In their quest to deliver customers the personalized experiences they crave, insurers have invested heavily in ramping up the digital capabilities needed to deliver tailored policies. But they may not be doing enough to break out of the outdated paradigms that have held back the customer experience.
To be sure, insurers have dramatically stepped up their innovation game since the arrival of the COVID-19 pandemic. In a recent survey of insurance CEOs conducted by KPMG, 85% said that the pandemic has accelerated their digitization initiatives, with 78% saying that the crisis has intensified their focus on crafting a “seamless digital customer experience.”
The problem? With billions across the globe having spent the better part of the past year using digital technologies to work, learn and shop, the baseline expectations for what constitutes a quality digital experience have only been raised – making it challenging for many insurers to keep up.
That’s why more and more are turning to "open insurance" solutions, under which insurers leverage open APIs to share and access data and services with third parties – including insurtechs, financial institutions and organizations that possess useful data points that can help insurers more accurately gauge risk and develop personalized coverage.
For legacy insurers facing mounting competition from digital-forward insurtechs, open insurance offers a promising pathway to shoring up their competitive posture over the long run. Here’s what insurers should know about the benefits of this model and how to go about pursuing it.
The Freedom and Flexibility to Evolve
Open APIs are hardly a novel concept. Open banking, for instance, increasingly uses the common practice to develop new apps and financial services through third-party applications, offering conventional banks the chance to work with fintechs rather than compete with them.
What will open APIs mean for insurers? Here are just a few examples: By tapping into a rich variety of data, insurers can obtain a much more granular view of risk, paving the way to more accurate, tailored pricing for each individual policyholder. Armed with data-driven insights into their customers, insurers will be able to identify and pursue new revenue opportunities and product offerings, with open APIs facilitating a much faster time to market for new products and services.
For instance, insurers can take individual software components and seamlessly incorporate them into their offerings, thereby shortening the customer journey, improving customer experience and even adjusting to offer to the customers they are targeting. Some components allow insurers to meet specific organizational needs and minimize the overhead associated with "inventing the wheel." This provides insurers the freedom and flexibility they need not only to adapt, but to position themselves ahead of the curve.
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How to Get Started
While insurers have long been hesitant to share data, embracing the open insurance model will require them to shed that reluctance and operate with a partnership mindset. In this digitized climate, success demands forging partnerships with relevant organizations both within and beyond the traditional insurance industry. By combining their offerings with those of business partners outside the insurance industry, insurers can generate new value while achieving stronger and more diverse coverage.
Incorporating open APIs allows access to insurtech products and technological capabilities, as well as more granular customer information, while still adhering to relevant privacy laws and regulations. Simply put, these APIs make it possible for insurers to significantly increase their technological prowess without having to start from scratch or make massive investments in recruitment or R&D.
Cloud computing serves as a vital enabler for this model of collaboration, allowing for quick deployment, rapid scale and easy access to third-party data and resources that insurers can leverage to develop new offerings.
Insurers don’t have to face this transition alone. Technology partners can provide insurers with the know-how and capabilities they need to extract the most value from open APIs, roll out new offerings and dynamically evolve in response to changing market conditions and customer expectations.
Preparing for the Future
As the COVID-19 pandemic proves, disruption isn’t always predictable. And in a world that often seems to be moving faster than ever, more seismic shifts may be on the way.
But while not everything is foreseeable, this much is: Insurers’ ability to survive and thrive in the ‘next normal’ will hinge on their ability to deploy innovative models of open collaboration. As insurers plot their digital strategies, they can’t afford to ignore the promise of open insurance.
