How can open banking help insurance companies?
This week, Eliga Services’ Chris Noakes explores how digital transformations and open banking can help insurance companies grow.
InsurTech entrants, such as Bought by Many, have changed the insurance landscape. In four years, they have become a company valued at over $2 billion with a GWP of approximately £150 million in 2021. They embraced technology, using it in an innovative way to deliver very competitive prices to the market. This demonstrates how technology and innovative ways of thinking can help new entrants compete in a crowded market.
Why should incumbent insurers fear InsurTechs?
InsurTechs are dynamic, focussing on core systems and customer experience without having to take into account legacy systems and company culture. As they are building from the ground up, they can pivot and flex quickly to adapt to market trends and customer demand, using the latest technology. Because they are more willing to try new things, they attract investment with their vision of the future.
Companies like Bought by Many and Zego (with their pay-as-you-go model) not only disrupt the marketplace but also pose a real threat to the established, ‘big players’ by offering more flexible products and services. According to Accenture, the insurance industry is most likely to be disrupted by InsurTech and other FinTech disrupters. More than half of insurers surveyed were actively seeking new business models.
How can insurers compete with Insurtech disrupters?
Insurers could acquire an Insurtech or completely transform their business. However, both are time-consuming and costly. The outcome isn’t always straightforward when acquiring or transforming businesses. Alternatively, insurers can streamline their business, but this often comes at the expense of product lines and experience.
These, like other strategies, may not assure survival in the long run. However, insurers need to explore the options available to them, such as open banking and the use of other data sources in order to survive and continue to grow. Taking iterative steps to transform part of their business can go a long way in helping compete with disrupters.
What is open banking and how can it help insurance?
Open banking allows third party providers to access data held by banks and insurers via a secure API. The account holder grants access to receive better, more personalised products and services. Open banking can drive innovation in insurance, allowing insurers to identify new products and services; so, they can offer a more personalised experience and reduce the risk of fraud.
Not only does open banking support personal insurance, but it can also benefit business insurance, helping track the ongoing impact of a claim on the business’s activity, providing immediate liquidity when it is needed most with automated financial analysis. This will reduce the forensic accounting costs needed to do things manually. Additionally, the automating of switching and renewals can help insurers drive growth and remove friction within their business.
What will 2030 look like in InsurTech?
With the development of self-driving cars, artificial intelligence and shops with 'just walk out' technology, insurance products and services will be delivered in real-time. In our homes and businesses, IoT will be more prominent, being able to detect and prevent disaster, providing the necessary data for future insurers to use within pricing algorithms. This will create more personalised risk profiles. According to McKinsey, ‘experts estimate that there will be up to one trillion connected devices by 2025.'
Our cars will know where we are going and how to get there, driving us safely. The information captured could be fed in real-time to the insurer, allowing them to price the risk for that specific journey. Think of all that data! It would enable insurers to have a deeper understanding of the customer, create new products and provide a more personalised price in real-time. Life insurance would also play a bigger role in our lives by using the risk data from our home and car insurance, alongside mobile device data to work on a 'pay as you live' basis.
In 2020 we created on average 2.5 quintillion bytes per day of data and that figure just keeps on growing. So, in 2030 there will be no excuse for insurers to not know more about us and provide a personalised and appropriate product or service.
If this has raised a few questions or you would like to explore open banking, then please do get in touch. Eliga Services has the knowledge, product, team and experience to get open banking working for you.