Igniting tomorrow's insurance: Navigating Open Finance and Big Tech.

Open finance has the power to unlock the insurance of tomorrow. In the very near future, this transformation of the insurance industry will provide new opportunities for insurers and consumers alike. In this blogpost we analyze the relationship between open finance and big tech, with a particular focus on the opportunities and risks characteristics to the industry open architecture. 

What are the benefits of open finance, and for whom? Open finance allows for a data-driven insurance sector, where diverse data is shared by different stakeholders in a safe and transparent manner. Both insurers and consumers can benefit from it: 

• Consumers can benefit from a more digital-centric insurance industry, improved market transparency, and better fit/priced products; resulting in an insurance industry that is more reflective of their needs. . Real-time access to policy information is empowering because it allows people to manage their policies, gain insights on how they stand compared to peers, and find better rates and/or more suitable products and services that provide better coverage. Additionally, consumers can choose to share their insurance data with industry players to receive real time tailored offers and to get better advice from advisors as they can finally have an accurate and holistic view of the customers insurance holdings. 

• Insurers' benefits are numerous, too. Enhanced access to data yields better risk monitoring and evaluation, happier and more informed consumers, improved customer service, more loyal customers, and enhanced fraud detection capabilities. Expanded access to data from both public and private sectors, spanning different industries, can boost competition by innovation. 

What is the worry with big tech?

Some fear that open insurance could allow the so-called “big tech” to take advantage of the new opportunities as it would establish a status quo where large tech companies would have access to a consumer’s current insurance data without offering data reciprocity to insurers. Some insurers worry that the big tech companies already have the advantage by controlling vast amounts of consumer behavioral data combined with their sophisticated analytical skills. The involvement of tech giants with their extensive data collection and analytic capabilities could even raise questions about how consumer data is managed, stored, and shared.

While all stakeholders ought to be concerned with these fundamental questions pertaining to people’s privacy, it is critical to ask the question, is open finance really going to be the tipping point for big tech to enter the insurance industry? At Insurely, we believe that the answer to this question is a big no. It is unlikely that big tech will see that this data sharing regulation is the critical hurdle they have been waiting for to enter the insurance sector. Some big tech companies are already making moves into the financial sector; Amazon is already taking steps to enter the Industry in the UK and Apple is entering the banking space. Additionally, the high regulatory and operational standards that Insurance companies are held to, will likely serve as a significant barrier for these companies to enter even further; especially since they have been operating unchecked in a loosely regulated marketplace for decades. 

Rather than hindering a regulation which would help the Insurance sector step up its digital game and be better equipped to compete with big techs who have the technical edge, it’s better for the industry to advocate for stricter regulations on how the industry is allowed to leverage a consumer's behavioral data when developing insurance offerings. By limiting the types of data (e.g. excluding search data, mobile generated data, internet data) that can be used in risk pricing models, Insurers would be able to maintain their existing incumbent advantages for many years to come. The types of theoretical regulations discussed above will also serve to better protect consumers so they are not subject to financial exclusionary tactics based on their digital or physical behaviors monitored by big techs. 

Finally, it is also important to consider that open finance is likely to favor insurance companies over big tech due to their:

• Deep industry knowledge that allows insurance companies to develop tailored insurance products and services that meet the unique needs of customers.
• Established trust and customer relationships. Trust is a critical factor in the insurance industry and the big tech is often under severe scrutiny with public image implications.
• Expertise in regulatory compliance. The insurance industry is subject to strict regulatory requirements to protect consumers and ensure fair practices, putting the consumer first.
• Focus on data privacy and security. Insurance companies have robust systems in place to protect consumer data and comply with stringent data protection regulations. Data protection is in their DNA.
• Improved digital engagement with customers will close the digital gap that exists today, thus making the digital first business models of big techs less threatening.

Why the right legislative framework is paramount.

The Open Finance Framework has one central task: To create a sound legislative and economic environment where fair competition, open access and consumer’s protection are granted for the coming future.

• A consumer friendly approach can unleash innovation. In order to maximize the potential of open finance while minimizing risks, the data required for consumer-centric use cases should be included in the first iteration of an insurance specific framework.
• Data sharing that unlocks significant value for consumers, makes the insurance industry more transparent, and makes sure that insurance continues to strive towards a consumer centric approach.
• A level playing field in terms of access to data, addressing technical obstacles — such as a lack of standardization — through market-driven efforts.
• A consent-based data sharing is essential. Upcoming rules should enable a consumer-friendly and intuitive journey for users, while also minimizing the scope data opened, making sure precious information is only shared on as-needed basis. Rules should promote competition by allowing customers to access their insurance data for their own benefit.

The open insurance industry thrives on putting the consumer in the very heart of their products and services. Trust, transparency and innovation are not zero-sum games, and they can greatly empower both the insurers and consumers.