From our conversations with Insurance leaders, several topics have emerged as key focus areas for 2021 and beyond. In this series, some of our experts will provide insights on how to adapt, accelerate and innovate in Insurance by tackling the areas of Open Insurance, Data Exploitation, Cloud Migration, Customer Retention & Cross-Selling, Intelligent Underwriting Workbench, and Low Code. In this first part of the series, Gareth Miller considers how technology is opening up possibilities and creating imperatives for general insurers, drawing on developments in financial services and the example of Open Banking.
INTRODUCTION
Open Banking encourages or mandates financial institutions to allow authorised third parties, with the customer’s permission, access to customer data and banking services – often facilitated by technology standards. With over 2.5 million active users, Open Banking is now at a tipping point in the UK. Having navigated the regulatory requirements, 67% of financial institutions in the UK see Open Banking as an opportunity, as an increased adoption by consumers and institutions is making broader applications more viable. Using open APIs to connect a more complete portfolio of financial products across channels represents a powerful proposition to engage new audiences.
In light of this, the challenge for 2021 and beyond is how the Open Banking experience can provide a scalable foundation across all financial services to create truly integrated, omni-channel user experiences. Indeed, the UK’s Financial Conduct Authority (FCA) is currently examining how it can establish regulatory conditions for the wider Open Finance area to grow.
Benefits to insurers could accrue through accessing personalised, dynamic and historical insight, allowing them to tailor products to more precise customer cohorts. User experience improvements are another upside, especially when “nudged” through dynamic journeys. Furthermore, the automation of tasks and process elements drives efficiency. Conversely, risks undoubtedly include the sharing of customer and corporate data – issues of governance, ethics and reputation come to mind. Insurers will need to consider the potentially increased cyber-risk that comes with linking to an ecosystem. Finally, they could find themselves in a cost trap if they lack a clear vision or roadmap to guide their spending. These aspects, and more, could all form the new Open Insurance journey.
To better understand Open Insurance, we need to explore the significance of ecosystems and data.
WHAT IS AN ECOSYSTEM?
In financial services, an ecosystem is based around an interconnected set of services, centred on the end user, who is thereby enabled to fulfil a variety of needs in one integrated experience. A good general example is Apple: in addition to Apple Inc., OS incarnations and multiple devices, this ecosystem comprises customers, AppStore developers, service providers and accessory manufacturers – all linked by Apple’s software, design and customer experience principles.
So, what can ecosystems provide that today’s digitised offerings cannot? In short: better outcomes delivered through better user experiences. For instance, two immediate benefits to the end user are fluidity and personalisation. Fluidity can be achieved through seamlessly moving across different products and services without leaving the initial access point, for example, an app. It can also come through omni-channel capability or transitioning between digital and human experiences, such as starting an interaction by phone, continuing via chatbot and then seeing it reflected immediately in an app. Personalisation is delivered through intelligent interfaces, data enrichment and tailored solutions, giving users the impression that they are a “segment of one”.
Ecosystems are based not on established products or services but on an emerging needs-based view that places the individual user at the centre of their world.
THE IMPORTANCE OF DATA
The promise of ecosystems is founded primarily on data. This is already becoming the lifeblood of commerce, and insurance is no exception. Open Finance layers on another degree of complexity and underscores the necessity for this vital resource and capability. Those best-prepared for the new Open world will have – or have a vision for – clear lines of sight on their data (data architecture), the capability to ingest and export data across non-native sources and destinations (data integration) and the ability to manipulate and use that data (data analytics).
Looking at Open Banking as a case in point, one of the advances is to change the stance on data ownership, and thus what can be done with data – something which, in Europe, has also been codified in GDPR. Here, customer data is firmly placed under the individual’s ownership. Open Banking enables a customer to grant access to this data in return for some value-added service like moving money between bank accounts to deliver better savings rates.
New providers do not do this for free – they can extract their own value. This can be financial value, explicitly through a fee or possibly through some form of margin. Or the true value could be access to data – not only the personal information which they garner but also information about the flows and trends within the systems and about user interactions.
FIVE STEPS INSURERS CAN TAKE TO PREPARE FOR A MORE OPEN LANDSCAPE
1. Position yourself in the ecosystem
This requires a mindset shift regarding the focus of your organisation, moving from “selling to the individual” to “integrating with the customer’s life”.
Ecosystems have yet to coalesce but are likely to focus on a few “coordinators” with multiple “participants”. The prize is likely high for those carving out a role at the centre of an ecosystem, but the costs and risks of doing so are commensurate, and the competition will be intense.
For ecosystem coordinators, the prize is channelling and leveraging value from huge data flows. For example, they might capture emerging space by becoming the nexus of mobility-related services such as car-pooling, on-demand driving and insurance. Meanwhile, participants benefit from as many connections as possible and from plugging into others’ ecosystems – for example, becoming the go-to insurer for automated vehicles by integrating with Tesla, Google and emerging players.
The right positioning within an ecosystem will require a bout of introspection about your core capabilities, the role in your customers’ lives as well as about the technological necessities and sheer willpower to deliver any promise to be more. Insurers are likely best placed as participants, focusing on interactions with a multitude of other parties to improve risk management – for the insurer and the customer.
2. Revisit your technology strategy
An interesting dynamic of Open Finance is the extent to which it challenges the conventional lines of competition and collaboration. We can look to the traditional approaches to technology solutions as an illustration: “buy” or “build” can now be augmented by “borrow”, “share” or “collaborate”. Connectivity will be the main requirement for success, with organisations moving to API- and microservices-based architecture and decoupling the technology stack. This is followed closely by the ability to both order and analyse data to extract value; insurers should include the rationalisation of fragmented data storage and the use of AI to drive insights. Finally, an overarching question will be how these elements dovetail with the cloud strategy.
3. Understand your capabilities today
In order to shape your transformation, you should validate the strategy from a technology perspective. If the future is decoupled and based on microservices and APIs, how strong are those capabilities in your organisation today?
Interfaces and integration into the ecosystem will be key drivers of success – from various perspectives, such as the customer journey, process flow and underlying technology. Legacy stacks simply will not be able to deliver the speed-to-market and sophistication demanded by customers and other “Open players”. The flexibility to capitalise on new markets and offer solutions to an increasingly diverse set of needs, like the gig economy, autonomous vehicle fleets or delivery drones, will become essential. As an illustration, new digital players show between two and four times as many significant launches per year as even the most innovative incumbents.
4. Determine your capacity for change
Technical capability must be considered alongside technical capacity; given the changes required, how well-resourced and appropriately skilled is your organisation to enact these changes within the target timeframe?
Another important factor to consider is the often underestimated cultural change – diving into a rapidly changing ecosystem, replete with challengers and upstarts, is not a good match for traditionally conservative and naturally risk-averse insurance operating models. One of the biggest struggles is to adopt a “fail fast” – or “learn quickly” – approach where concepts are tested in “real life” and adopted or discarded at pace. In personal lines insurance, for example, introducing agile working is one solution, but it needs to be implemented across the whole organisation, as it requires all IT and business stakeholders to align.
5. Re-engineer data architecture and analytics
Given the pivotal role data has always played in Insurance, this should come as no surprise. However, this time is different because data is now closely linked to aspects of nimbleness, adaptability and external orientation. Insurers, traditionally reliant on internal data and models, should consider how the use of that internal data can be improved, for example, by unifying fragmented sources into more effective repositories, through more powerful extraction tools and by deploying AI in fraud analytics.
Thus, insurers need to radically rethink their approach to accessing and using external data – some of which will not be formulated in a traditional “insurance language” or format. This could include increased amounts of more traditional data from partners in the ecosystem as well as non-traditional or unstructured data, such as that sourced from social media. Possible applications of such a different data use include risk pricing, claims assessments, fraud analytics, interactive underwriter workbenches, customer journey blueprints and product design.
CONCLUSION
Insurers need to prepare themselves for a more open and fluid landscape or face a diminished future. It is unlikely that an insurer will emerge at the centre of an ecosystem, but they will be able to capitalise on a more open digital landscape if they reconfigure themselves. External connectivity, internal flexibility and a focus on ingesting, storing and analysing data will define the winners.