and entropy is essentially the measurement of that change. One cannot compete and remain proficient in all areas, as it is practically impossible. This also implies that one can never rest on one’s laurels, whether one is a firm or a person.

   One way to remain aware of one’s standing in the industry is by investing heavily on future research and development, keeping a tap on regulatory changes, and a close eye on competitor moves. Yet all this still might not help, as is evident from the Kodak and Nokia cases, known to our generation, who went from being respective leaders in their field to being non-existent. This wouldn’t have been the case had they been aware of entropy in their environment via new entrants who were disrupting the space through touchscreens and digital cameras. This example is essentially the best argument in favour of collaborative competition.

4. Opportunities for up-selling and cross-selling
   If an existing customer would benefit from a product that your competitor sells, or vice versa, there would be up-selling and cross-selling opportunities. This would eventually increase customer loyalty and satisfaction for both parties.

5. Competitive advantage

   Coopetition helps with competitive advantage too as it provides quick access to additional skills that are currently missing within the existing firm, technological diversity, profitability, reputation, and knowledge sharing via access to a broader talent pool.

   The involvement for coopetition can be more direct via investments or via an innovation centre, which brings me to my next topic on innovation centres and possible benefits for firms adopting similar practices.

   The advantages to coopetition can be easily summarized, as shown in Figure 1.

   The potential on return for investment D is much higher with the same amount of risk for A as is depicted by the two investments, A and D. The approach to collaborative competing exposes us to much better returns (positioning ourselves at D) while maintaining our risks at a minimum.

InnovationCentresand Incubation

The rise of innovation centres within technology companies and banks over the past few years is evidence enough to demonstrate and corroborate unequivocally the importance of investments in R&D. The very existence of IBM and GE over the years has been a factor in investing in relevant technologies that eventually helped them pivot their business model to suit the changing market needs. One can further optimize this route by studying efficient innovation centre designs prevalent across sectors and picking up cues relevant to the domain such as: innovation input and output subindex, overall global innovation index, and innovation efficiency ratio as outlined by GII (global innovation index) for ranking countries.

Innovation centres can benefit the participating firm via five primary masts as shown in Figure 2:

1. Fostering and tapping on existing talent within the pool.
2. Mentoring and monitoring probable ideas/firms that benefit the underlying firm’s overall portfolio.
3. Building an entrepreneurial spirit among employees that would drive nimbleness and flexibility and gradually increase the firm’s inherent risk-taking appetite.
4. Testing and ideating on product prototypes before they are officially launched into the market
5. Promoting cross-functional collaboration to resolve departmental and BU silos that arise from operating in a large conglomerate firm operating in several geographies.

This is merely a mechanism for a firm to stay more involved in the action and secure a “front row seat” into what is occurring within their domain or outside. It also helps them garner a fresh perspective to their otherwise myopic view on research and development within their organization. We are already witnessing a growth of innovation centres within the banking domain and it is about time the insurance industry caught on. I know we are pushing for coopetition as a growth strategy and incubation as a building block to achieve the same at our next strategic steering committee meeting.

What about you?