Currently a hot topic in the financial market, Open Banking is the culmination of significant and long-lasting trends across the digital economy. These trends are fuelled by innovations and ever-changing customer behaviours and expectations. However, through the introduction of the Revised Payment Service Directive – or PSD2 – the European Commission has really kickstarted the acceleration of Open Banking throughout the world. As the insurance industry is facing many of the same challenges as banks, Open Banking will also play a pivotal role in its successful evolution.
Digitisation has been a major development in recent years and has had a huge influence on all layers of society, including the insurance industry. For instance, consumers can now easier take insurance online, and meeting insurance intermediaries in real life is no longer necessary in many cases. This will result in improved efficiency through optimised digital interfaces and increasing product standardisation, but there’s a downside as well. In general, insurers are now only in touch with customers 2.5 times a year. Because of this, it has become harder – if not impossible – for them to really get to know customers and their needs.
Due to this standardisation of insurance products, new players and distribution models have come into the light. This has made it possible for players outside the insurance industry – such as financial service providers and tech players – to enter the market and offer insurance services. As a result, the competition has intensified, and the market has become more complex.
Dealing with legacy systems and innovations
Legacy systems form an important issue for insurance companies. In general, insurers spend up to 80% of their IT budget maintaining these systems, even though the older systems limit their owners’ abilities to build new products and services, amongst other things. In addition, legacy systems provide a major challenge when it comes to ensuring profitability through increased scale or improved efficiency. We know that insurers should more frequently embrace new technology, including data analytics, AI and machine learning. To fully benefit from these technologies, however, insurers must expand their data access capabilities.
Open Banking to the rescue
In order to tackle these challenges, in my opinion, insurers should explore the opportunities that Open Banking offers. For instance, they can work with and learn from partners who have experience in delivering and deploying Open Banking solutions. Insurers can then start exploring how the right combination of solutions, skills and technologies can help them mitigate some of their challenges whilst exploring new opportunities for better services and increased efficiency.
Open Banking provides the most mature set of APIs across Europe. Insurers can tap into them to start building their own capabilities for API integration and foster innovation, whilst at the same time leveraging the IT talent of their partners. Open Banking APIs can provide insurers with new opportunities to reduce operational costs by using account-based payment rails or improving processes through access to verified customer data, such as checking the validity of an IBAN before making a payout.
In addition, insurers can gather data through Open Banking, which they can use to create a better understanding of their customers. Based on these data, they can create a personalised customer experience in their own channels and improve their targeted marketing.
In short, I believe that Open Banking can help the insurance industry in a huge way. Some examples include:
- More tailored products through improved profiling;
- Easier customer onboarding through validated personal information;
- Improved consumer dialogues, allowing for proactive advice based on purchases; and
- Enhanced claim management processes.
All in all, finding the right partners and knowing how to leverage Open Banking are essential. That’s why I’ve developed this blog series to provide additional information on this, and on Open Banking in general.
More info on Open Banking? Visit https://financial-services.worldline.com/en/home/solutions/digital-services.html