1. Introduction

"Open" has recently become a new buzzword in the financial services industry, i.e.open data, open APIs, Open Banking, Open Insurance, but what does this new buzzword really mean?"Open" refers to the capability of companies to expose their services to the outside world, so thatexternal partners or even competitorscan use these services to bring added value to their customers. This trend is made possible by the technological evolution ofopen APIs(Application Programming Interfaces), which are thedigital portsmaking this communication possible.

Together companies, interconnected through open APIs, form a trueAPI ecosystem, offering best-of-breed customer experience, by combining the digital services offered by multiple companies.

In thetechnology sectorthis evolution has been ongoing for multiple years (think about the travelling sector, allowing you to book any hotel online). An excellent example of this trend is the success story of Uber. In just a few years this company has acquired a market capitalisation larger than that of BMW. This while Uber mainlycombines multiple API services offered by other companies, i.e.

Positioning is done by the operating system (iOS, Android)

Route calculation and maps are provided by MapKit and Google Maps

Twilio sends real time text messages to the customers

Payment is handled by Braintree

The receipt is sent via Mandrill

The services are hosted in the cloud on Amazon Web Services (AWS)

Combining these best-of-breed API services allows start-ups like Uber to deliver anexcellent and innovative user experiencein a very short time frame, thusfacilitating rapid growth.

Afterwards these start-ups will typically deliver their own APIs, which in their turn are integrated in the offering of other companies. E.g. the API of Uber is also integrated in the application of United Airlines.

These examples show themutual benefits of such an open API ecosystem, i.e. the customer-facing company can deliver additional services to its customers, while the service-providing company can profit of an increased usage (and monetization) of its APIs (and underlying products/services). This leads for both companies to increased revenues.

The example of Uber is certainlynot an isolated case, e.g. UPS has successfully increased its market share by integrating its APIs in online webshops or eBay generates already 60 percent of its revenues via its APIs (e.g. API to submit item for listing on eBay).

The insurance industry, traditionally quite slow in integrating new technologies, will also be more and more impacted.Open Insuranceis becoming an emerging trend, pushed by increased and changing customer needs and InsurTech competition.

This article describes theimpactsof this trend on theinsurance industry.

2. Drivers

While Open Banking has been a hot topic for a while, the trend towards openness has also exponentially increased in the Insurance Industry (i.e. Open Insurance or API insurance). Just as for Open Banking, this is driven bymultiple evolutions in the insurance industry:

Customer needs are increasing and changing: customers are demanding a multi- and cross-channel experience, which is real-time and 24/7 available. Furthermore, the experience should be customer-centric, rather than the product-oriented approach that most insurers currently offer. E.g. customers no longer want to buy a standardized insurance product, but instead want to input the risk for which they want to get insured and receive a tailor-made offer of their insurance company.Typical examples of this trend are micro-insurances (i.e. small amount insurances only applying to 1 object and/or for a short time period), peer-to-peer-insurances, usage-based insurances (UBI) and the rise of super-apps (i.e. apps of large tech giants which act as a central platform to initiate any customer journey) and the request of customers demanding a stronger customer engagement with their insurer. While in the past customers only met with their insurer when opening an insurance contract and when filing a claim, insurance companies now realize they should significantly increase the number of contact points with their customers. This will force insurers to evolve to a service-company, offering different tools, typically linked to the prevention of the insured risk (i.e. preventing a claim).

Regulatory pressure: a continuous flood of new regulations makes that insurers IT and operations departments are overloaded with making existing processes compliant with regulations. This makes that very little resource capacity and budget remains to work on innovative services, especially as most insurers also have several digitalization and operational excellence projects to reduce operational costs (vital as revenues are dropping due to increased competition and low interest rates). Insurance companies that wants to innovate need therefore to work out partnerships with other parties.

InsurTech competition: new - so called InsurTech - entrants, which can deliver innovative customer services faster and cheaper, are disrupting the market (in 2018 7.6 billion U.S. dollars was invested in the InsurTech sector). Following the example of the banks, insurance companies have learned its far better to partner up with a few well-chosen InsurTech companies to deliver attractive services to their customers, than to compete head-on with them. This approach enforces insurers to setup an open API architecture, which facilitates the rapid integration (plug-and-play) of the insurers and InsurTechs service offerings.

Hungry for data: Insurance companies are hungry for data. The more data an insurance companies has about the customer and the object to be insured, the more accurate the insurer can fine-tune its actuary risk models and consequently its insurance pricing (dynamic pricing model). Insurance companies should therefore integrate a maximum with external providers to get the most accurate view on the insurance risk. Especially with the rise of Big Data and AI, insurance companies are now in the capacity to process and analyse this inflow of data and transform it into actionable results.

Rise of digital brokerage: until recently most insurances were sold via brick and mortar insurance brokers. Today more and more insurances are being sold over the internet, via digital insurance broker platforms (i.e. online aggregators, providing a comparison of different insurances) and via e-commerce platforms, which forces insurance companies to integrate in a very cost-efficient way with these different distribution platforms.

New technologies: the rapid technological evolutions in the industry (IoT, big data analysis, real-time customer analytics, AI, block chain) make it almost impossible for an insurance company to invest (and be at the top) in every new technology. Partnering with specialist companies (integrated through an open API architecture) is therefore almost a necessity to stay ahead of all those technological evolutions.

New architectural design principles: historically the application architecture in the insurance industry is composed of several large, very closed, monolithic legacy systems. This traditional architecture is reaching its limits in the current digital and fast-moving world. Insurers are therefore taking their first steps in the migration to a microservices based architecture. Since microservices communicate with each other through well-defined APIs, this architecture can be exposed to the outside world much cheaper and quicker than a traditional architecture.

3. Impacts on the Insurance industry

The insurance landscape is undergoing its most fundamental transformation in decades, driven by the fast digitalisation in the sector. Just like the entertainment, media and retail industry, the internet has changed the way of doing business completely. Insurers should not only open their services, but also build their own digital ecosystems and participate in external ecosystems. Insurers therefore need to transform themselves to an "Open Insurer", offering "Insurance as a Service (IaaS)" (i.e. white label insurance products).

Ultimately insurers shouldshift from building full end-to-end insurance solutions to assembling best-of-breed insurance servicestailored to meet the customer needs. This means that the traditional product-centric distribution should be transformed to services providing deep financial insights and integrating services of other sectors. This can only be achieved by creating anopen API ecosystem, which is beneficial for all involved parties.

In practice, this API ecosystem digital platform would resemble an "App store" with services offered by the different parties involved in the ecosystem. Thecustomerwould be in thedriving seatto choose the functionality/service and user interface that suits him best. Once having made this choice, the customer would give a consent to the party to use specific data present in the ecosystem. Since the customer can easily switch from one service to another, this willboost innovationconsiderably and result in new service offerings which are superior in terms of cost, performance and convenience.

Open Insurance will also have a substantial impact on the insurers organisation wherebridges between business and IT departments will be alleviated, as decisions will need to be made quicker due to the faster evolving technologies and customer expectations. Thanks to Open Insurance, business and technology needs will become further aligned urging business analysis and software assembly and implementation to run in coexistence.

4. Opportunities and Threats for the Insurance industry

The creation of open API ecosystems offers severalopportunities, but also significantthreats, to the insurance industry.

Insurance companies not opening their architecture and not participating in these API ecosystems are expected to lose the most. Interesting to quote the BBVA bank here: "A company without an API is like a computer without internet".

Even when insurance companies build out more engaging services, it is unlikely that customers will choose the app of an insurance company as a central access point to other services and products.

Insurance companies will therefore profit most of the API ecosystem by:

Utilising more datafrom a broader external ecosystem

Sharing their own data and algorithmswith the rest of the world

Sharing their product stackwith the rest of the world

In the next chapters, we will present a few examples of how these 3 approaches can benefit insurance companies.

4.1. Utilising more data from a broader external ecosystem

As mentioned above, the business of insurances is adata-intensive business. Collecting large amounts of data and transforming them into actionable results is a core business of an insurance company. Thanks to the digital revolution insurance companies have now access to an almostunlimited supply of data, so choosing the right data sources and setting up in a cost-effective way, the data pipelines to capture, transform and process this data will be a key challenge for each insurer.

Some examples of data sources which could result in valuable insights for insurers:

Open Banking data: Thanks to the EU PSD2 initiative and the Open Banking directive in the UK, customers account data is now available to be accessed by TPPs (Third-Party Providers). This will allow insurance companies to get information about the financial situation of its customers, but also to get valuable insights in the type of income and expense transaction the customer executes.

IoT data: the rise of "Internet of Things" (IoT) can revolutionize the insurance industry, as it facilitates usage-based insurance (UBI), dynamic risk modelling and dynamic insurance pricing. Typical examples of insurances linked to IoT are:

Car insurance: via a continuous monitoring of the drivers behaviour and driving habits, car insurances can be dynamically adapted. This monitoring can be done via an onboard diagnostics (OBD) device installed in the drivers vehicle or via the drivers smartphone. Based on this data collection several services and enhancements can be offered:

Flexible pricing: reward safer driving through lower premiums.

Improved fraud detection: identify on which spots the car is parked (during the day and at night), if a personal vehicle is not used for professional services (like driving a delivery route), how many kilometres is actually driven with the car and if no claim insurance fraud is committed by comparing the car data with the data entered in the claim report (e.g. check if car was actually present and had a strong break at the report crash location).

Inform customersof risky situations for the car, e.g. notify customer about bad weather expectations in the neighborhoud of the car (e.g. hail), notify customer when he parks car in a neighborhood with a high amount of reported thefts

Provide customer (a game-like) overview of his driving statistics, like speed, kilometres, with support tools like simulating future gasoline cost

Support the customerin case of car breakdown, accident or theft. E.g. insurance company can pro-actively contact the client and arrange emergency support (in case of injuries) when it detects an accident, automatic pre-filling of a digital claim (based on the collected data) in case of an accident, support in arranging car assistance (e.g. Touring assistance) when car breakdown is identified, identify theft of a car when unexpected (deviating) driving behavior is recognized

Allow parents tomonitor(track) their teenagers when they use the family car

Supportshort-term car insurances, allowing policyholders to insure themselves on a friends vehicle for a short period or allow drivers to buy a short period covering on their own vehicle

Home insurance: Improve the protection of insured houses against threats (fire, leak, flood and theft), thus reducing the risk for insurance claims.

Life insurance: wearable sensors (e.g. Fitbit) can be used to monitor health activities and communicate the results back to the company for lower life insurance premiums. Different biometric readings can be collected, like heart rate, body temperature, blood pressure, movement, calorie burn-rate, alcohol consumption., which can be used to gamify healthy habits into a point system. Furthermore, insurance companies can provide services for elderly (assisted living) for safety and care (e.g. check if customer is properly taking his required medication).

Location data from mobile phone: sending location data from the mobile phone to the insurer, can not only allow insurers to get a better idea of the risks a specific customer is taking, but also allows to provide extra services and cross-selling opportunities to the customer. Some examples:

When customer is driving to the airport or is located abroad, but does not have a travel insurance opened yet, the insurer could propose him to open a travel insurance.

When customer is driving to the hospital, the insurance company could inform the customer about the modalities of his hospital insurance.

Based on the combination of climate data and customer geolocation data, the insurer can offer hurricane alerts

When customer is abroad and from other data, it can be derived that customer is abroad for holiday, this info could be used to send customer a "Happy holiday" card and to make sure the customer is not contacted at that moment.

Social media: insurers can obtain valuable data about their customers from social media like Facebook, Twitter, LinkedIn

Customer referential data: when insurers can be informed about changes in customer data well upfront (by integrating with postal service, social media or governmental services), this provides a lot of opportunities to insurance companies:

Achange in addresscan be an interesting sign to contact a customer to sell new or revise existing policy(ies). Not only for a home insurance, but also for other policies like a car insurance (change in address can result in different transportation habits, if e.g. less access to public transports) opportunities exist. It can even be a sign of a relationship break-up or a child leaving the parental house, in which case a full revision of the insurance portfolio is required.

Thebirth of a childis also a moment for revision, typically for family liability insurances or hospital insurance. Same applies for achange in civil status.

Valuation services: in order to properly assess insurance risk, a correct valuation of the insured object is also required. Most insurance companies have good models for this, but external services can also be used to provide an accurate initial valuation, but also to review regularly the current valorization. Some examples:

Car insurance: call external services to determine value of a car to determine the insurance premium, but also valorization of damage in case of a claim. Examples of such services are "cars.com", "vinaudit.com", Edmunds, Informex

Real estate: allow to valuate a real estate property, e.g. Rets.ly, SimplyRETS, Rets Rabbit, Property API, Zillow

Art: valuation of art objects, e.g. "artnet.com", "artprice.com", "valuemystuff.com"

4.2. Sharing their own data and algorithms with the rest of the world

Insurance companies that collect (some of the) above data from external sources and combine it also with the rich internal data sets (customer referential data, policy details, claims data) and process it an efficient way, hold valuable insights which can also be commercialized to other (commercial) parties. This chapter provides a few examples how insurance companies canshare their data and algorithms with other parties:

Insurers have worked outsophisticated models for fraud detection, customer risk assessment and valorization of insured objects, which can be exposed (and monetized) to 3rd parties.

Competitors taking over a car insurance, will be very interested in obtaining the claim history of the customer

In order to properly insure a car, insurance companies could request customers to provide thename of the driverfor any drive (especially for company leasing cars, rental cars and car sharing services). This information could be useful for the police and parking companies, to send fines and bills directly to the right person.

Instead of the traditional Green Card, insurance companies can provide adigital Proof of Insurancevia an API. This would allow the police, ANPR cameras and technical inspection companies to directly check all details of a car insurance policy and its holder.

Aggregated views of customers assets, liabilities and off-balance positions, like PFM tools, financial or pension planning tools, account aggregators, aim to provide a holistic view of the customers wealth. Those tools are very interested in obtaining (after customers consent) a view on the customers policies and outstanding balance for life insurances.

Insurance planning and aggregation tools, which allow customers to assess risks and open automatically insurance policies to protect against (e.g. UnderCover from Ensur)

When insurance companies collectdriving dataabout customers, this data could also be shared with other interested parties, like for road pricing (road tolls, distance or time-based fees, congestion charges), car sharing and rental services, fleet managers

4.3. Sharing their product stack with the rest of the world

Of course, the most interesting of the 3 categories is where an insurance company opens its product stack to the outside world, as this can directly generate revenues for the insurance company. We identify 2 categories here: integrations for origination of new insurance policies and integrations for servicing existing insurance policies. Some examples:

Origination of new insurance policies: by providing APIs to other industry apps, an insurance company can obtain new customers who were not even thinking about the related insurance aspects:

Car dealer apps: sell car insurances

Luxury good dealer apps: sell policies to insure specific object or allow to review home insurance

Real estate apps: sell home insurances

IT protection websites like firewalls, virus-scanners: sell cyber-security insurances

Travel apps: sell vacation/travel insurances

e-Commerce apps: sell insurances for delayed or no delivery (insure the company selling product or customer receiving the product)

Apps that sell (perceived) risky activities, like extreme sports, parachute jumping, flying, travel to dangerous area: sell short-period life insurances (e.g. Sure provides micro-duration life insurance coverage during air travel)

Insurance comparison tools, e.g. BusinessComparison, Moneysupermarket, Confused, Compare the Market, MoneySavingExpert

Servicing existing insurance policies: provide different APIs to act upon existing insurance policies:

Apps for "safe driving courses", "stop smoking therapy", "sport/fitness clubs" could provide a service to directlyreview insurance premium pricing(of car, hospital, life insurance)

Automatic filing of a claim, e.g. when travel is cancelled, when a package ordered on the internet can not be delivered, when a plane is delayed

Block (and unblock) an investment insurance policyas collateral for a credit sold by a bank (cfr. LABL product of Capilever). This could allow a customer to open a cheaper consumer credit, as it is backed by the money of an insurance policy. This could also be used for mortgage credits, backed by a group insurance acting as debt balance insurance.

Pay-out a life insurance: bank or notary receiving info of a decease could provide automatic instruction to pay-out life insurance.

Adapt details of an insurance policy, e.g. fleet managers or car rental/sharing services automatically adapting the driver linked to an insurance or social secretariats, which can automatically add extra employees to group insurances or add/remove partner or children of an employee to/from a hospital insurance

5. Success Stories

Even though the insurance sector is only in the beginning of its transformation to an Open Insurance API ecosystem, several examples ofsuccessful API ecosystemscan already be identified today:

In 2008, PolicyBazaar was founded in India, as an online platform that aggregates insurance plans and serves as a marketplace for policies.

In 2013, Ping An, Tencent and Alibaba joined forces to launch Zhong An, which is an online-only property insurance company, selling high volumes of low cost micro-insurances (e.g. cracked screen insurances, flight delay insurances, shipping return insurances), via China' biggest tech companies. With over 630 million insurance policies and 150 million clients serviced in its first year of operation, this is definitely a success story.

In 2014, Ping An (largest insurance company in the world) created Ping An Good Doctor, which is a healthcare ecosystem for the Chinese market. With 265 million registered users, it is the largest mobile medical application in China.

In 2016, AXA partnered with Silicon Valley InsurTech Trv to attract the British millennials. Trv allows customers to buy flexible, short-term insurances for single items via their smartphones. For example, a customer can open a temporary insurance for an expensive camera, when he wants to use it.

In 2016, American InsurTech company Lemonade launched its online-only insurance app for renters and home insurance policies. Currently valued at more than $2bn, the company disrupted the American insurance industry, via fully digital and cheap insurance policies.

Read more:

Transforming the insurance sector to an Open API Ecosystem - Finextra