Open insurance will enable insurers to leverage data, APIs, and digital ecosystems to increase revenue and build business partnerships.
Insurance providers faced with next-generation technologies, increased competition, and low return on investment (ROI) are looking towards ‘digital ecosystems’ and ‘open insurance’ to boost growth and profitability.
There is no standard definition of open insurance. However, organizations like the European Insurance and Occupational Pensions Authority (EIOPA) have considered open insurance in the broadest sense, “covering the access to and sharing of personal and non-personal insurance-related data, usually via Application Programming Interfaces (APIs).” The success of the open insurance framework depends on the proliferation of API services. Application programming interfaces (APIs) allow insurers and their partners to open their processes, algorithms, and data for one another. They increase the data traffic flowing across digital ecosystems and are key to developing open insurance solutions.
Open insurance is creating new business opportunities in the form of innovative customer propositions, new partnerships and distribution models, additional revenue sources and improvement in operations. It is expected to help insurers increase their business associations, reach out to more consumers, and reimagine traditional insurance offerings.
Essential for open insurance, digital ecosystems act as highways that transfer massive amounts of data between carriers and their customers and partners. The seven big digital ecosystem opportunities for insurers lie in mobility, home and wellness, enterprise, health, B2B marketplaces, travel/hospitality and wealth. Estimates say revenue generated through these seven digital ecosystems could top $50 trillion by 2025. Further, half of the revenue insurers expect over the next five years could come from these digital ecosystems.
Lack of digital ecosystem capability is one of the factors that limit insurers from engaging in open insurance businesses. Research shows that while 58 percent of insurers have started their digital ecosystems strategy, only 5 percent of carriers have the wherewithal to run an ecosystem-based business. The inability to develop optimal technology roadmaps, a shortfall in necessary digital skills, organizational inertia, and significant technology debt further limit their digital ecosystem initiatives.
Digital ecosystems are critical for the success of open insurance. Insurers should reach out to startups, insurtech firms, analytics specialists and data providers who could serve as good open insurance partners to capitalize on opportunities, develop innovative solutions and become more responsive to the fast-changing environment. The choice of digital ecosystems and the type of partners determine, to a large extent, the success insurers have in adopting an open insurance framework.