The journey to an Open Insurance standard – part 1

Part 1: Setting the Stage for Open Collaboration

Written by Fouad Husseini, founder at Robosque and The Open Insurance Initiative

Developments in the financial markets are increasingly driven by data and technology. Not surprising then that the nature and depth of the relationship with the customer is being redefined beyond recognition by platform organizations.

Open data projects, open source software and open innovation toolkits mean knowledge and ideas are generated, tested, and eventually deployed in production environments at racing speeds.

era of open data_

Perhaps the one attribute that is increasingly defining financial platforms is the increasing number of collaborative ecosystems reinforcing relational learning. High-growth entrepreneurial ecosystems are importing ideas and inventing new ones to fortify their platforms. Not so surprising, progressive insurance business models are embodying the thinking that consumers today, pay to get value, rather than to own things.

In practice, platform models are an emerging science in business generally. A recent study in Germany uncovered that only 5% of executives can call themselves “Platform Experts”. Nonetheless, we firmly believe that as insurance products increasingly become unbundled and more commoditized, the amount and magnitude of business transacted through online marketplaces and omnipresent aggregation services will increase substantially.

The Open Insurance Initiative has taken the lead in promoting the benefits of open APIs and shared access to customer data. The initiative reinforces a collaborative and unifying set of rules and practices to enable the community of insurance companies and startups to speak one language within and beyond its ecosystem.

 

... opportunity-based narratives that can really focus and inspire people on the really big opportunity and help them to come together.

John Hagel

 

The journey is long, and aligning incentives is a tricky endeavor. This series of articles are designed to align efforts around a central objective: developing a common and open standard for insurance APIs.

Open Insurance

The future belongs to financial institutions that build viable platform ecosystems baking into their infrastructures, modularity, compatibility, and technical standards. These factors must be seen as the true catalysts for open innovation. Businesses will focus on creating value to attract supply as well as demand and they will collect and, in many cases, acquire data to support these activities.

We believe that genuine insurance innovations will manifest in fast, reliable, and profitable recommendation and advice that solve longer-term real problems with human like touch and affinity using machine learning algorithms. That is probably already is an understatement, considering that 30% of data will be treated in real time by 2025. Insurance operators must transform their data infrastructures as a matter of business necessity.

Since its publication, the whitepaper of the Open Insurance initiative (OPIN) has been the single most comprehensive study to date defining the vision of a community driven project. It divides Open Insurance into two main components:

A common and secure specification for open Application Programming Interfaces (open APIs)

The OPIN community will design a best of all worlds standard to allow data to securely flow between insurers, their customers and third-party service providers. It will be an open API standard that is designed and driven by the developer community for use by the international insurance sector.

Shared access to customer data

With the explicit consent of the customer, third party service providers will receive access to customer data.

When it comes to sharing access to data, customers will enjoy security and convenience in the management of their insurance policies.

era of open data

Adopting a common and open API approach will mean streamlining signing up, setting up and integrating with insurers platforms, removing friction in creating new applications and features.

Platform interoperability and open protocol support is better for the ecosystem of consumers and business. As more smart devices join the ecosystem, and businesses reorganize themselves around a real time economy, the need for complex real time infrastructures is intensified. Organizations will need infrastructures that can meet not only today’s data-streaming needs but also those for a future where everyday services rely on data constantly in transit.

The adoption of open APIs and shared access to data allows InsurTech start-ups, app developers and other ecosystem participants (e.g. banks, travel agents, accountants, brokers, price aggregators, employers, taxation planners, IoT, wearable device manufacturers) quicker access to data and insurance product stacks. Moreover, by partnering with InsurTech startups, established organizations will be able to close the gap between innovative ideas and implementation.

KeyCOmponents of Standadrd

Data monetization could drive API strategies

In a poll organized by the OPIN, almost half the respondents indicated that they are exploring the use of open APIs in their business. Indeed 20% of businesses have already launched (some form of) open APIs.

Digital creativity will mean potentially cheaper insurance products, lower commission rates, more personalized, intuitive, convenient and flexible processes. Customers can expect to see a major shift towards online and mobile channels, a richer, more holistic understanding of their needs, away from traditional channels of contact centers, one to one meeting with agents or paper forms.

insurance data portability

New entrants to the insurance market will be able to access a wealth of historic data on policy performance that they would have had to build from scratch. Data monetization will become a viable source of additional income. This is supported by a study finding that 55% of businesses use APIs as a revenue stream.

This provides each player in the market with equal opportunities to price risk more accurately and make better underwriting decisions. Customers becoming better informed, means insurers will be forced to explain how they have calculated the premiums, made risk assessments and loading decisions, rather than hide behind mysterious formulas.

The challenges that we are attempting to overcome

Different companies move at different speeds and technology is now a central pillar that is spawning InsurTech startups at a alarming speed. The ecosystem is growing quickly and this gives rise to problems of syncing products and services to allow everyone to participate and obviously connect with one another.

Established companies that survived and grew for decades have had to carry the label of incumbents defining their inability to match the vigor and innovation of insurgent challengers. Some of the burden that has beset the incumbents, rests on legacy systems lacking the tools and functionality needed to expose their underlying data and applications.

This has meant withstanding significant time and expense in integrating with third parties. Add to that the resistance to opening up and a preference for point to point integrations that serve as reminder of an era of insurers owning and controlling every part of the value chain.

The result has meant a widening gap between changing consumer expectations and available solutions. The nature of the product, the business models, and the rules regulating the industry are evolving to produce better value for users. User experience management is essential in expectation fulfillment. It is a reflection of the multi-party and inter-dependent nature of platform ecosystems.

APIs have become an important technology in driving interoperability and for providing better and secure access to data. They allow consumers to intuitively bundle different solutions reducing the complexity and inefficiencies inherent in transacting many paper-based services. But interoperability is fueled by well-defined open standards.

While government or regulator mandated approaches for the introduction of open specifications are now a regular occurrence (e.g. PSD2 and Open Banking in EU, UK, Mexico and Nigeria), there are many examples of open standard initiatives that were driven by communities of private actors. These include, in technology (World Wide Web), commerce (The ICC Digital Trade Standards Initiative -DSI) and finance (The Society for Worldwide Interbank Financial Telecommunication -SWIFT).

We also recognize that developing open standards is expensive, complex and time consuming. As a community, we need to remain open to the possibility of regulators and policymakers playing a convening role thereby allowing us to blend different approaches in bringing together all relevant stakeholders in the process.

 

Insurance API adoption statistics_Mar2020

The state of external APIs in insurance

There is an apparent lack of research on the topic of insurance ecosystems, the state of integration through APIs and how they influence value creation. As the first wave of change unfolds, the insurance sector is exploring the potential of APIs and considering ecosystem opportunities.

Our research reveals that only 6% of the world’s largest insurance companies have invested in developer portals.

 

APIs are exciting because they can expose the core business functionality of one organization to another.

Nationwide’s developer portal.

Some companies have marketed the launch of their APIs quite extensively, this included Lemonade which has labeled theirs as public APIs (check here, here, here). Although from my own perspective, their APIs would not pass the openness test. Try for yourself!

With almost 60% of InsurTech startups surveyed confirming adoption of API strategies of varying levels of sophistication, startups have a clear advantage over incumbent insurers as they are digital first organizations. Therefore, it makes business common sense to leverage open APIs.

InsurTech startups such as Yolo, Claims Control and Tint have leapt head in into leveraging APIs, SDKs, widgets and plugins to allow them to integrate their services into third party SaaS workflows, marketplaces and other portals.

Establishing and upgrading digital infrastructures is critical to incumbents if they intend to introduce more interoperable collaborations through open interfaces and platform ecosystems.

Incumbents the likes of AXA (Singapore), Zurich and Life Insurance Direct are however exploring APIs to address specific needs. By enabling specific innovation projects, incumbents are trying to overcome the shortcomings of underlying core systems by aligning their business objectives with IT investment.

Insurance Distribution

Insurance distribution has been the focus of incumbents as well as startup companies. This has translated into more than 50% of today’s insurance APIs doing one thing and they do it very well and that is to serve insurance quotations and conclude a sale completely online. An indication that embedding insurance into websites, apps and process flows is key to building (for startups) or maintaining (for incumbents) market share.

The sector as a whole is focusing on defining new marketing approaches, simpler integration, streamlining customer engagement and simplifying insurance policies.

Approximately a third of companies surveyed by Robosque allow for claims processing through APIs while the majority still prefer to rely on email and call centers for communication.

The lower rate of adoption for managing claims through APIs highlights the difficulty in automating and improving cumbersome processes. Travel insurance is a notable exception and has seen increased adoption due to the availability of real time public data sources facilitating automated payout for flight delay and cancellation as examples.

Our examination of the product inventory of companies we monitor reveals the overwhelming focus to date on the distribution of simple and basic products.

The product that is being shipped the most is Travel insurance and its younger sibling, parametric Flight Delay insurance. Approximately 1 in 2 companies provide APIs for Travel and/or Flight Delay insurance.

Flight Delay and Cancellation coverages have gained wider adoption by virtue of their ease of integration, versatility, and automated claims settlement.

Motor insurance (both comprehensive and third-party liability) and Roadside Assistance were the second most popular product category with just under half of surveyed companies providing APIs for quotation and policy processing.

The lack of design complexity in insurance plans highlights several issues:

Low hanging fruit

Businesses are trying to capture additional revenue with minimal investment into talent and infrastructures.

Lack of external innovation into new or better products and services

This focuses attention on the lack of windows to open innovation and thus the absence of ecosystems that could foster new ideas and experimentation.

Lack of modularity, compatibility and standards

Point-to-point integrations and partnership business models that allow for data to be shared within these partnerships must be stifling innovators.

 

Therefore, adapting to the realities and demands of platforms and marketplaces has meant identifying niche opportunities to satisfy the unique requirements of their users. While simplifying existing products is not a bad thing and is a step in the right direction, commercial demands in many cases necessitate closer coordination with marketplace owners to design and configure more innovative solutions.

CLAIMS HANDLING

It is easy to presume that with digital platforms, claimants now have the ability to report claims, receive an immediate automated decision, and learn about replacement or repair options on any device or app. In reality, this level of service sophistication is more influenced by the nature of products rather than technology by itself.

Parametric insurance and to some extent UBI, automate and abstract away the complexity of investigation, liability determination, adjusting and negotiation phases, to data-driven decision making allowing for automated full claims life-cycle.

So, has the promise of frictionless experience extended to claims with today’s platforms?

Our conclusion is that very few companies have invested in providing a claims experience to match the streamlined and automated efforts made in distribution. Taking the process from front-end engagement through to back-end fulfillment has a long way to go.

The key audience for Open Insurance

If a common API standard is seen as a problem of coordination, the insurance market should rise to the occasion.  Additionally, the market should not wait for regulators and policymakers to force an Open-Banking-like regulation. Evidence to date, indicate that Open Banking has not caused the introduction of many of the hoped-for innovation in payment services, yet. Unfortunately, as widely reported, open banking has been viewed by some banks as a compliance exercise with few exceptions.

If lessons have been learnt from other industries, we know that innovation waits for no one. Entrepreneurs with fabulous new ideas and tech stalwarts such as Apple, Google and Amazon are working towards changing the insurance industry in a massive way.

It is important to point out that The Open Insurance Initiative was conceived as an industry driven initiative with the ambition of creating a wider scope of interoperability with the financial as well as the non-financial ecosystems.

insurance API blueprint

We want to drive collaboration and collective problem-solving to maximize the success of the initiative and its ecosystem of participants around the world. The focus of the initiative must be on supporting its members as they navigate their unique digital transformation journeys, providing practical and proven resources and tools.

Relying on the assumption that Open APIs are necessary for doing business, the number and variety of participants working on the specification is potentially significant. They would include insurance carriers, intermediaries, the Lloyds market, regulators, loss adjusters, actuaries, startups, management consultants, subject matter experts, software and API technology vendors.

Emphasizing the ethos of transformative communities of practice, we rely on transformation agents to interact, learn and develop together to produce new capabilities and systems. It embodies new thinking of organizations becoming less self-focused and better aligned with their network of partners to thrive together.

Platform businesses are unique at the level to which opportunities are harnessed. They have the flexibility to move the focus and investment from building internal capabilities and teams to enabling evolutionary co-creation communities.

OPIN uses an ecosystem-first approach emphasizing inclusion. Incumbents need to recognize the potential benefits of open interfaces in providing limitless growth and creativity. At the same time, this is not merely about implementing a few collaboration tools. Open Insurance requires complete overhaul of how business gets done in the sector. It is literally, a mind shift.

Organizing at scale, taking part in collective problem solving, dividing labour and consensus building within the context of a community, need to be thought of as an ecosystem friendly strategy. After all, integrating with external value networks is the embodiment of interoperable platform ecosystems. Before too long, we will find that even organizationally, internally, businesses will become an aggregate ecosystem of inter-connected business units and processes.

Connecting with our audience

OPIN has sought, virtually from the start, to become a knowledge sharing platform for international cooperation, connecting a worldwide network of experts to share, learn and collaborate.

Membership of the OPIN community is growing. We help them discover valuable resources and engage in conversations.

Hence, our first audience must be the community itself which has organically grown to more than 70 companies of different sizes and maturity.

Progress and growth are the fruit of shared labor and of a community mobilizing beyond borders and across time zones creating diversity of thought, background, and culture.

Tools for acceleration

We hope exciting things will be happening in the context of learning by doing. We need to be more vocal about our work and of being a hub for collective thinking and networking.

A range of tools will be made accessible to our contributors, to facilitate open discussions, and for recording activities.

Whilst the overarching objectives have already been defined, a huge amount of work is pending to kick off a full-scale project involving technical, legal, and governance elements.

The initial tools being made available include, a Slack channel, a Miro whiteboard and a GitHub public repository.

What is next?

By joining the Open Insurance community, you will get a first look at resources, developments and news before it is released to the public. You will be able to contribute, tell us what you like, and where we can improve.

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Read Part 2: Understanding the Risks and Challenges of Open Insurance

Read Part 3: Managing Collective Contribution