Insurance - Nordigen

How insurance uses open banking


| Article by: Laura AasheimProfile Image Laura Aasheim 3 min

In the past, obtaining insurance has been a tedious and complicated process and people were less educated on its importance. Traditional insurance was expensive, especially if brokers, agents and any other middle-men required their cut (Policy Bazaar, 2020). Today, with digitisation, the middleman has been removed and the buying and claim process of insurance has become simple and approachable. With so much information available online, not only do people understand the importance of insurance but they are able to understand what they want and choose which policy is best for them.

 

Insurance is changing

Traditional insurance is prone to human error due to the sheer amount of stakeholders involved in the process, resulting in issues such as lost transactions. To combat this, both blockchain and AI are increasingly being used in insurance. 

AI and blockchain are able to solve issues related to insurance claims. Claims can be settled surprisingly fast by assessing customer data and comparing it to their policy. AI techniques like computer vision can turn complex images into data, also speeding up the claim process. 

AI and blockchain both provide ways to combat fraud. Blockchain networks include multiple insurers who collaborate to identify suspicious behaviour (Deltec Bank, 2020). Machine learning enables identification of anomalies and proactively prevents major incidents. And instead of relying on their own data, insurers can use industry wide records (Deltec Bank, 2020). 

Open insurance solutions are on the rise and insurers are using open APIs to share and access data and services with third parties (Maletski, 2021). This data helps insurers more accurately understand risk and personalise their offerings. For traditional insurance companies that are facing competition from insuretechs, open insurance is the perfect way to stay competitive and relevant (Maletski, 2021).

 

What is open banking?

Open banking is a banking practice that securely shares financial information, such as consumer banking transactions and other financial data, to third-party financial service providers (Estevez, 2020). Sharing data is done through the use of application programming interfaces (APIs) and only with the consent of customers (The Balance, 2020). Open banking is the driver behind both innovation and competition in the financial industry (Cahill, n.d.).

 

Why does insurance use open banking?

More and more people choose to pay monthly for insurance and to reduce the credit risk associated with financing larger insurance products, open banking can be used to evaluate creditworthiness of customers. 

Open banking verifies users’ identities and bank account numbers before authorising a payment or withdrawal of funds.

 

Some insurance companies you should know about

Lemonade offers renters' insurance, homeowners' insurance, pet insurance and life insurance. Due to open banking, Lemonade is able to offer different levels of personalisation as well as integration to its customers (Projective, n.d.).

Allianz is a German multinational financial services company that focuses on insurance and asset management. As part of its Allianz Business System, the company is offering open-source platform-solutions to other insurance companies for free (Accenture Insurance, 2018).

 

What’s to come?

Deloitte claims that by 2024, 33% of premium insurance will come from completely new propositions meaning that the industry is changing from product-led to service-led offerings for customers (Daskal, 2021). And with the digital native customers of today, technologies will become even more central and the future of insurance.

 

References

The Balance. (2020, October 11). What Open Banking Is and How It Will Affect You. https://www.thebalance.com/what-is-open-banking-and-how-will-it-affect-you-4173727

Cahill, H. (n.d.). InvoiceFair. The Evolution of Open Banking: Connectivity breeds digital competition. https://invoicefair.com/the-evolution-of-open-banking-connectivity-breeds-digital-competition-081118/

Estevez, E. (2020, August 27). Open Banking. Investopedia. https://www.investopedia.com/terms/o/open-banking.asp

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