In this article, I will explain how openness is revolutionizing the Insurance market driven by a new plethora of applications and services which enhance user experience and, at the same time, enable the rise of disruptive business models.
Although there is no uniform definition of open insurance, at this level, it will be considered as making insurance-related data (both personal and non-personal) available to access, use and share between different insurance market players in order to create new services, apps, and innovative business models.
In open models, value is created by opening up the organization and connecting the different players along the industry value chain under a different paradigm from the traditional insurance realm. This digital transformation enables competition from innovative and nimble rivals and is forcing traditional insurers to transform their business. In a recent survey conducted by KPMG, 85% of insurance CEOs said that the pandemic has accelerated their digitization initiatives. Additionally supporting this, Accenture’s 'Disruptability Index' identifies Open Insurance and Open Banking as two markets with disruption probability. This creates the opportunity for disruptive business models and product innovation.
In the short term, the insurance industry needs to invest in developing open APIs, architecture, and platforms that are key to success.
Open Insurance could broadly be looked at from three interlinked angles:
- Industry angle: increased data exchange through APIs can facilitate industry-wide innovation, openness, and collaboration; and will arguably enable the insurance sector to fully embrace data-driven innovation. This includes encouraging the creation of innovative products for consumers and increasing efficiency and interaction with third parties. In addition, it could facilitate the emergence of greater competition within the value chain as new players and business models emerge, possibly driving down some costs through efficiency gains.
- Consumer angle: accessing and sharing insurance services-related data between brokers, policyholders, or third parties to build applications and improve customer experiences.
- Supervisory angle: open insurance solutions could facilitate supervisors accessing consumer insurance services-related data and/or product information data, including ultimately on a real-time basis, to improve their oversight capabilities. This may allow compliance with regulatory goals to be automatically monitored by reading the data that is exchanged by providers via standardized APIs, thus reducing the need to actively collect, verify and deliver data for supervision, in particular for the conduct of business supervision.
From a technical perspective, the main concept of Open Insurance comes from the combination of APIs and insurance applications. Open APIs allow sharing of data between different insurers, startups, banks, InsurTechs (insurance startups based on technology, inspired by the FinTech model), and other organizations.
Insurers need a strategy that will enable them to quickly build, publish, install, and govern a large number of APIs. This strategy should address five key steps:
- Unlocking the backend
- Strategy & API playbooks
- Modernizing the architecture
- Platform positioning
- API Care & Developer Experience
Open Insurance requires companies to open their data sources to other organizations and to share and consume data and services from many sources. This collaborative approach enables the creation of new value propositions by enhancing user experiences, strengthening customer relationships, and generating additional revenue streams.
Legislation in Europe and the UK forced banks to open their data resources and share customer information with other organizations. The European Union’s revised PSD2 (Payment Services Directive) and the UK’s Open Banking Standards require banks to give other financial services providers access to their customers’ banking information if account holders give consent. These initiatives highlight the willingness of banking regulators to foster innovation and competition. Insurers can draw valuable lessons from this evolution that are likely to impact their own businesses. Here are a few key takeaways:
Customer expectations will increase: Open banking is revolutionizing the financial industry by offering customers a wide array of data-rich services. As a result, customers seek enhanced experiences when it comes to their insurance interactions.
Technological platforms will accelerate data flows: Open banking has provided valuable insights into how insurance services companies can effectively monetize their data resources by leveraging the value of data held by their partners.
Business models will change: Increasing market pressures are forcing insurers to find new approaches for engaging with customers and partners. To seize new business opportunities, insurers must transition from the traditional paradigm to a more disruptive one.
Indeed, insurers are currently in an exploratory phase, closely observing the developments in Open Banking to identify and capitalize on opportunities arising from increased openness. However, before insurance companies embark on investments in potential use cases, it is essential for them to address five strategic questions to ensure clarity and effectiveness:
- How does openness increase relevance to our customers?
- Which capabilities do we need to leverage in PSD2 and open banking?
- How can we partner with the InsurTech scene, which is already developing services around PSD2 and Open Banking, and accelerate?
- What can we learn from banks and other parties connecting to their platform ecosystems?
- How can we attract the right talent to deliver on these new opportunities?
In the next section, we will describe some examples of open insurance business models. Note that this is not an exhaustive description.
In 2018 Allianz opened up some of its Allianz Business System (ABS) as an open-source platform for other insurers. Whilst the basic version is free, the enterprise edition holds a license fee.
ABS can be used in any line of insurance to manage policies, data, claims, and benefits.
Barclays has a suite of APIs that enables the retrieval of account information for Barclays customers. The company also runs Barclays API Labs, which enables developers and partners the opportunity to build and experiment with new APIs.
Barclays Smart Business Dashboard is a powerful management tool for SMEs that integrates with popular apps like LinkedIn and MailChimp. This seamless integration simplifies operations and enhances efficiency for SMEs, offering a unified platform for streamlined business management.
DigitalGenius revolutionizes customer support by providing end-to-end resolutions to customer inquiries through the use of deep learning and open APIs.
DigitalGenius utilizes deep-learning algorithms, which are trained on historical customer service transcripts and integrated directly into the contact center’s existing software. The platform automates and increases the efficiency of customer service across communication channels like email, social media, and mobile messaging. This not only improves operational cost-efficiency but allows human agents to focus on more complicated tasks or conversations.
Blue Marble Microinsurance
Blue Marble Microinsurance is a unique global collaborative innovation consortium comprising nine insurance entities. The company operates with a small core management team that taps into a talent pool of employees from its owner entities.
Blue Marble’s projects with smallholder farmers in Zimbabwe and Colombia offer parametric insurance protection against extreme weather conditions, using satellite, remote, and point-sensor technology. These enable the insurer to develop a comprehensive understanding of global climate datasets and to create plant stress-mapping models. When heavy rains or drought strikes, claims are automatically calculated and instantly paid to policyholders.
CoverWallet is a small business insurer that launched the CoverWallet Open Platform in June 2018, which houses its first API for Commercial Insurance. The services are aimed at financial institutions and lenders, amongst others.
The API covers three services – Quote, Buy, and Manage – and can be used individually, in pairs, or all together. These provide insurance estimates, quotes, and policies from leading carriers and insurance management services. Users can also access insurance carriers that CoverWallet has already built partnerships with.
The service ensures that small businesses have a simplified process of getting commercial insurance. CoverWallet's API allows third parties to offer their tools and policies within their own platforms, eliminating the need for users to leave their current site.
“Insurance and the Open Banking wave: seven use cases”, available at https://www.innopay.com/en/publications/insurance-and-open-banking-wave-seven-use-cases and last accessed 09/23/2021.
“Open Insurance: accessing and sharing insurance-related data”, available at https://www.eiopa.europa.eu/system/files/2021-01/open-insurance-discussion-paper-28-01-2021.pdf and last accessed 09/23/2021.
“The Ultimate Guide to Open Insurance”, available at https://insuranceblog.accenture.com/the-ultimate-guide-to-open-insurance and last accessed 09/23/2021.