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Impacts on the Insurance industry
The insurance landscape is undergoing its most fundamental transformation in decades, driven by the fast digitalisation in the sector. Just like the entertainment, media and retail industry, the internet has changed the way of doing business completely. Insurers should not only open their services, but also build their own digital ecosystems and participate in external ecosystems. Insurers therefore need to transform themselves to an “Open Insurer“, offering “Insurance as a Service (IaaS)” (i.e. white label insurance products).
Ultimately insurers should shift from building full end-to-end insurance solutions to assembling best-of-breed insurance services tailored to meet the customer needs. This means that the traditional product-centric distribution should be transformed to services providing deep financial insights and integrating services of other sectors. This can only be achieved by creating an open API ecosystem, which is beneficial for all involved parties.
In practice, this API ecosystem digital platform would resemble an “App store” with services offered by the different parties involved in the ecosystem. The customer would be in the driving seat to choose the functionality/service and user interface that suits him best. Once having made this choice, the customer would give a consent to the party to use specific data present in the ecosystem. Since the customer can easily switch from one service to another, this will boost innovation considerably and result in new service offerings which are superior in terms of cost, performance and convenience.
Open Insurance will also have a substantial impact on the insurer’s organisation where bridges between business and IT departments will be alleviated, as decisions will need to be made quicker due to the faster evolving technologies and customer expectations. Thanks to Open Insurance, business and technology needs will become further aligned urging business analysis and software assembly and implementation to run in coexistence.
Opportunities and Threats for the Insurance industry
The creation of open API ecosystems offers several opportunities, but also significant threats, to the insurance industry.
Insurance companies not opening their architecture and not participating in these API ecosystems are expected to lose the most. Interesting to quote the BBVA bank here: “A company without an API is like a computer without internet”.
Even when insurance companies build out more engaging services, it is unlikely that customers will choose the app of an insurance company as a central access point to other services and products.
Insurance companies will therefore profit most of the API ecosystem by:
Utilising more data from a broader external ecosystem
Sharing their own data and algorithms with the rest of the world
Sharing their product stack with the rest of the world
In the next chapters, we will present a few examples of how these 3 approaches can benefit insurance companies.
4.1. Utilising more data from a broader external ecosystem
As mentioned above, the business of insurances is a data-intensive business. Collecting large amounts of data and transforming them into actionable results is a core business of an insurance company. Thanks to the digital revolution insurance companies have now access to an almost unlimited supply of data, so choosing the right data sources and setting up in a cost-effective way, the data pipelines to capture, transform and process this data will be a key challenge for each insurer.
Some examples of data sources which could result in valuable insights for insurers:
Open Banking data: Thanks to the EU PSD2 initiative and the Open Banking directive in the UK, customer’s account data is now available to be accessed by TPPs (Third-Party Providers). This will allow insurance companies to get information about the financial situation of its customers, but also to get valuable insights in the type of income and expense transaction the customer executes.
IoT data: the rise of “Internet of Things” (IoT) can revolutionize the insurance industry, as it facilitates usage-based insurance (UBI), dynamic risk modelling and dynamic insurance pricing. Typical examples of insurances linked to IoT are:
Car insurance: via a continuous monitoring of the driver’s behaviour and driving habits, car insurances can be dynamically adapted. This monitoring can be done via an onboard diagnostics (OBD) device installed in the driver’s vehicle or via the driver’s smartphone. Based on this data collection several services and enhancements can be offered:
Flexible pricing: reward safer driving through lower premiums.
Improved fraud detection: identify on which spots the car is parked (during the day and at night), if a personal vehicle is not used for professional services (like driving a delivery route), how many kilometres is actually driven with the car and if no claim insurance fraud is committed by comparing the car data with the data entered in the claim report (e.g. check if car was actually present and had a strong break at the report crash location).
Inform customers of risky situations for the car, e.g. notify customer about bad weather expectations in the neighborhoud of the car (e.g. hail), notify customer when he parks car in a neighborhood with a high amount of reported thefts…
Provide customer (a game-like) overview of his driving statistics, like speed, kilometres…, with support tools like simulating future gasoline cost
Support the customer in case of car breakdown, accident or theft. E.g. insurance company can pro-actively contact the client and arrange emergency support (in case of injuries) when it detects an accident, automatic pre-filling of a digital claim (based on the collected data) in case of an accident, support in arranging car assistance (e.g. Touring assistance) when car breakdown is identified, identify theft of a car when unexpected (deviating) driving behavior is recognized…
Allow parents to monitor (track) their teenagers when they use the family car
Support short-term car insurances, allowing policyholders to insure themselves on a friend’s vehicle for a short period or allow drivers to buy a short period covering on their own vehicle
Home insurance: Improve the protection of insured houses against threats (fire, leak, flood and theft), thus reducing the risk for insurance claims.
Typical IoT devices would be:
Smart meters of water, electricity and gaz consumption can automatically detect leaks.
Smart smoke detectors can detect fire
Advanced alarm systems can detect burglary
This would allow more personalized services like:
A policyholder could be contacted by his insurance company if an issue is detected and an emergency response team from the insurer/public authority could be dispatched automatically.
Provide more personalized insurance pricing. E.g. insurance premium will increase, if customer regularly forgets to lock his doors or turn off his oven.
Provide the customer a monitoring view on his house statistics (e.g. online follow-up of his utilities consumption)
Propose to the customer potential improvements to the house, which can reduce the customer’s insurance premium
Life insurance: wearable sensors (e.g. Fitbit) can be used to monitor health activities and communicate the results back to the company for lower life insurance premiums. Different biometric readings can be collected, like heart rate, body temperature, blood pressure, movement, calorie burn-rate, alcohol consumption…., which can be used to gamify healthy habits into a point system. Furthermore, insurance companies can provide services for elderly (assisted living) for safety and care (e.g. check if customer is properly taking his required medication).
Location data from mobile phone: sending location data from the mobile phone to the insurer, can not only allow insurers to get a better idea of the risks a specific customer is taking, but also allows to provide extra services and cross-selling opportunities to the customer. Some examples:
When customer is driving to the airport or is located abroad, but does not have a travel insurance opened yet, the insurer could propose him to open a travel insurance.
When customer is driving to the hospital, the insurance company could inform the customer about the modalities of his hospital insurance.
Based on the combination of climate data and customer geolocation data, the insurer can offer hurricane alerts
When customer is abroad and from other data, it can be derived that customer is abroad for holiday, this info could be used to send customer a “Happy holiday” card and to make sure the customer is not contacted at that moment.
Social media: insurers can obtain valuable data about their customers from social media like Facebook, Twitter, LinkedIn…
Customer referential data: when insurers can be informed about changes in customer data well upfront (by integrating with postal service, social media or governmental services), this provides a lot of opportunities to insurance companies:
A change in address can be an interesting sign to contact a customer to sell new or revise existing policy(ies). Not only for a home insurance, but also for other policies like a car insurance (change in address can result in different transportation habits, if e.g. less access to public transports) opportunities exist. It can even be a sign of a relationship break-up or a child leaving the parental house, in which case a full revision of the insurance portfolio is required.
The birth of a child is also a moment for revision, typically for family liability insurances or hospital insurance. Same applies for a change in civil status.
Valuation services: in order to properly assess insurance risk, a correct valuation of the insured object is also required. Most insurance companies have good models for this, but external services can also be used to provide an accurate initial valuation, but also to review regularly the current valorization. Some examples:
Car insurance: call external services to determine value of a car to determine the insurance premium, but also valorization of damage in case of a claim. Examples of such services are “cars.com”, “vinaudit.com”, Edmunds, Informex…
Real estate: allow to valuate a real estate property, e.g. Rets.ly, SimplyRETS, Rets Rabbit, Property API, Zillow…
Art: valuation of art objects, e.g. “artnet.com”, “artprice.com”, “valuemystuff.com”…