Open Insurance: what it is and how it works
We can summarize Open Insurance concept as the application of Open Innovation practices in the insurance market by providing services and data to partners, communities and startups in order to create new services, apps and innovative business models.
But we can go further. After all, beyond the technique, we are facing a movement that links digital transformation and open innovation to new ways of providing services and providing insurance products.
This is what we propose in this article. Keep reading to get a macro view of Open Insurance, how it works, how it’s been applied around the world.
What is Open Insurance?
The emerging term in the insurance industry, Open Insurance basically refers to providing services and data to partners, communities and startups, in order to create new services, applications and innovative/disruptive business models.
From a technical perspective, the main concept of Open Insurance comes from the combination of open API architectures inserted in insurance applications.
In this context, access to open APIs permits the sharing of data between different insurers, startups, banks, InsurTechs (insurance startups based on technology, inspired by the Fintech model) and other organizations.
This new concept is part of the technological movement that is currently inserted in different moments of the new insurance consumer journey. For example: Today Big Data is able to promote insured risk analysis through digital historical data, providing even more information to insurers.
In practice, by adopting open APIs, insurers can experience, collaborate and leverage innovative solutions and business models developed by InsurTechs easily. Certainly, in a world of startups perfecting data analysis, Machine Learning, visual recognition and Artificial Intelligence, and proving that there are options that go beyond price comparison sites.
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What is the relationship between Open Insurance and Open Innovation?
Extremely regulated, the insurance market still runs into bureaucracies that don’t benefit the consumer. Even today, with the technology more accessible, information related to personal or commercial insurance policies are not easily accessible or shareable.
But this is the kind of practice that is certainly in transformation. Governments and regulatory bodies around the world are watching carefully how financial data can benefit consumers and companies, in order to promote economic and social development.
Therefore, we can say that Open Insurance is closely linked to the concept of Open Innovation, which, in a nutshell, is the use of intentional knowledge flows to accelerate internal innovative power and expand markets for external use of innovation. Once open innovation is adopted, the organization boundaries become permeable and allow combine resources with external collaborators.
In the financial and insurance industry, open innovation practices involve the use of specific technologies that allow the integration of systems with security – for users and companies involved. These technological innovations are enabling the development of Open Insurance practices.
How open API is revolutionizing financial and insurance industry?
As we have already pointed out, in technical terms, the main concept of Open Insurance is the union between open API architectures applied to insurance apps. Therefore, API is the technology that provides the integration between different systems, allowing to leverage Open Insurance practices.
It is important to remember that API means Application Programming Interface, the set of programming standards that allows apps construction, their use and integration, in a subtle way – without the user noticing. It runs behind everything, that is, while the user enjoys a certain functionality, API can be connected to many other systems and apps, without harming or impacting other functions.
APIs can be split into open or private. The open ones have free use or limited to a specific number of accesses, whereas the private ones are developed for the exclusive use of companies.
There are several services that make your codes available for use on other sites. Google Maps can be considered the clearest example of open API: different pages around the world make use of their features, adapting the original code to their own needs.
APIs also allow software and apps developers to connect distinct technologies, such as different databases. These interfaces are like bridges, connecting diverse applications, that can be used for the most varied types of business, in different markets and regardless of the corporation size.
The data exchange provided by the APIs is done with great security, guaranteed by a kind of portal, where only a specific set of information, defined by the owner company, remains available.
APIs are considered the key to the process of Digital Transformation in banks, for example. They allow the connection between systems of different companies, promoting the accomplishment of transactions in an automated and safe form. Among other applications, this is what allows account holders to access their banking information through other companies apps, not just the bank itself.
And these innovations are also allowing disruption to reach insurance companies through Open Insurance. Conservative, subject to fraud and extremely regulated, this is undoubtedly one of the markets in which open innovation practices are most surprising.
An example? A great startup case that already makes use of Open Insurance strategies is Lemonade. Developed in the United States to be a digital insurer, the company aims to make practices that involve the insurance market as simple and connected as watching a movie in a streaming app.
At the end of last year, the young insurer launched its public API, which allows any company to offer insurance in an app, from the interface developed by it.
The process to offer insurance in an app instantly can take years, as it becomes necessary to gather the necessary licenses, technology and capital. Lemonade API launch is intended to facilitate and streamline this process, since a person with a little coding familiarity can include those features in your app in just a matter of hours.
In today’s increasingly digital world, insurers need to figure out how to manage the huge amount of data generated by their business. Data management is a strategic priority across the enterprise, not just the IT department.
They also need to figure out how to extract valuable insights from this huge amount of data, which is usually stored in various places.
APIs help insurers open their data sources; collect data from multiple sources, and share it with multiple sources, even third parties. This allows them to share information in platforms and digital ecosystems.
As we have seen throughout the text, there is already a huge movement in that direction. The increased activity of startups and investments can be benefited by sharing data related to insurance, allowing startups and developers to get more information in less time. It is also interesting in the sense of autonomy to choose partners and act more independently.
But reducing the barriers that still exist is very important to allow access to data that could take years to accumulate or require high production costs.
Companies that are not fully open, in the sense of APIs implementation, can restrict competition, especially in the case of small and medium-sized ones.
Allowing the implementation of sharing data and open APIs means creating new competitive business channels, innovative products, growing customer base and improving the user experience.
We can conclude, therefore, that insurers willing to adopt new solutions, allowing faster decisions, will gain a definite advantage in the market. But this will only happen at the ideal pace if we encourage large insurers to develop and combine innovative features offered by their startups’ competitors, who are much more open to Open Insurance.