The time and investment required to launch a new insurance platform has decreased dramatically over the last few years. Much ink gets spilled on InsurTech and challenger brands in insurance – but we believe this is a major opportunity for existing major firms. With the rise of InsurTechs and cost-effective, flexible digital technology tools and platforms, the insurance industry is embracing a new era of growth and innovation. Many major insurers are gaining first-mover advantage and carving out new market leadership positions by launching greenfield business units and new digital versions of their core offerings.
What is behind this trend of "starting again"?
We see “greenfield” as establishing a completely new entity, or a service, enabled by the newest digital architecture, with data and analytics at the core.
The recent wave of InsurTech start-ups has shown that it is possible to go to market with new insurance propositions for less than $5 million. Insurers are developing greenfield property and casualty (P&C) and life insurance services. Their aim is to deliver full digital customer experiences across the value chain, with cloud-based architecture enabling low cost of entry, limited risk, and future flexibility and scalability for winning value propositions. Done right, a structurally low-cost, digital-by-design new platform can have compelling customer value immediately. It can then generate “flywheel momentum” for the business as it builds out a customer base, collects data and new functionality is added
Contrast that with insurers attempting to update or transform legacy IT with multi-year budgets in the tens or hundreds of millions of dollars, and the greenfield option becomes attractive, especially if it can help address a critical strategic priority.
Evaluate your responses to the questions below. If you answer “yes” more than twice, a greenfield approach could be the catalyst you need to accelerate change.
- Competition: Do I face competition from business models that are difficult to replicate with my current assets? Are competitors gaining traction? Is my business at risk if adoption accelerates?
- Technology: Is my current technology preventing me from innovating at pace? Will my IT transformation plans fail to achieve the development of scalable technology on cloud-based platforms, microservices, application program interfaces (APIs), and agile working practices?
- Cost structure: Is there the potential to deliver the service at a significantly lower cost? Are some customer segments or product lines heavily subsidizing others?
- Culture and talent: Does my organization attract digital natives able to bring new ways of thinking and working? Do I face the risk of failing slowly with my legacy talent base?
- Strategic ambition: Are the investments in my innovation portfolio mostly incremental? Are we creating options that could drive 10 percent to 15 percent of new revenue?
Applying a greenfield approach provides an opportunity to incubate solutions to new customer challenges and competitive threats. It can also deliver knock-on benefits in the core or legacy business as lessons and processes from the greenfield entity can be imported and scaled up.
Some clients are, in our experience, looking to use an even more ambitious greenfield approach. They aim to scale and industrialize their proposition development and create migration options for their current books of business at renewal. In doing so, they will be able to erase legacy debt and dramatically increase freedom.
A greenfield option should be seriously evaluated when there is urgency to:
- Meet customer needs in new ways, especially when the legacy technology or business model struggles to deliver solutions.
- Address intractable cost pressures in the legacy business. Services can be delivered at a substantially lower cost by designing processes from scratch.
- Leverage the next-generation core technology platforms and microservices offered by InsurTechs, thereby delivering a plug-and-play, digital-first architecture much more quickly and with less investment than a homegrown build.
Oliver Wyman’s report, “The State of the Financial Services Industry 2019: Time to Start Again,” dives deeper into these topics across the broad financial services landscape.