Open insurance - aspirational or elusive?

Whether one calls it "open insurance", "embedded insurance", or "insurance as a service", insurance seamlessly integrated as a part of wider ecosystems has been a concept which has drawn interest both from insurance incumbents and non-financial players alike for last several years. No player has exactly cracked a perfect form of open insurance yet - including some of the biggest and most proactive insurance brands. The more all market participants have talked about open insurance, the lesser is the exact clarity on how exactly it can be developed or even defined in the first place.

Defining 'Open Insurance': can we?

Earlier this year when EU's financial regulatory institution EIOPA (European Insurance and Occupational Pensions Authority) came out with a discussion paper on this topic, it appropriately left it vague. It considered open insurance in the broadest sense, covering "accessing and sharing insurance-related personal and non-personal data usually via APIs". However, the fact of the matter is that there is no uniform definition of open insurance or open finance, nor is there sufficient settled academic or expert literature on this. However, to put it simply open insurance is a way in which the insurance value chain can be made less siloed through better sharing of consumer information across ecosystem partners. Insurers should be able to access new customer pools & data from other eco-systems, ensure insurance is embedded in offerings in the value of chain of other non-insurance products & services & can ultimately identify ways in which it can offer better value to customers without raising (or potentially reducing) costs for all ecosystem participants.

Understanding implications of open insurance requires looking at it from 3 distinct viewpoints:

• Industry angle: Increased data exchange within insurance sector players, across other financial services firms (banks, asset managers, wealth managers, etc.) & even other sectors such as automotive, real estate, consumer/retail, etc. can facilitate industry-wide innovation, openness & collaboration. It can provide insurers easier access to wider markets through more digital customer sales journeys reducing administrative & marketing expenses.
• Consumer angle: Integration of data, technology & new services can result in products/ services tailored to consumers’ demands/needs - including providing consumers the option to exclude unwanted product features. The wider insurance ecosystem can provide better switching services for consumers and which can encourage consumers to compare the market offerings better & ultimately reduce prices.
• Regulatory angle: Open insurance could also open doors to new supervisory tools as it can allow compliance with regulatory goals to be automatically monitored by reading the data that is exchanged by providers via standardized APIs or new age cloud computing services.

But why is wider adoption far off?

• The risk of competition from non-insurance players in the absence of 'data reciprocity': Adopting open insurance may require insurers to share data of their customers with non-sector players. Given that customer's financial, risk & demographic profile related information is a key competitive differentiator for insurance players, insurers may be apprehensive letting go their competitor edge. Opening up data assets can give a strong push to new age InsurTech players, big tech players & market leaders from other sectors. Unless insurers are assured of 'data reciprocity' from non-insurance participants, they may see open insurance more as a risk than an opportunity.
• Maturity of interoperable data sharing technology & framework: Insurers & other participants need frameworks and systems which can effectively manage data security, interoperability, efficiency & usability. While APIs are generally touted to be prime means to achieve these given that they are good for data sharing, APIs lead to data duplicity, are not efficient in managing bulk data updates, and fixing errors in historical data is also not very easy.?Besides these features, a robust data system would need to have unique flexibility to roll up and integrate with other service providers - preferably through 100% cloud based services.
• Data protection standards require a plethora of checks & balances: While opening up data would be ideal, ensuring that all market participants would be able to safeguard customer data adequately would not be easy. The possibility of a data breach by involving multiple players can be a massive reputational & regulatory risk. Insurers might prefer to manage these risks within their organizational boundaries instead of building in chances of any unwanted data leak by actively looping in a large number of players.

Will "open insurance" remain elusive?

As the above context indicates, there are apparently more inhibitors rather than enablers for the sector to embrace open insurance whole heartedly. However, that has not stopped multiple incumbents to make inroads in this space - even if these are more piecemeal rather than being holistic. Some recent notable examples include:

• A French insurer has offered more than 50 APIs ranging from pricing to claims management to contract management for multiple market participants including distributors & IoT network providers. Any developer can test its APIs in a “sandbox” environment, and then integrate them into its platform.
• A major US insurer offers a quote aggregation API across personal & commercial lines allowing partners to collaborate seamlessly.

While the number of open insurance examples are still limited, it is prudent to assume that some of the most proactive insurers will take open insurance as a challenge in their bid to win the market by effectively leveraging emerging ecosystems. However, embedding insurance in wider customer journeys would require incumbents and other partners to showcase a lot of careful planning & agility to ensure that the risks from data breach, misuse and fraud related to sensitive personal information are minimal. At the same time, costs of developing?new frameworks & systems & potential operational risks should not negate the advantages expected from open insurance. The sector would also require a supervisory framework which fosters innovation & openness but also puts in place the right safeguards to protect both customer interest & sector's viability.

Reference: EIOPA's discussion paper on open insurance - https://www.eiopa.europa.eu/sites/default/files/publications/consultations/open-insurance-discussion-paper-28-01-2021.pdf

Disclaimer: The opinions expressed above are my personal ones and do not reflect the views of my employer.