What is an API and why should insurers use it?

Part of my job consists of translating IT language into plain English (or Spanish) so everyone I talk to, regardless of their technical background, can understand what we do. I have to pretend I have a technical mind when speaking to IT and then pretend I am explaining what I learned to a 4-year-old child. And I love it.

In this article, I will try to explain in plain English what an API is based on what I have learned during the last few years and how it can benefit insurers. While the content of this article might be basic to some of you, reviewing the basics in such a complex world seems to me to be a good idea.

What is an API?

If I google API, it says it is the acronym for “Application Programming Interface”. I have to admit I have no idea what that means.

Analogies work well in these cases. Here’s one: an API is to databases what a phone call is to communication. You pick the phone up and establish a relatively secure real-time communication channel immediately with someone else. Instant. Real-time. 24/7 service. Almost no effort.

Before phone calls, people used to use mailing or travel to establish a communication channel. These processes were manual, costly, and time-consuming.

That’s what happens with APIs but applied to databases. If we want databases to be talking to each other, being enriched, sending, and receiving, the API is like the phone line between them. It enables data to have a real-time, effortless communication channel.

Why is everyone talking about it?

Any technology that is beneficial becomes trendy and adopted by the market. The benefits of having an API system are unquestionable and every company that manages any type of data should consider having an API. The reason is, the API is a door to the world of data. It opens the possibility of sending and receiving data with no manual intervention.

In insurance, this is a technology that is still being adopted by the market. Insurers can find big benefits from this. It takes time and lots of money to change their systems and make them API-ready, but it definitely pays off. Let's see what are the benefits.

How could an API be beneficial to insurers?

Let’s imagine you are an underwriter and I have an API that connects my database to yours. My database contains data related to the risk of all the businesses in the UK. Your database is the one you use to review and approve quotes.

The moment a risk comes into your system, my API enriches the data you have. You haven’t performed any request; the system does this automatically. I am at home having a cup of tea (or writing LinkedIn articles) and your IT team is on holiday, so we are not even aware of it. No one has taken any manual action, you are just making a phone call, and we, the guys who work at the phone company, don’t even know.

In just one second you know how many locations this risk has, what are the SIC codes, flood risk, etc., so you can make a quick decision on it. Sounds great, right?

The scenario you had before the API consisted of searching on Google the company, opening 10 tabs, looking at the data you are interested in, verifying if this data is real, and then making a decision.

Now apply this same logic to claims, fraud, and pricing: saving time and increasing accuracy leads to higher profits.

What else should I know about APIs?

If you are someone working at an insurance company, it might be interesting to ask internally what APIs you have available. APIs are not only useful to connect to external databases but also to enable better communication between your departments. So claims data can be linked to pricing data and so on without the need to manually update databases every day.

So we have two types of APIs: external and internal. Finding out which ones are available will give you perspective on what’s possible and what you need to take your job to the next stage of efficiency and efficacy.

Do you want to talk about APIs in insurance or learn more about it? Feel free to connect or reach out to me at [email protected]