Unlocking the potential of ecosystems: a deep dive into open insurance and APIs

Tue 02 Apr 2024

In the contemporary landscape of insurance, the business model of open insurance, characterised by the strategic opening of insurers’ resources to external collaborators, has been a focal point of discussion. Unlike the banking sector, where regulatory mandates such as the Payment Services Directive (PSD2) of 2018 have compelled the development of open banking practices, insurers currently lack such regulatory obligations. However, a confluence of factors is prompting insurers to fully embrace the paradigm of open insurance.

Open insurance presents a myriad of potential advantages for insurers and their clientele, facilitated by the adoption of ‘open’ Information Systems (IS):

1. Innovation and personalisation: by exposing their data and services, insurers can forge collaborative ventures with external entities, thereby fostering innovation and enabling the creation of highly personalised solutions. This approach not only augments the overall customer experience but also facilitates the provision of bespoke products tailored to individual customer requirements.
2. Agility and flexibility: embracing open insurance entails opening the IS, thereby endowing insurers with the ability to swiftly adapt to market dynamics and technological advancements. Through seamless integration of third-party products and services, insurers can respond adeptly to evolving customer preferences without necessitating extensive redevelopment efforts.
3. New business models: open insurance catalyses the emergence of innovative business models, exemplified by collaborative insurance platforms leveraging technologies such as IoT, AI, and blockchain. These transformative technologies revolutionise key facets of insurance operations, including underwriting, loss prevention, and claims management, thereby ushering in a new era of operational efficiency and efficacy.
4. Transparency and trust: enhanced sharing of information with customers and strategic partners cultivates a culture of transparency within the industry. By providing stakeholders with greater visibility into their operations and decision-making processes, insurers can foster trust and confidence, thereby fortifying relationships and enhancing brand reputation.

Within the domain of open insurance, insurers may adopt one of three strategic postures:

• Producer: the insurer no longer has control over the customer interface and is positioning itself as a manufacturer of products and services that it makes available to distributors via one or more open APIs.
• Interface: through its customer interface, the insurer distributes products and services developed by itself and/or by its partners, who provide APIs that enable the insurer to integrate their offerings to enhance the customer experience.
• Supplier: the insurer no longer distributes its insurance products, but positions itself as a provider of back- and middle-office infrastructure solutions (KYC, LCB-FT, administrative management, etc.)

In summary, although open insurance currently lacks regulatory compulsion, it presents compelling opportunities for insurers to enhance operational efficiency, foster innovation, and deliver superior customer experiences within the insurance ecosystem.

API: A Cornerstone of Platform Strategy

Application Programming Interfaces (APIs) allow the transition to open insurance. It serves as the linchpin for interoperability and integration between disparate systems and services, enabling insurers to realise the full potential of open insurance initiatives.

It is pertinent to note that a significant proportion of insurers have embarked on projects to integrate APIs into their information systems. Initially utilised primarily for internal functions to bolster security and operational efficiency, APIs are now being extended to external partners. This strategic move unlocks valuable data and fosters collaboration, enabling insurers to offer innovative products and services to customers through partnerships with external entities.

APIs manifest in various types and architectures, each tailored to specific use cases:

• Internal API: intended solely for use within an organisation. They facilitate communication between different internal components/systems or between different departments, thereby promoting efficiency and streamlining operations.
• Private API: designed to connect to ecosystem partners outside the organisation. For example, to enable real-time reimbursement of the amount of healthcare costs provided for by the mutual insurance company, thus offering an improved customer experience in terms of processing reimbursement files.
• Partner API: accessible externally to API developers or consumers and facilitates B2B(2C) activities by exposing their APIs to selected and authorised third parties. For example, to enhance the value proposition by working with insurtechs to diversify offerings and benefit from the innovative technologies of these partners. Or to enable policyholders to search for doctors, hospitals and clinics covered by their health insurance policy, while finding care providers nearby who can book appointments directly.
• Public API: open API and exposed externally for use by third parties, involving the sharing of applications/data with other organisations. They have the potential to extend an insurer’s reach to a wider audience. They promote innovation and transformation by enabling a frictionless exchange of value with ecosystem partners. A well-known example is the pricing and calculation of car insurance premiums based on model, driver age, driving history, etc. made available via the website. Other examples include loss prevention by sending weather alerts to help policyholders protect their property before a storm or online claims where policyholders can upload photos, provide details of the incident, and monitor the status of their claim in real-time.
• Composite API: amalgamate several types of API to create a sequence of related and interdependent operations. They are useful for addressing complex behaviours and can deliver gains in performance and speed compared with ‘individual’ APIs, for example by coordinating the various stages of the underwriting process, from the driver(s) background check stage to the calculation of the insurance premium, to the management of the insurance contract; or for claims management, from the adjudication and submission of the claim, to the planning of repairs, right through to payment and processing. 

The push to open an insurers’ information systems is all about riding the digital wave, catering to the changing preferences of today’s consumers who crave personalised services. This shift not only sets new standards for insurance products but also streamlines internal processes, making operations smoother and more efficient.

Indeed, APIs help internal efficiency through the automation of internal processes, data sharing within organisations, improvement of digital channels and use of aggregators. Likewise, they fortify business activities through open innovation, connected insurance capabilities, using insurance as a platform, and enabling partnership and development of offers.

API: the digital backbone of innovation and integration

Creating a composable and agile application architecture, enabling multi-experience customer journeys, building new digital ecosystems, overhauling outdated integration approaches, migrating to the cloud/adopting cloud-native architectures, as well as modernising information systems all heavily depend on API-based integrations, which serve as foundational elements in many digital solutions and architectures.

The challenge of information system integration has emerged as a key hurdle for insurers in their journey towards digital transformation, with APIs acting as the linchpin that binds various systems together.

Ultimately, APIs contribute significantly to the successful amalgamation of information systems in today’s digital landscape.

• The digital landscape has become increasingly complex, with a multitude of applications, services and platforms. APIs enable these disparate elements to be connected coherently.
• Businesses use a variety of technologies, from on-premise systems to SaaS applications. APIs provide a standardised way for different technologies to communicate.
• The needs of businesses and their customers are changing rapidly. APIs enable a rapid response to these changes by providing flexible and scalable interfaces.
• APIs facilitate interoperability between applications, data and services. They enable companies to create tailor-made solutions by combining different elements.

In essence, APIs serve as the cornerstone of open insurance, empowering insurers with fresh avenues for collaboration and innovation within an ecosystem, thereby diversifying revenue streams and enhancing both customer and partner experiences. However, alongside these abundant opportunities come several challenges that insurers must address, notably in terms of API management as well as technological and organisational transformations, cybersecurity risks stemming from heightened system openness, and potential future regulatory frameworks and standardisation efforts concerning API protocols.