The world of finance is increasingly becoming boundaryless and moving toward connected experiences.
The concept of open banking has paved the way for data sharing between financial institutions. It is now time for the insurance industry to embrace the ‘open’ paradigm and move to ecosystem models. We discuss the trends that are shaping the insurance industry and present a strategy that insurers can adopt on their open insurance journey.
Tapping into the open insurance opportunity
With the rise of digital ecosystems, insurers are looking at disruptive ways to elevate customer experience.
Advances in digital technologies and innovative insurtech players are shaping the way insurers approach digital ecosystems. Given their ability to infuse agility and enhance reach among customers, digital ecosystems are the next big thing in the industry. The way forward for insurers is to embrace the concept of open insurance and unlock the potential of ecosystems.
Open insurance is a new way for insurers to engage with partners and consumers, and in turn, increasing efficiencies and generating better revenues. To capitalize on the open insurance opportunity, insurers must openly share their data with other participants in the ecosystem. At the same time, they must consume data from other sources and ecosystem partners to create compelling value propositions, generate new revenue streams, enhance relationships with existing customers, and attract new ones.
Multiple stakeholders such as consumers, distributors, insurers, and re-insurers are shaping the industry’s approach to open insurance. New trends, unique to each stakeholder (see Figure 1), are transforming the industry, which is morphing into an ecosystem-based, connected experience model. Open application programming interfaces (APIs) power this model and are the preferred method to simplify processes and transform core insurance systems. This model enables the shift to a futuristic digital platform that caters to evolving customer needs and delivers seamless, secure, resilient, and personalized experiences. This is imperative, given customers, especially gen Y and millennials, increasingly expect a connected and contextual experience.
Figure 1: Trends shaping the insurance industry
Open insurance offer insurers, customers, and partners a plethora of benefits across different dimensions such as customer propositions, partnerships, new revenue streams, and operational efficiencies (see Figure 2)
Figure 2: Benefits of open insurance adoption
Lessons from open banking
Global legislations require banks to share customer data with peers, third-party providers, and fintechs.
The European Union’s revised Payment Services Directive (PSD2), the UK’s Open Banking Standards, Australia’s Customer Data Rights (CDR), and Canada’s Consumer Directed Finance (CDF) require banks to share customer information and data with other players after obtaining consent from customers. Majority of banks in these regions have made significant investments in open banking. By connecting to ecosystems, these banks have made extensive data available in the ecosystem to craft hyper-personalized, innovative customer experiences. Examining the open banking implementation strategy of such players will offer significant inputs and insights to insurers on how the open insurance concept will impact the future course of the insurance industry.
New business models
Open interactions will spur ecosystem-led business models, which will prompt insurers to engage with their customers and partners in new ways. This will also put pressure on traditional intermediaries and brokers to change the way they work.
New data monetization avenues
Digitization is omnipresent in every aspect of life, and the abundance of data in the ecosystem, thanks to an open model, lends itself to newer ways of engaging and doing business. Open banking has shown how access to data from other financial institutions creates monetization avenues and unlocks immense value. Insurers will be able to monetize customers’ product and behavioral data residing on their systems by sharing it with interested third-party providers (after obtaining customer consent) to create unique customer-centric propositions.
Soaring customer expectations
Open banking has revolutionized the way financial institutions serve customers—varied services and customized offerings. Customers will expect insurers to match the transparency and service experience that banks deliver.
Disruption by insurtechs
Competition will increase, and disruptive players will enter the field. Open banking has showed how new payment players were able to disrupt traditional banks by crafting innovative and engaging payment experiences. Similarly, nimble insurtech players will take advantage of open insurance and ecosystem models to launch innovative offerings.
To succeed at the open insurance game, insurers will need to pivot nimbly, innovate rapidly, collaborate, and quickly adapt to change.
Embracing digital ecosystems: A strategy for insurers
Digital ecosystems help innovate, reach a wider base of customers, and grow business partnerships.
Insurers have two options while embracing the ecosystem model: one, by creating and owning the ecosystem, and two, by participating in an already established industry-wide ecosystem. Whatever path an insurer decides to take, defining a clear ecosystem strategy that helps adapt the existing business model to align with the ecosystem thinking is key. Insurers must opt for a holistic strategy that clearly defines why it is being implemented, the target ecosystem, and the role of the insurer in the ecosystem.
In our view, regulatory compulsions will not force adoption of open insurance, at least, in the near future. Having said that, insurers that focus on proactively preparing for this seismic shift will be well ahead of the curve in capitalizing on the new opportunities that open insurance will create. In our view, a successful shift to open insurance will require firms to follow the establish-collaborate-consume-compete strategy or the EC3 strategy (see Figure 3):
Establish the open insurance ecosystem.
Collaborate with ecosystem partners, other organizations, and insurtech players.
Consume data through APIs from other participants in the ecosystem to create contextual customer experiences.
Compete with digital disruptors that have the potential to disturb the status quo in the industry.
Figure 3: Open insurance strategy
However, a word of caution here: before implementing open insurance, insurers must holistically examine their existing capabilities. The established specialty systems and processes that have been created over the years are the core strengths of insurers. These processes are the building blocks that will determine the ecosystem opportunities that can be monetized to create new revenue streams. There are ample big-ticket opportunities that build a strong case for insurers to move to ecosystem models and grow their businesses (see Figure 4).
Figure 4: Opportunities across different insurance segments