Open insurance – a win-win for everyone.
Open data, open finance, and now open insurance – digital transformation has given rise to the so-called open finance industry where industry players – big as well as small – share insights and information with one another through the use of APIs. Now it’s the insurance industry’s turn to open up.
Open banking was in the works for years before PSD2, but not many financial institutions were keen on the idea from the start. Now, 2+ years after its implementation, the financial industry has transformed – and consumer demands have changed with it. Klarna, Tink and Apple Pay have simplified end-customers financial lives in different ways, such as embedded payments and new ways of sharing financial data. With digital transformation, Google, and smartphones, today’s consumers are used to having all the knowledge in the world at the click of a button. Businesses that cannot meet the need for a new level of openness risk being outmaneuvered by more digital-savvy competitors who deliver customer experiences in line with demand.
Why open insurance?
Open insurance is, in simple terms, an umbrella term for enabling information sharing within the insurance industry. Under an open insurance regulation, insurers would be legally required to develop standardized ways of sharing personal and non-personal insurance information with third parties.
In general, Insurance is perceived as complex, with extensive terms and conditions and the hard-to-grasp concept of paying for an eventuality that hopefully never happens. If you ask someone what they’re paying monthly or yearly in insurance premiums, or how they are covered, few will know the answer. The reason for this is that insurance is inaccessible, non-digital and difficult to compare, hence understand. In addition, insurance is a low-interest product covering important primary needs. All in all, this creates a gap between the importance of sufficient coverage in case of a loss, and the general understanding and interest from end-consumers.
Why is this a problem? Scarce accessibility leaves people with few insights and little knowledge about how to protect their lives and things they love the most. In addition, today’s inaccessible insurance experience also causes problems. Today, consumers need to go to different sources to find the information needed to complete an insurance purchase both online or offline (sales over the phone) - often leading to the consumer dropping off due to too much hassle. The after-purchase experience is in need of improvement as well, where insurance holders need to visit their different insurance providers’ my-pages to see their policy, or look through physical insurance policy documents. The lack of a complete overview, together with complicated policy wordings, makes it very challenging for end-consumers to fully understand how they are covered and how that coverage corresponds with potential future losses.
When consumers feel like they don’t have enough information, it undermines their trust in their insurance provider. Getting a consumer to change a provider is also notoriously difficult, as they know too little about insurance to know whether their old or new provider offers the best terms. That’s why a lack of available information makes it harder both to retain current customers as well as gain new ones. In short: informed customers = more loyal customers. This is where open insurance and the sharing of insurance data can help.
Lower insurance sales threshold with open insurance insights.
Through digital authentication the consumer can allow data sharing of its insurance data and see the information within an app or have a phone sales representative access the data as a basis for better insurance recommendations. This leads to insights and makes it easier for consumers to make well-informed decisions about an insurance policy or to view all their insurance policies in one place - without leaving the app. Sales are thereby made more efficiently and effectively by insurance providers - a win-win.
It’s important to note that at no point will information be forcibly taken from the consumer – it is their active choice to make, and with consent given through authentication the process is transparent, smooth, and compliant with all applicable regulations. The choice to share data creates trust and loyalty while offering the customer a more pleasant customer experience. Given the development of data sharing in the insurance industry, and the inherently sensitive nature of such data, it is important to use the shared data solely according to the customer wants and needs and approvals. A practical example of the former is to make it clear to the end-consumer what data is shared and for which purpose in every step of the process.
Going one step further, as a company that works with large amounts of data - we are keen to use a high-grade encryption (stronger than what is used in the banking industry). We continuously invest heavily in our IT-security and data protection, both when it comes to technical and organisational measures.
Transparency – the key to customer loyalty.
Earlier we touched upon the importance of transparency in an increasingly digital world. With knowledge being so easily available, openness is becoming even more important to today’s consumers. In this glass door world, the insurance business has “a truly shocking reputation”. According to Peter Blanc, CEO of British insurance company Aston Lark: “If you stopped a hundred people in the street and asked them their thoughts on insurance, many of them would say that you have to buy it, but then the insurance companies try to wriggle out every time there’s a claim.” There’s a general idea that the insurance business isn’t doing what it’s supposed to – a perception that open insurance has the power to change. With open data and insights, both the insurance company and the consumer will be able to have all the relevant information before making a choice.
So, why is transparency so important?
- For the consumer, open data and transparency will enable them to make an informed decision at every stage of their insurance journey. They’ll know what kind of plan they have, what terms and conditions come with it, and how it compares to other insurance options on the market. In case of a potential future loss this also creates a better understanding of how you as a consumer will be reimbursed.
- For the insurance company, the sharing of user and industry data provides an excellent opportunity to innovate and future-proof new and old business models. After all, what’s better than your data? All the data. Knowing how competitors work and what they’re developing will increase innovation and promote business development.
Moving together towards a digital & user-friendly future.
In a world powered by digital transformation, insurance companies have the opportunity to manage the huge amount of data generated by their business. Data management and insights are a strategic priority across all enterprises, regardless of industry.
APIs such as the ones used in open finance will help insurance companies to open their own data sources as well as collect data from their consumers, competitors and even third parties. These types of digital ecosystems are what the modern-day consumers want and need, so we believe it’s our duty to find a way to give it to them from an industry perspective.
In the end, things are changing rapidly and businesses able to continually adapt to new circumstances will prosper in an increasingly digital world. The first enterprises to try new technologies such as open insurance and banking APIs will have a massive head start as digital transformation will continue to drive the economy forward. It’s best to be prepared for the changes ahead by implementing open information sharing; which in turn will lead to increased transparency, customer loyalty, and an insurance industry ready for the future.
Open insurance is here to stay. When you are ready, we are here to help.