How can insurers prepare for the era of open insurance?

Open insurance introduces new ways for insurers to interact with customers. The winners will be the customers, but also the companies embracing change.

While the above scenario might seem far beyond the horizon, the underpinnings of the insurance industry are very likely to change in the near future. The introduction of a European Open Insurance Directive (EIOPA) is currently being discussed as a response to changing customer expectations.

The new directive would enable insurance customers (individuals and businesses) to share their data with related third-party providers (TPP) via Applications Programming Interfaces (APIs). It will require insurance companies to allow for the exchange of customer information in a more efficient manner. 

Open insurance is believed to not only contribute to a more efficient and innovative insurance market but also to meaningfully disrupt conventions on engaging with and creating value for customers.

The insurance ecosystem and its impact on the operating model

The opportunities created by open insurance will disrupt the industry and create a cross-industry ecosystem of services. Traditional insurance companies that do not enter strategic alliances may face a competitive disadvantage.

To have a successful digital insurance ecosystem that generates value, insurers must define their strategic goals. Insurers need to consider which part of the value chain they want to expand or strengthen. The opportunity of entering strategic partnerships and integrating their products with the offerings of their business partners will enable an increase in revenue streams and provide a broader customer experience.

Skandinaviska Enskilda Banken’s (SEB) strategic partnership with the Swedish InsurTech Insurely is an example of a company preparing to meet evolving customer needs as the industry changes.

Insurely endeavors to revolutionize the Swedish insurance market by offering innovative APIs and user-friendly solutions for open insurance. Through the partnership, SEB ensures access to Insurely’s dynamic APIs and technology, helping deliver an improved digital experience for their customers – with more insights and services. SEB anticipates that the use of Insurely’s access to real-time data and recent technology will accelerate the digitalization of its insurance offering and help it remain competitive.

Key learnings about open banking

Open banking provides third-party developers access to financial data from banks and other financial institutions, through the use of APIs.

In the open banking system, banks were forced to quickly transform their business models around the digital distribution of data and embrace recent technology. Most traditional banks experienced hurdles while operating in complex infrastructures which lack flexible IT infrastructure (that would have allowed for an easy opening and connection to TPPs).

With the open banking system, banks suddenly had a need to find new ways to engage and attract customers, while confronting disruption from start-ups. Insurers are expected to face similar pressures which raise the need to adapt, innovate and collaborate in areas where business agility will be vital.

Consequently, the transformation that most traditional banks went through was not only about digitalization. It was also about strategically integrating with the other players in the market. Today, banks are increasingly managing their engagement in an open ecosystem through a variety of different approaches.

Another key learning from the open banking approach was how to address customer concerns related to data protection and cyber security. The increasing availability and openness of data do not come without risks. As insurance often deals with highly sensitive customer data, it will have stricter rules compared to the banking industry and have a higher degree of involvement from supervisory authorities to secure a commonly accepted API standard.

Banks that adopted this strategic opportunity before the regulation came into force have a competitive advantage over banks that decided to act once the regulation was put in place.

Opportunities brought forth by open insurance

Open insurance will force insurers to rethink their operating models and better understand their interaction with customers and their position in the ecosystem. But it will also come with benefits for both the insurer and the customer.

Through open insurance, insurers can challenge the norms of what a customer experience should be like, with new experiences along the journey. The open insurance model also helps insurers understand interactions that directly address what forward-thinking customers value the most. This creates strong customer loyalty and increased credibility in the industry. Insurers have the potential to engage with customers throughout the product lifecycle and offer data-driven personalized products.

Utilizing data in new ways is key to anticipating and creating insights into customer behavior. This also helps insurers be proactive in providing tailored solutions based on customer needs. More customer-centric information will lead to more well-informed business decisions for insurance companies of the future.

Also, in-house processes are likely to improve, leading to a more cost-efficient administration, decreased operating costs and rapid but informed product development. Open insurance will foster innovation, empower customers and help ensure that products and services are aligned with customer needs – creating a more efficient market.

Next steps for insurance companies

Local success for insurers will be all about focusing on what truly matters to their customers. Market leaders will be the ones who embrace the opportunities arising from open insurance and challenge the current state. Laggards will wait for regulatory change and stick to traditional business models and hence face challenges in defending their market shares.

However, accelerating change to achieve the desired customer experience requires both strategic commitment and a way of working that supports open insurance. Below are the key steps that must be taken by insurers to seize opportunities in the open insurance ecosystem.

1. Define a clear target state for customer interactions to set the direction for your organization. The target state should act as a guiding principle for all existing and future developments. Future customer interactions will be driven by digital innovation, so insurers need to invest in digital developments, analyze customer data and set the foundation for a strong culture equipped for change.
2. Embrace technology that is scalable and creates a suitable environment for products and services that answer new customer needs and expectations. Invest resources in building a deep understanding of AI-related technologies so as to be successful when operating within a data-based ecosystem.
   
3. Create an API strategy and infrastructure to support the integration of business offerings through partnerships. APIs should be designed for the customer with valuable services and flexibly built-in, to help adapt and enable the rapid creation of new services.
4. Enter strategic partnerships and create a digital ecosystem strategy that optimizes the value chain with new offerings, technology, features and integration using APIs. Create a market expansion strategy based on the part of the value chain that needs to expand or strengthen, and build partnerships accordingly.
5. Embrace an agile work environment and look beyond technology to transform. Invest in talent to develop internal capabilities. The insurance of the future will require people with the right mindset and skills, who possess a unique mix of being creative and are technologically adept.