After open banking, open insurance?

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Open insurance blog Projective
Open insurance blog Projective

Typically, disruption in banking is caused by new players in the industry This can’t always be said for insurance. Their disruption is often caused by traditional players becoming part of ecosystems. As mentioned in prior blogs, these ecosystems are usually built around lifestyle events like home, mobility or travel where insurance can play an important role, either visible or invisible. Becoming part of these ecosystems requires traditional insurers to open up.

In order to open up, create open propositions and different kind of partnerships, insurance companies should be focusing on two main directions. They need to collect data from external sources and expose their own data, algorithms, processes and products to others through APIs. This can then be used to generate new income, improve claim ratios and reduce costs.

New income from new distribution opportunities

Opening up, offers numerous distribution opportunities to generate new income. The integrated bancassurance models are a perfect example. These are the kind of models in which you cannot tell where the bank’s process ends and the insurer’s starts. This means bank employees have the possibility to sell insurances from their banking front office systems, often ‘packaged’ with the banking products (“uncheck box if you don’t want an accident insurance linked to the credit”). Another great example is Lemonade: their public API allows anyone to sell Lemonade’s policies through their own apps or websites. Lemonade offers “different options for integration with various levels of personalisation”.

Better claim ratios from new sources of data

Better claim ratios come from optimal use of huge amounts of data that is collected and generated. If an insurer is able to ‘glue’ all available data together and extract valuable insights from that data, it has the opportunity to understand and price risks more accurately. This not only allows for a better underwriting of risks but also in preventing problems before they occur with the help of predictive analytics. Variances in data might indicate early stages or problems. For example, during the 2018 California Wildfires, US home insurer Hippo used data to identify all their policyholders that lived in active wildfire areas, and then contacted them to help secure alternative accommodations. Rather than waiting for claims to emerge, they helped 80% of those customers file before they reached out to Hippo. Another example is US car insurer Root who collects data on your driving skills (telematics) before they underwrite your policy. This so called ‘test drive’ allows them to take in the best risks. South African health insurer Vitality even rewards you for sharing your data with them. They use this information to make their customer base healthier.

Reduce costs with data analytics

By using data, insurers can reduce costs by reducing fraud and reducing claims handling costs. Claim characteristics can be used to identify fraudulent claims, for example, comparing claims with typical claim patterns and with the actual circumstances at the time and place of the alleged claim. It also helps to segment claims and assign them to the most efficient handling process (from self-service to assessment by experts for complex and unusual cases). Open Claims, a Dutch online ‘repair as a service’-provider, connects to insurers’claim handling platforms, facilitating a seamless process for customers and organizations in damage, repair and administration. It matches individual repair jobs to the best-suited repair shop, based on capacity, expertise, lead time, price and repair quality.

Data as part of the value exchange

In any case, data is part of a value exchange: consumers are willing to share data provided they benefit personally from the return. Therefore it is important that customers stay in control of their data. They should be able to choose what to share, with whom and when. The customer should be able to grant access to third parties and revoke that access any time for any reason and certainly once the data has been used for its intended purpose. In all use cases mentioned, the insurer should facilitate this control.

New mindset

Open insurance requires a new mindset for insurers and new strategies around data and ecosystems. What kind of partners do you want to work with and how? Will you participate, orchestrate or build the platforms and ecosystems? What data do I need and what data am I willing to share? And what is required to facilitate these changes? Is this the type of value exchange that the customers are interested in?

We help insurers answer these questions and help them identify, validate and build new business models that secure future relevance. Want to know more? Go check out our service offerings or let’s have a chat!