Blog: Open finance - an opportunity for the insurance industry?


Before the insurance industry fully realised the potential of open banking and the opportunities this Payment Services Directive 2 initiative affords them, the Financial Conduct Authority called for input to its 2020 open finance consultation paper. For the insurance sector, this means getting to grips with another concept says Stephen Walsh, EMEA director at Sensedia.

Whether it’s banking, finance or insurance, it’s clear financial services providers will in future need to develop new business models, products and ways of engaging with customers.

So what does ‘open’ mean?  It’s exposing data, products and services to third parties – even competitors – to add value to customers. It transforms the way people move and use money, shares data in a safe environment and enables customers to consent to third-parties accessing their account information or making payments on their behalf.

Open insurance facilitates the development of personal finance management dashboards where customers can easily switch policies, share more information about themselves and receive enhanced and more affordable products. Differing sectors will come together to offer innovative propositions.

A bank for example, may analyse transactional data, and where it sees winter skiing payments are made, it could offer a tailored insurance product, plus discounts with a skiwear provider. And with insurance payments, it could recommend cover that’s missing.

Businesses will be able to reach new customers/markets and develop new revenue streams; they’ll also be able to increase service line efficiency and flexibility, finding new ways to deliver products and make decisions.

The benefits are clear, but the same cannot be said for sector confidence. At a recent PSD2/open banking conference in Amsterdam, global insurers voiced concerns over how to maximise the potential of the open world, identify the support they need and manage their Application Programming Interfaces.

Without an API, no open initiative will succeed.

It’s the digital glue that connects different systems, enabling businesses to: better connect with financial services partner clients and the whole ecosystem, reach new channels, monetise data and services, provide customers with digital and omnichannel experiences, develop platforms for partners, boost innovation and create viable products that reach the market quickly, enhancing the customer experience.

It moves a business from single/multi-channel customer communications (company, branch, web and app based) to multi-experience ecosystems (the Internet of Things, virtual reality, third-party online portals and marketplaces). It also ensures firms meet security, performance, governance and access-control guidelines, protecting customer data and their technology.

API management software specialists, OB technology vendors (producers of more simplified versions) or in-house IT teams are capable of delivering the required APIs. However less sophisticated software could lack the governance/transformation elements, and those relying on in-house solutions could create potential update issues and security exposures.

In order to maximise open insurance, businesses must: understand the API value – data consumption and regulation compliance alone will not create a competitive advantage; understand where the API adds value and how it aligns with strategic goals/objectives will; identify new partners – create ecosystems with fintechs and other financial services providers; recognise security – companies providing data via APIs will have to comply with security and access-management regulations; demonstrate a clear understanding about who’s consuming the data and where it’s flowing to.

As customers increasingly own their data, they’ll decide who the most innovative service providers are, making choices from within a wider financial ecosystem. So rather than view other financial services providers as competitors, insurers must leverage their relationships, work in partnership and recognise them as additional revenue streams. 

If insurers and their partners are to keep pace with this ‘brave new world’, they must move up a gear to meet the changing needs of the industry and consumers, and appreciate the value of data sharing, security, transparency and personalising products/services.

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