Open Finance: a transformative force in the world of insurance

The festive break feels like a distant memory – something that I’m sure many of you can relate to! 

It’s been an incredibly busy start to the year at Confused.com. You may have seen the recent news about our potential acquisition by RVU which is expected to close in 2021, subject to regulatory approval. It’s an incredible opportunity for everyone at Confused.com and we are excited by the potential of bringing our two organisations together, driven by a shared, purpose-led objective of empowering people to choose better.

Meanwhile, we continue to navigate the ongoing Covid-19 pandemic. Whilst there is now a light at the end of the tunnel with the rollout of vaccinations, we are clearly not out of the woods yet (apologies for the mixed metaphors!). The UK economy will be among the hardest hit by the pandemic of leading nations[1], putting people under significant and ongoing financial pressure. The role of comparison sites, in helping customers reduce household outgoings at this time, cannot be understated.

Whilst I’m busy addressing these immediate opportunities and challenges, and driving progress forward, I don’t want to risk being short-sighted. We all need to remember to look to the horizon and consider what’s out there – it certainly helps to galvanise a more positive outlook! What’s the bigger picture? What innovations lie ahead? And what is our role in this changing landscape? For me, working in a fast-moving, customer-centric business, I’m looking at Open Finance, and its potential impact on insurance. I think we’re not talking about it enough as an industry, let alone considering the active role we can play in driving this tech-enabled innovation forward.

Open Finance is built on Open Banking, a set of data-sharing principles and API standards that recognises customer ownership of their banking data and their ability to choose to give third-party providers access to this information e.g. for tracking pensions contributions, ‘sweeping’ into savings products, automated switching. This Open Banking ‘revolution’ was mandated in 2018 through the CMA’s Open Banking Standard, the regulator’s response to the failings they found as a result of their investigation into the personal and business accounts market (2013-17). Open Finance extends Open Banking-like data sharing and third-party access to a far wider range of financial services and products – including, of course, insurance. The FCA sees it as a key enabler for greater consumer control over their data, more engagement with finances, more and better products, and ultimately, better financial health.

Open Banking is gaining promising traction in the UK, having just reached two million UK customers[2]. Why? Simply because there are now products and services out there that meet real customer demand and solve real customer problems. Bespoke, personalised financial services products that are powered by Open Banking are enabling customers to better understand their spending and save more. The Money and Pensions Service is piloting the use of Open Banking to increase efficiency and accuracy of debt advice[3], innovators like Felloh! are enabling real-time payments for charities (cutting banking charges which can be a significant cost) and OpenWrks is one of a growing band of FinTechs building applications for credit, savings and investments to power new and existing customer-facing firms.  

Yet there’s still a way to go. According to research by PwC, more than 33 million are expected to have signed up to Open Banking driven services by 2022 – but it’s a figure that looks unlikely to be achieved. Just one in four people in the UK have heard of open banking[4] and of that group, just one in five understand what it even means! 

But this shouldn’t stop the excitement growing around the potential of Open Finance. Open Banking typically only involves your current account, whereas Open Finance can build a much more comprehensive picture of an individual or business’ financial life. But to make it succeed – in the world of insurance and elsewhere – we must take the lessons learned from its older sister.

We know that trust in financial services is low and is a key obstacle to the success of Open Banking, which hasn’t been helped by poor communication around user benefits.

Corporates fail on this front time and time again because they speak in high-level, convoluted business terms and lose sight of the fact that at the end of the day, they’re communicating to another person.

Rather than trying to encourage people to share their data in exchange for vague offers of ‘personalised services’, we must provide customers with the reassurance they need regarding the safety of their data and communicate a clear, immediate and tangible output, demonstrating to people how these products will improve their daily lives. For example, by allowing your health insurance provider access to your FitBit data, you could secure lower life insurance premiums; by allowing your motor insurance provider to monitor how much you drive, you could pay for insurance by the mile. More efficient data-sharing should impact positively on insurance switching, especially on non-disclosure. For an interesting piece giving a combined consumerist and sector view, see Open Finance — a disruptive force in insurance?[5]

I have the privilege of working with one of the co-authors Shan Millie on the InsurTech 2.0 Board, operated by TechNation. We’re working together to create a report that informs the insurance sector about the opportunities and progression in Open Finance and to inspire insurtech innovation in this area – so watch this space!

Another big part of trust is the security of customers’ data. The regulatory framework in place is strong: only regulated companies are able to process and hold the data. The good news? Young people and the digitally-native are already on board. 45% of those who signed up to Open Banking initiatives during the pandemic were 25 to 34-year olds[6]. 

Bringing Open Finance to insurance is a continuation of the digital, data-driven journey we are already on. It will be a brilliant stimulus for innovation and a way to work with others both inside and outside the sector and build a relationship based on trust rather than transaction.

We can’t do it alone: to overcome the challenges to making ‘Open Insurance’ a lived reality, we need to reach out to our community and encourage cross-industry collaboration. We also need to recognise our own limitations: I’m committed to learning more about this issue and finding ways to drive it forward as I’m only at the beginning of the journey.

At Confused.com, we work hard with our insurance partners to make sure the customer gets the right outcome and enable a marketplace that delivers transparency and trust. Open Insurance is built on these same key principles and if shaped correctly, has the potential to spark more innovation and competition in our industry. Most importantly, it could be a big step forward in becoming a truly valued partner in our customers’ lives.

Want to find out more? Check out the below as useful starting points…

https://insuranceblog.accenture.com/the-ultimate-guide-to-open-insurance

https://www.socup.org.uk/news-insight/news/articles/open-finance-a-disruptive-force-in-insurance/95404

https://sifted.eu/articles/open-finance-future/

[1] https://www.bbc.co.uk/news/business-55143285

[2] https://www.openbanking.org.uk/about-us/latest-news/real-demand-for-open-banking-as-user-numbers-grow-to-more-than-two-million/

[3] https://maps.org.uk/pace/

[4] https://www.ft.com/content/a5f0af78-133e-11e9-a581-4ff78404524e

[5] https://www.socup.org.uk/news-insight/news/articles/open-finance-a-disruptive-force-in-insurance/95404

[6] https://www.choose.co.uk/news/2020/two-million-people-using-open-banking/