Open Insurance as an opportunity to further develop your own business
Open Insurance offers insurers and InsurTechs significant opportunities for the future development of their own business model and thus for strengthening their own competitiveness. Where does the industry stand, what are the drivers of change and the general conditions? An analysis.
The idea of an open world in which every individual has access to all data is becoming increasingly popular. But why should insurance companies, for example, share their data? Won't they then lose their competitive advantages they have painstakingly created? Not necessarily: By thinking and acting in (digital) ecosystems, they use data in the interests of customers. They optimize their processes, improve internal data quality, reduce transaction costs and, above all, develop new business models.
Open Insurance as part of Open Finance
The added values resulting from (the sharing of) data are no longer new to the financial services sector. Open Banking has already led the way; the PSD 2 directive promotes the development of innovative and more user-friendly payment options, while at the same time ensuring increased transaction security and improved consumer protection.
Open Insurance is the next step towards Open Finance, a connected digital financial ecosystem. Open Insurance describes the open and standardized exchange of insurance-related personal and non-personal data using (open) interfaces (APIs) and defined process standards. The focus here is on the users, who as "data sovereigns" decide for themselves whether and how to make their data available. The key factors here are openness, standardization, and customer centricity.
In the insurance world in Germany, however, there is still no concrete regulation on opening up data to third parties. Nevertheless, national and international legislation is increasingly pushing for the cross-industry opening of data interfaces in order to create a uniform legal framework. In addition, this is being driven forward by various initiatives, such as BiPRO e. V. or FRIDA e. V. Looking abroad helps here: The Singapore Financial Data Exchange (SGFinDex) is the first public digital infrastructure platform for financial data that uses a national digital identity and a centrally managed, online consent system to provide Singaporeans with access to their financials on a uniform basis. Three key lessons have been learned in this regard over the past few years: (i) the implementation of Open Finance is dependent on the maturity of the underlying technological platform, (ii) it is critical that all players adopt a collaborative and common approach, and (iii) the slow built-up of the platform through a gradual onboarding of new financial players is crucial.
Drivers for change
Open insurance is certainly not a temporary phenomenon, but will continue to spread in the coming years, comparable to banking, and leads to new products, services and business models. The overriding drivers and influencers are, in particular, the market and the associated expectations of customers, as can be seen not least from the success of PSD 2. Legal and regulatory pressure from Europe should also be mentioned here: A Data Finance Strategy of the EU Commission is derived from the European Strategy for Data. EIOPA took this up in 2021 with a discussion paper on open insurance, in which mechanisms for data exchange in the sense of open insurance are clearly advocated.
The General Data Protection Regulation also forces access to data. While compliance with this standard can involve a great deal of effort to ensure information security and data protection, it also tends to be a booster for data-driven innovation and open insurance rather than a hindrance.
Last but not least, promising, innovative use cases also promote the spread of Open Insurance, according to the EIOPA Discussion Paper, especially in the areas of claims management, pricing and underwriting, (post) sales and distribution. More concrete use cases could reach maturity, for example, in the area of overarching pension cockpits or parametric insurance. There are also initial use cases in the U.S., including natural catastrophes, retirement planning, healthcare, and auto insurance. These use cases need to be further developed.
At present, open insurance is still primarily a vision that needs to be promoted, defined more clearly and (further) developed. The idea behind it is promising: open up your own value chains for digitization and generate added value with new products and services. For customers, but also for the company itself.
FinTechs and InsurTechs can play relevant elements of value creation even more effectively, position themselves with innovative platforms, and become part of a digital ecosystem. And insurers in particular can position themselves as trustworthy and secure market participants for data analysis and data aggregation. New products, services and business models thanks to aggregation and analysis of financial and insurance data, comprehensive advice for customers thanks to data transparency and completeness - the opportunities are abundant. The task now is to take advantage of them in real life.