Open Insurance – the initiative that could change the market

When the phrase “open insurance” was uttered at BrokerFest last month, there was a general feeling that it could change the market.

Virtually unheard of a year ago, open insurance has been given life as part of Biba’s 2020 access-themed manifesto. Section 1.9 declares the trade body’s pledge “to engage with members, the FCA and other stakeholders to examine the benefits, risks and opportunities that open insurance may present”.

Coinciding with the government debating the idea of allowing customers to better access information on their financial products, open insurance aims to turn traditional methods of data handling and collection on their heads through information sharing.

Although this would help customers when switching providers, the concern is that it could disrupt competition in the market.

Biba’s head of compliance and training David Sparkes told insurance Times that open insurance could increase confidence in data as well as bolster customer retention, a key problem for brokers as they are obliged to tell customers to shop around. But it could save time and money by overhauling administrative tasks and using a more joined-up approach.

Asked whether it would remove market competition, Fouad Husseini, founder of The Open Insurance Initiative, said: “To the contrary, open insurance will mean lower barriers to entry for startups through receiving access to substantial data that would otherwise require many years to accumulate or be too expensive to acquire.”

The Open Insurance Initiative is an international project developing views and application programming interface standards. Husseini believes that it will create new competitive business channels, new products, customer growth and enhanced customer experience, as well giving customers the capacity to securely share and integrate data with competitors that have keener price points.

“It will incentivise incumbent insurers to develop and match innovative features offered by competitors.

“The playing field will become significantly larger, allowing financial as well as non-financial participants to enter the market and directly market an array of insurance products,” he added.

The key issue – trust

But trust has always been a key issue in insurance, as consumers generally place lower faith in the insurance industry and financial services.

Paul Stanley, Accenture’s UK head of insurance, said an open insurance model would replace estimations and manual processes in underwriting with accurate, automated and personalised pricing as well a better understanding of liabilities.

By understanding the customer, further information on the risk environment can be interpreted, therefore reducing risks, rather than compensating for them.

The immediate threat to brokers, Stanley said, was that it gives insurers and customers access to accurate data to inform products and services. But open insurance is also “an opportunity for brokers to evolve with data insights in real-time to drive better deals”.

Richard Beaven, chief operating officer of Brightside Group, believes that a successful consumer uptake of open insurance would bring “significant disruption” to the insurance market.

While potentially a direct threat to brokers, whether it achieves market cut-through will be determined by customer reaction. Will consumers perceive open insurance as delivering value and be persuaded to consent to data being shared?

“Moreover, in insurance the level of trust has declined quite sharply in recent years. That distrust is driven by commoditisation, and a resulting paradox between what insurers would describe as ‘value for money’ home and motor products, and consumers’ belief that they are paying too much for their insurance,” Beaven added.

But consumers are becoming increasingly aware of data privacy and are less willing to consent to data being shared. Beaven pointed out that most consumers have not engaged with open banking despite it being available since January 2018. This lack of engagement could be put down to the only “perceived benefit” to customers being the ability to view all of their account balances on one app.

“There would be considerable onus on all participating firms to safeguard customer data, as poor security controls, including cyber, in one company could undermine trust in the whole industry,” Beaven added.

Isolating customers

Vulnerable customers also need to be considered. With 12 million rural households in the UK, the FCA estimates that there are 3.8 million people without internet access. Sparkes added: “We are at risk of isolating that portion of society, that’s what we need to be conscious of.”

Meanwhile, Dene Rowe, Keoghs partner and innovation director, said: “The elephant in the room is that to achieve this, there has to be a disconnect between the customer and the carrier.

“In a world where the industry sees its data assets as a competitive advantage and that values and targets customer satisfaction as the key metric, it may prove somewhat slower to turn the promising tech into true disruption.”

Moreover, in circumstances where there is an ongoing claim, sensitive or incomplete information may cause a problem, as well potentially raising privacy and GDPR issues.

Rowe said: “The clear potential is there for brokers to cement even stronger relationships with customers. On the flip side it could become an enabling technology that disrupts the accepted norm of what a broker does and, in that context, it could become a threat to the status-quo in the long-term.”