Global conversation has moved beyond the pros and cons of the digital age. Today, advanced technology doesn’t just touch the surface of daily life, it is integral to it, with few – if any – sectors immune to its impact. While the wider financial services sector has been rapidly embracing the Digital Age, the insurance industry continues to lag.
Insurance might be an essential product for most, but the industry has failed to keep up with the pace of technological change – until now.
From open banking to open finance: Ushering in the age of open insurance
The transition from open banking to open finance marks a pivotal evolution. This shift paves the way for open insurance, a game changer with the potential to transform the insurance sector. By broadening the scope to include open insurance, we unlock a myriad of opportunities for concepts like insurance-as-a-service and embedded insurance.
Open insurance stands at the forefront, poised to catalyse innovation and invite a surge of insurtech players into any market, including the GCC, challenging the established norms and stirring the pot of traditional insurance practices.
Understanding open insurance: A paradigm shift
Open insurance emerges as beacon of modernisation, involving the sharing insurer-held data and capabilities within a dynamic and ever-expanding partner ecosystem. The model mirrors the transformative path taken by the banking sector, leveraging application programming interfaces (APIs) to foster innovation and collaboration – and the potential is vast. Open insurance provides customers with convenience, flexibility, and personalisation while equipping insurers with shaper targeting tools, operational efficiencies, product and service enhancement, and greater data accuracy.
The crucial role of technology and insurtechs
Technology is crucial to making open insurance a reality. In particular, agile insurtech startups play a pivotal role by prototyping, testing, deploying, and adapting solutions at a pace traditional insurers find challenging. These nimble and faster moving players are redefining customer engagement, breaking free from the constraints of the conventional insurance model. Yet, within an industry that has typically been resistant to change, the road is not without hurdles. Notably, collaboration between legacy players and insurtechs could prove a challenge. This is just one of many barriers to overcome if the potential of open insurance is to be realised in full.
Overcoming barriers: Building blocks for success
Despite its potential, open insurance has been slow to gain momentum, with several factors standing in the way of uptake. Prime among them are mixed interest from incumbent insurers, regulatory and data concerns, the absence of standardisation, a lack of consumer awareness and trust, and a limited ecosystem.
Faced with these significant barriers, the adoption of open insurance will not happen overnight. Rather, progress depends upon joined up thinking and concerted effort from insurers, regulators, infrastructure, and service providers. To this end, ADL has identified essential building blocks for the industry to pursue:
- Companies need to explore the increasing range of available insurance APIs: APIs form the centre of open insurance. They enable insurers to integrate their services with third-party platforms for enhanced customer experience and foster an interconnected ecosystem.
- Data security and management practices need to be enhanced: Effective data security practices protect sensitive customer data and build vital trust among customers while meeting regulatory requirements.
- Key players need to implement better ecosystem management tools: Ecosystem management tools can enhance operational efficiency and encourage innovation. They can be used to manage all areas of open insurance, from coordinating partnerships to tracking performance.
- Industry players should collaborate with regulatory bodies: In a highly regulated market like open insurance, collaboration ensures compliance and creates an environment conducive to innovation. It also helps shape policies to protect consumers and supports the expansion of open insurance models.
- The industry needs to focus on standards and interoperability requirements: Developing and implementing standards and interoperability requirements facilitate smooth integration across platforms and stakeholders, allowing systems to communicate and share data efficiently, while ensuring reliable service. Strict regulatory compliance requirements are also vital to building customer trust.
- Key players need to invest in talent: A talented and adaptable workforce is critical to a successful transition. Industry players – especially traditional insurance incumbents – must invest in developing talent, skills, and experience in areas like data analysis, cybersecurity, and digital marketing.
- Consumer education and engagement are central to adoption: Consumers must understand how open insurance works as well as its advantages and risks. An effective engagement strategy ensures that offerings meet customer needs and expectations.
- A secure and robust cloud infrastructure is essential: The cloud offers the scalability, flexibility, and efficiency required for managing massive data sets and complex operations. The cloud also facilitates rapid deployment of new services while offering robust data analytics capabilities and improving collaboration across its ecosystem.
- Industry leaders need to encourage new mindsets: It is important to encourage a mindset that embraces change and innovation and that prioritises the customer. Only then will open insurance be able to deliver on its huge potential.
The path forward: Innovation, investment and collaboration
Open insurance’s successful evolution lies in the interplay among these building blocks. Meanwhile, its viability also relies upon adequate funding and investment. Here, investors including venture capitalists (VCs) have a critical role to play. Crucially, investment from reputable VCs or the corporate venture capital arms of existing insurers serves as a stamp of approval, signaling to the market that the concept has real potential.
Though still in its nascency, open insurance is here to stay and as the line blurs between insurers and tech companies, a collaborative and technology-driven approach will be the hallmark of successful providers. The barriers to realising the potential of open insurance are significant, but stakeholders have the power to bring about change. Today, the industry stands at a precipice and its next decisions will determine its evolution for years to come.