Open insurance – in the fast lane with open interfaces

The entry into force of the EU’s PSD2 Payment Services Directive established the topic of open interfaces in the banking sector. The insurance sector, in comparison to the banking world, still has a lot of catching up to do. How can an insurance provider use open insurance to further develop its own business model and strengthen its competitiveness and future relevance? What opportunities and risks does open insurance hold for the insurance industry?

What exactly is open insurance?

While there are already universal definitions for many terms from the world of finance, the term ‘open insurance’ has not yet been clearly defined. Rather, this topic has developed into a veritable buzzword.

As head of the Open Insurance Topic Group within InsurLab Germany e.V., I have created a common understanding of the term together with those in the group:

Open insurance describes the standardised communication between data providers and third-party providers. It promotes new innovative use cases and business models in the insurance industry and beyond by using APIs and process standards to exchange insurance-related personal and non-personal data in an open and standardised manner. It focuses on users who, within the meaning of data sovereignty, decide how and to what extent data is made available to third parties.

Open insurance therefore consists of three central aspects – customer centricity, openness and standardisation.

Players in the context of open insurance

User: Individuals who give consent to use their own insurance-related personal and non-personal data in exchange for benefitting from an innovative business model or use case.

Data provider: Primary insurance providers or reinsurers that make user data accessible to third-party providers via an open interface. This data can be received in processed form via the same route.

Third-party providers: Third-party providers process the data users provided via data providers. Fintechs or insurtechs are used to facilitate the process. But primary insurance providers and reinsurers can also act as third-party providers. Third-party providers make innovative services available to users.

Use cases for open insurance

Not only is exchanging insurance data between the different stakeholders a complex process these days, in some instances it is actually impossible.

That being said, many exciting use cases are conceivable – for example, in the case of pensions. In the future, people will be able to use a digital pension overview (what are called ‘pension cockpits’) to see the state of their individual pension coverage at a glance. With open insurance, various players could access this information with the customer’s consent and develop customised offers for additional – or necessary – coverage.

Instead of having to undertake the complicated the task of combing through thick files to compile all their information, users receive access to their own data. They quickly receive an automated overview of their expected pension at the push of a button. In a later stage of expansion, they could then even connect their own pension cockpit with their spouse’s digital pension overview.

Pension cockpits are the first simple, but meaningful, use cases. There are countless other use cases beyond that which can be realised by using open insurance.

Regulatory influences on open insurance

Open insurance opens up new opportunities in terms of digitalising the insurance industry. However, in this context, digitalisation is ultimately concerned with exchanging data between the various players in a structured and standardised manner. In this regard, the regulatory frameworks are the most important drivers for open insurance.

For example, the German Federal Government has also recognised the value of data and has geared its data strategy, which was adopted in January 2021, toward it. The Federal government is using this strategy in an attempt to significantly increase the innovative and responsible provision and use of data, particularly in Germany and Europe.

The European Insurance and Occupational Pensions Authority (EIOPA) published a discussion paper on open insurance in spring 2021. Numerous initiatives and associations in the market have reacted to this and written corresponding responses to the EIOPA’s document. This has given rise to an outright debate, and since then, various organisations have been dealing with the topic of open insurance in depth.

The European Commission is expected to put forward a legislative proposal concerning open finance later this year. The goal should be to reduce the complexity of exchanging data in the insurance industry as well. However, the EU Commission’s draft should not only pertain to open insurance, but also the entire spectrum of the open finance concept.

Outlook

There is a great opportunity to secure a strategic competitive position and strengthen it. No one can fully predict how relevant open insurance will be. Regardless, it will be important to offer digital solutions that create strong experiences and benefits for customers. Open insurance can be an opportunity for the insurance industry to respond to the change in customer requirements and the pressures of digitalisation. So far, open insurance is still just an idea. However, regulatory influences can greatly accelerate its development.

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