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Open Insurance’: a new mindset for the Insurance sector

By Maarten Bakker, Sector Lead Insurance at Innopay

The Insurance sector evolves at a more leisurely pace than many industries, but according to Maarten Bakker, organisations which are slow to develop open strategies will soon find themselves marginalised.

We are experiencing exponential growth in the amount of digital transactions and customer data, and this is fundamentally changing how organisations have to do business. Every interaction is becoming a digital transaction and is driving the formation of new digital ecosystems. The direction of travel is predominantly towards greater openness, and the fast-moving Banking sector has grabbed headlines with initiatives such as Open Banking and PSD2. But the trend towards openness is equally relevant to the Insurance sector, where organisations willing to innovate will reap healthy rewards, but those without future-proofed strategies will face critical risks.

Openness is essential to secure your future relevance

Maarten Bakker has been advising the Insurance sector for over ten years, and sees tremendous opportunities for companies willing to revolutionise how they do business.

“The explosion of data transactions will have a huge impact on how insurance companies assess, manage and transfer risks. Smart companies will develop new types of services and deliver broader value propositions for their customers by being present at the life events of their customers. They will improve risk selection by identifying low risk customers, with shared data from the customer’s car, and enhancing the quality of their underwriting processes. They will use data from the customer’s connected smoke detector to identify fraudulent claims and improve reimbursement evaluation. And they will be able to tap into new markets by distributing their products through other parties at the point and moment of sale which is relevant for the customer. For example, buying your new home insurance product when your customers are in the process of getting an internet subscription for their new rental apartment.”

Failure to innovate will leave companies marginalised

Innovation within the Insurance sector is currently limited in scope and scale. Maarten says: “Most players are not prepared for the ever expanding wave of data transactions, business models and ecosystems. Innovation is mainly focused on cost-savings and increasing service levels via the digitalisation of existing processes. Where partnerships to form new business models are happening, they are usually closed propositions between a limited number of companies with a specific purpose and thus have only limited reach in terms of new customers or access to new data. The sector is still a long way from mastering the art of developing the type of broad ecosystems which will enable innovation at scale”.

Maarten cautions: “The next 18 months will be a real turning point for the sector. Technology companies are moving into this space, and are already changing the landscape. If traditional players do not get their strategies in place quickly, they will be left behind in terms of access to data, new markets and customer interaction points. They will quickly find themselves pushed back through the value chain and marginalised. ‘Opening up’ takes time – time to develop a strategy and to put the right technology in place – and you can’t do this at the last minute.”

‘Open Insurance’ requires a new mindset

Instead of closed propositions and limited partnerships, the sector needs to follow Banking’s example, where rapid transformation is being achieved through a combination of new regulation and adopting the type of mindset which inspired companies like Apple and Google to open up their ecosystems. Maarten believes insurance companies should be focusing in two main directions – utilising more external data from new sources, and sharing of their own data but also their product stack with the rest of the world.

“First, companies should plan how to open themselves up to data from a much broader external ecosystem – sources such as payment transaction data, open banking data, IoT data, and all kinds of social data. Don’t think in terms of narrow partnerships with a dedicated IoT supplier and small combined customer base. Look for opportunities to tap into all kinds of open APIs and access data from every step of your customer’s journey.

“Second, prepare to open yourself up to 3rd parties. Sharing your customer’s data with other players can potentially provide that customer with more comprehensive services. Companies should also think how they can open up their product stack to 3rd parties. Look at how Lemonade is exposing its home insurance product through an API for 3rd party developers, and positioning Lemonade’s proposition in whole new ecosystems. This type of approach enables real innovation and will create new business models and revenue streams at scale for insurance companies.”

Practical steps to prepare yourself for ‘Open Insurance’

Insurance companies must begin preparing to meet a new set of opportunities and challenges. Successful transition will enable new revenue and business models whilst ensuring continued relevance and growth. Maarten recommends several key steps in this preparation: “Companies should start developing new strategies around open products and the wider eco-systems in which they want to play. They need to open up their platforms and technologies. They need to tackle questions about standards for partnerships and data sharing, and also how to comply with regulation. They also need to consider how initiatives from other sectors could be replicated in the Insurance sector. And they need to think about the new talent they require to facilitate these changes.”

We can help companies in the Insurance sector to become part of this new world. We have a long track record of guiding companies to embrace openness through the development of new schemes and standards, and strategies for ecosystems, pricing, technology and regulation. We believe ‘Open Insurance’ is the future, and we can guide you along this journey.

If you would like to discuss any aspects within this article, feel free to contact Maarten.

Find more insights from Innopay here.

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