Forward-looking insurance executives have been exploring a range of new business models and product offerings as they seek growth after a decade of stagnation.
Ecosystems are one prominent area of investment and experimentation, since they would allow insurers to provide customers with a broader range of services via rich personalised digital experiences. Subscription models, which would give customers flexible and customisable products and features, are another focal point of innovation.
But legacy tech systems present a huge barrier to developing these new business models and modernising the product portfolio. In some cases, digitising processes requires costly and disruptive technology implementations, which few insurers can afford, and which take too long to complete. Ecosystems are seen as a potential solution, but only if insurers can easily exchange data with insurtechs and other collaborators.
“Open insurance” holds the key to navigating these challenges and launching a new era of innovation. Like open banking, open insurance would boost the portability and accessibility of customer data information among different institutions and market players, based on customer permissions and the use of secure application programming interfaces (APIs).
The idea that consumers own their data is the animating principle here. Under open insurance, customers could continually review their pricing and policy options among multiple carriers, choosing to share health, lifestyle and behavioural data, alongside their financial details. They would also be able to see single, unified views of all their coverages and accounts. To be clear, open insurance is in initial discussion stages, even in markets where open banking has reached maturity. In the UK, for instance, an association of brokers is pushing to include insurance, pensions and investments under a broader vision of “open finance” and the Financial Conduct Authority is holding public consultations. In Australia, the Consumer Data Right may be extended to insurance products. In both of those markets, regulators are taking the lead; in other markets, such as the US and Japan, market-led initiatives are just getting under way.
In Brazil, insurers and regulators are working together proactively to establish open insurance systems and policies that will benefit all stakeholders. Initial regulatory guidance was released in July 2021. Several market players, including EY, are designing the necessary governance structures and interoperability standards, based on existing open banking frameworks. Product, personal data and data sharing requirements are set to be completed by mid-2022, with an eye to rollout in 2023.
While there are many legal, technical and logistical details to work out, we believe it is a matter of when, not if, open insurance comes to fruition. Open insurance will eliminate many barriers to innovation and prompt the development of the next-generation value propositions and business models that industry executives and analysts have talked about for years.
Beyond collaborating with regulators, insurers can prepare for open insurance by embracing the technology, talent and ways of working they will need to succeed. They can collaborate with insurtechs to integrate new data sources, enhance elements of the customer experience, expand usage-based policies and add adjustable features. Agile development methodologies – including “test-and-learn” thinking and minimally viable product releases – should become the norm.
Modular development platforms and advanced APIs will enable innovation at scale by making it easier to connect partners and develop ecosystems. These capabilities will be essential in the open insurance era, so insurers should start developing them now.
The bottom line: increasing customer value
We believe open insurance will give insurers an opportunity to strengthen their brand relevance by enhancing the fundamental value they offer customers. As insurers and regulators continue to advance a viable operating vision, they will open the door to the more dynamic, customer-centric and purposeful insurance industry that so many of us believe is within reach.
You can also view this article in the first weekly edition of #ReinsuranceMonth, which was published on 1 September by The Insurer and is available to download for free at theinsurer.com/reinsurance-month/weekly-editions.