Briefing: Who’s afraid of open insurance?

On 29 July 2018, a whitepaper entitled The Open Insurance Initiative introduced open insurance to the world.

Written by Fouad Husseini, founder of The Open Insurance Think Tank, the whitepaper laid out the idea for the deep integration of insurtechs into insurance operational processes via application programming interface (APIs) technology, with the intention of promoting interconnectedness and common data standards.

Open insurance refers to the sharing of data and services across an ecosystem via APIs to save time and promote innovation, following in the footsteps of open banking.

A recent whitepaper from international management consulting firm Arthur D Little, entitled The open insurance conundrum: Bridging innovation and reality, published in March 2024, noted that “technology is crucial to making open insurance a reality and insurtech startups, with their agile frameworks and technology-first approach, play a pivotal role”.

Ronald Engel, partner at Arthur D Little, added: ”With its reliance on open APIs and data sharing, it allows for better integration of insurance into distribution platforms and customer touch points. Insurtechs play a central role, as they help to make best use of the data flows in digital ecosystems.”

But despite the professed innovation advantages of an open insurance system and the benefits for insurtechs, the idea has always garnered mixed interest from incumbent insurers. 

Why? The transition would require legacy technology migration and upskilling and, likewise, insurers hold concerns over consumer awareness, trust and lack of proper standardisation.

Regulatory and data worries exist too, especially in terms of competition.

Weighing it up

So do the benefits of an open insurance system outweigh the challenges of its implementation?

I recently spoke to James York, chairman of insurtech Innovative Risk Labs, who said that “insurance has lost a little of the initiative on open insurance” due partly to general data protection regulation (GDPR) requirements and portability rules for data.

He added: “Open data systems lead to heaps of innovation. No one is suggesting rating engines be exposed to mandatory APIs, but unlocking customers to the same degree they get from fintech feels fair.”

For me, this is where insurtechs come in – many firms have propositions that sit on top of legacy systems.  

Engel noted that open insurance addressed “major pain points” in the sector that would allow insurtechs access to new customers, pricing, risk and faster product development. 

And Matthew Madsen, global insurance operations transformation lead at tech consulting firm Accenture, said that London wholesale brokers and insurers were beginning to show interest in open insurance models.

He added: “Open insurance [opens up] cross and up sell opportunities that previously have been challenging for insurers to capitalise on because of legacy systems and siloed, product-oriented operating models.”  

Supporting insurers and brokers 

The benefits of an open insurance system could create opportunities for insurers, from the easier implementation of embedded distribution to broader partner ecosystems.

Masden said that “many insurers are looking to leverage existing digital ecosystems” to better reach customers.

And Accenture’s research from August 2022 found that 50% of 6,700 surveyed policyholders were more likely to switch insurers based on poor customer experience.

For York, open insurance is “just good conduct and fulfilment of consumer duty”.

So what does the future hold?

Engel said that open insurance was more than a trend and “here to stay”, although its success would be dependent on regulation, law, tech infrastructure and, ultimately, customer adoption.

For me, insurtechs are key to supporting the drive for open insurance and the benefits are clear, even if the concept has been largely overlooked so far.

Its progression would bolster many initiatives and, in a sector grappling with swathes of data, any proposition that allows its constructive use should not be avoided.