Promote an open insurance revolution

InsurTechs are increasingly working with IoT service providers to change customer loyalty. The established insurers should cultivate a similar way of thinking in order to create fruitful collaborations. (Photo: Adobe Stock)

InsurTech carrier Lemonade recently launched a public API (Application Program Interface) platform based on behavioral economics and artificial intelligence (AI) that enables any company to offer its policies via websites and native applications. With this API platform, the insurer gave developers access to its portfolio of condominium, homeowner and tenant insurance and expanded the API with the introduction of newer products. The platform offered retail applications, financial advisors, real estate applications, smart home products and bots the freedom to add insurance to any offering and provide customers with instant insurance coverage with a seamless shopping experience without leaving the app or website.

This was not an isolated incident: Lemonade simply emulated a successful digital operating model that opened up immense opportunities across industries. The insurance industry, which traditionally proceeds slowly with digitization, is ripe for large-scale open innovation. The sector is facing stiff competition from the global InsurTech market, valued at $ 2.72 billion in 2020, as well as tech disruptors like Google and Amazon, both eager to get a piece of the pie to get hold of.

Doubling the chances

The post-pandemic market landscape has forced insurers to rethink their product and service development strategies. From digitizing the ecosystem to enabling quick product launches, insurers today have to think like startups. In addition, emerging trends show that customers are increasingly demanding added value from insurers in the form of products and services that match digital preferences and fast-paced lifestyles. To be successful in this complex environment, insurers must partner with the expanded digital ecosystem of distributors, regulators, service providers and InsurTechs to deliver a differentiated experience to their customers.

By expanding data and services to communities, partners and startups, insurers can develop and provide new services, products and disruptive business models and at the same time make the business future-proof. An open operating infrastructure controlled by APIs enables more service, flexibility in product delivery and interoperability between partners. This can ultimately result in the following advantages:

  • Forge meaningful partnerships and create new sales models: Open insurance offers insurers the opportunity to open up new markets and offer new products and services. It enables the diversification of sales channels through cooperation and flexible business models, such as embedded insurance and pay-as-you-go insurance. These business models allow insurers to move from the traditional approach of selling insurance to customers to a modern, flexible approach that allows customers to choose the coverage that best suits their current needs and preferences corresponds to.
  • Develop attractive new customer benefit promises: With open insurance, insurers can use large amounts of real-time customer data to optimize services and offers. By using analytics to map customer journeys, insurers gain the upper hand in providing personalized on-demand services and products with variable price tags. In addition, a better understanding of customer needs and preferences can enable insurers to adopt ecosystem-based services by bundling native offerings with those of partners outside the industry.
  • Drive operational improvements and create new revenue streams: The introduction of open insurance enables insurers to monetize proprietary customer data and reach customers early in the buying process. Massive repositories with actionable customer data and the extensive ecosystems that underpin the open insurance model also enable insurers to scale up quickly. With the right data and the right partner support, insurers can quickly design, develop and deliver bespoke products while achieving significant operational improvements.

The benefits of an open insurance policy are endless. However, for traditional actors, the existing legacy IT infrastructure can be a major barrier to realizing tangible benefits. Research shows that legacy systems are the biggest obstacle for insurers looking to improve digital touchpoints and reach. 55% of insurers say legacy mainframes, deeply embedded in the company’s IT ecosystem, are at the heart of this challenge.

To quickly develop and deploy APIs in a legacy IT landscape, insurers need to decouple existing technology architectures, design APIs for reuse, and implement a robust API platform.

Open insurance modules

As the open insurance model is driving a top-down digital insurance transformation, insurers must also implement smart technologies to sustainably drive the open initiatives. Three key technological building blocks are critical to an insurer’s success in an open API ecosystem:

  • Strengthening the cloud computing infrastructure: Cloud solutions allow insurers to store huge amounts of data and quickly share proprietary data at rest with ecosystem partners. In addition, the cloud is an affordable, scalable platform for developing effective analytics models, reports, and dashboards.
  • Comprehensive automation: Automating processes like underwriting and compensation can help insurers increase profitability and gain sustainable competitive advantage by leveraging intelligent automation technologies like AI and machine learning. This enables dynamic pricing based on risk.
  • Leverage actionable insights: Analytics provides a deeper understanding of customers in order to provide digital-first, hyper-personalized offerings while identifying specific tasks that would benefit from data and the implementation of intelligent technologies.

Last but not least

As these technology building blocks become more firmly anchored in traditional insurance, insurers need to develop a well-thought-out partner strategy to support ecosystems and accelerate application delivery processes. InsurTechs are increasingly working with IoT service providers to change customer loyalty. Insurers should have a similar mindset in order to create fruitful collaborations.

Amit Tiwari ([email protected]) COO of Xceedance, the global insurance advisory and managed services company.

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