What is an ecosystem?
An ecosystem is when there are multiple participants working in harmony for the benefit of all. A prime example of this was when Apple released its iPhone on 29 June 2007. People were impressed with such a streamlined and powerful mobile device. However, it wasn’t until a year later, on 9 July 2008, when Apple created the App Store that the true power of an ecosystem would come into play. Now you had thousands of developers creating mobile apps. The apps were useless without the iPhone and the iPhone wasn’t nearly as appealing without the apps.
What does an ecosystem look like for insurance? There are a number of different ways that this could manifest. In the automotive industry, it’s the car manufacturers, insurance companies and maintenance/repair shops all working together as a seamless whole. In the health space, it’s the healthtech, medical providers and health insurance companies working together.
What is open insurance?
One of the main things required for an ecosystem in insurance to exist and function is the exchange of data between all the participants. This is where the idea of open insurance comes into the picture. It’s a theoretical standard that enables the exchange of data between all relevant parties.
There is a predecessor to this idea in the guise of open banking, which is a standard that defines the way that application programming interfaces (APIs) must be designed and constructed so that anyone can exchange data with banks. It has achieved high industry adoption and is widely regarded as a success, which made new services available both to the banks and their customers.
How could open insurance transform the insurance industry? In the ecosystem era, the process of an automotive claim could be mostly automated. For example, the sensors in the car (installed by the car manufacturers) register an impact. You then receive a notification on your mobile phone that it appears you’ve been in an accident. You confirm that you have and take a few pictures of the damage, which then automatically gets sent to the insurance company. The insurer sends the pictures and details to a number of repair shops, selects the quote that provides the best value for money and either sends a tow truck to retrieve your car or sends you directions on your phone of where to take it. The repair shop fixes the damage and alerts the insurance company, who then promptly pays your claim into your bank account. All this is done with minimal effort from the customer.
Challenges of open insurance
While user journeys like this would be great to implement, there are a number of challenges. Data exchange between all the different entities is currently difficult at best due to proprietary systems, lack of industry standards and legacy technologies. Additionally, most automotive repair shops are running little more than email in terms of IT systems.
What made the adoption of open banking so successful was that there was legislation supporting it. There currently is no such mandate for open insurance, which means that all of this is only a voluntary thing, especially since there’s no industry standard yet defined to exchange insurance data. However, it won’t be long before the regulators eventually catch up with this idea.
While we haven’t seen any one entity driving open insurance, we have been seeing that those who have combined the tenets of open insurance with technology have been creating interesting solutions. These range from new ways to create risk models to automating some of the claims journey. All this results in benefits both for the insurance provider and their customers.
Closing thoughts
While open insurance does seem like it is a way off, we encourage you not to wait for it before taking action. We are already seeing trends in the insurance industry that could act as precursors: a number of insurance companies we’re working with are starting to take an API-led approach to data exchange. There has also been work around the creation of centralised hubs and portals, which could be used as the basis to define some standard interfaces. And we are seeing more and more third parties becoming more technologically capable. If you haven’t already started on your API strategy and journey to open insurance, we would love to help you.