In recent years, consumers have benefited greatly from the advent of Open Finance, which brings them a unified view of all their financial data—mortgages, savings, pensions and more—accessible via a single, secure digital medium. That’s a big win; recent research finds that consumers have an average of 7.4 banking products, typically distributed across multiple companies. Open Finance saves them time and makes it easier for them to pick and choose products from various institutions.
Open Finance sprang from Open Banking, which essentially uses application programming interfaces (APIs) to let third parties build applications and services around banks.
In the UK, significant progress has been made toward Open Finance with Open Banking solutions exploding across the nation and the UK’s Department for Work and Pensions providing consumers an overview of their collective pension pot through dashboards. The US is also keeping a close eye on progress, with the Consumer Financial Protection Bureau recently launching several initiatives.
All this openness and choice has made it clear that something’s missing—and that something is insurance. When it comes to insurance, a customer typically has auto coverage from one provider, homeowner’s insurance from another, life insurance from yet another and so on, lowest price often being the primary driver. As a result, consumers lack an aggregated view of their insurance products, and insurers cannot provide such value-added services as customized advice on coverage gaps.
The good news for consumers, and the opportunity for insurers, is that this is changing.
Regulatory pressure is part of the picture; in the UK, the Financial Conduct Authority has already called for input on Open Finance—including Open Insurance. And in the US, price transparency rules are taking effect in health insurance. Customers' shifting requirements, too, are driving changes in the role that insurers must play, from enabling risk management across an individual's product range to making choice and value more available.
Insurers must act now to keep pace with these shifts. Open Insurance presents an opportunity for sector leaders.
Beyond price comparison sites
Insurers have always collected the required data on customers and the risk under consideration, for risk evaluation and decision-making. However, this data remains siloed and scattered across various insurance companies, with no common data taxonomy or industrywide formatting standards.
With Open Insurance, customers will be able to give insurers permission to share this data with other providers. With this shift, insurers would serve as data suppliers, sharing client data through API architectures. Other insurers, third-party providers or insurtechs could then act as data consumers, leveraging data (with client permission) to give guidance on the best services for their requirements or new customized products suited to their needs.
Access to this data through open APIs will allow insurers to experience, collaborate on, and use innovative solutions and business models. In a world where companies are refining data analysis, machine learning and AI, it’s important to demonstrate that there are possibilities beyond price comparison websites to provide the best possible options for customers.
More information about a customer could help insurers provide more personalized product recommendations, as well as proactively understand and address unknown coverage gaps—for example, protection that expands to family members or pets. Insurers are already seeking to harness the potential of their data, with Munich Re’s recent investment in API-focused insurtech apinity GmbH and Direct Line Group’s partnership with Starling Bank to provide Starling customers with seamless access to insurance products.
Reducing barriers to entry
Open Finance's central purpose is to democratize financial services. Applying this concept to the insurance industry could significantly improve competition by removing market entrance barriers for new participants, enabling greater price transparency, and improving price comparisons for customers.
With Open Insurance, as customer data is shared with market participants, opportunities arise for rapid partnerships based purely on transactional data. This opens up partnership opportunities with newer industry entrants, creating a level playing field in an industry that has traditionally been dominated by larger companies.
Once perceived as slow to innovate, incumbent insurers can leverage these dynamic partnerships to their advantage by recasting their approach to customer acquisition. Traditionally, insurers have competed for customers through heavy investment in advertising. The downside here was that such customer acquisition came at considerable cost.
Insurtechs have a different angle on customer acquisition, focusing less on branding and more on speed and enhancing the customer experience. This allows for greater focus on product innovation. We believe incumbents and insurtechs can collaborate to deliver value to customers. Finding the right intersection of incumbents’ needs and insurtechs’ capabilities may lead to value-creating partnerships.
A 360-degree view of the customer
Today, most insurance companies serve only a small slice of their customers’ overall ecosystems, inherently limiting their opportunity to identify and meet those customers’ needs. This is caused partially by the limited number of touchpoints across the product journey; interaction with an insurance firm is either an annual affair or accidental through claims. Only a few insurers possess deep customer knowledge and frequent customer interaction, and thus can customize coverage and integrate it into customers' digital lives.
Open Insurance stands to change this, bringing insurers a richer, more contextualized picture of an individual's insurance requirements. Although subject to data protection regulations, this information can be read in highly useful ways with the right analytics tools and technology. A holistic view of a customer’s insurance needs can also extend into the future to build a predictive view of what might come next. With more data, insurers can provide better, more personalized services, enhancing the client experience and making it more gratifying, seamless and effective.
Although aspects of the insurance industry have embraced digital to support comparison tools and rapid pricing, large chunks remain poorly positioned to serve the customer of today and the future. Insurance leaders must recast insurance as not a set of products, but rather as part of a broader digital ecosystem. Open Insurance will provide the required thrust toward realization of the revolutionary Open Finance concept.
This article was written by Ravindra Kumawat, Director of Consulting, Sudhir Shetty, Senior Manager Consulting and Ramona Balaratnam, Thought Leadership Strategist in Cognizant’s Insurance Consulting practice.