What is open banking and what is its future in the insurance industry?

There have been major advances in the use of open banking across financial services over recent years but has the insurance industry made the most of the opportunities?

We gathered three experts from within CPP Group to discuss the topic: Jo Davies, CPP Group Head of Marketing and Research, Richard Lucker, CPP Group Head of Product Development, and Paul Prendergast, CEO of Blink Parametric.

What is open banking and why is it important for insurance companies?

Jo: Open banking is a system that enables third party providers like insurtechs and fintechs to have direct, secure, access via API to consumer or business accounts held by banks and insurers. Access is granted with the approval of the account holder so that the third-party companies can better meet customer needs with innovative products and services.

Paul: The data serves as a window into consumer and business behaviour and activity. So it’s a rich resource for innovation and identifying new products and services, as well as facilitating faster and more diverse payment options. I would say that it’s importance for insurance companies is under-utilised at present but that will change. In Blink’s case, we are prioritising its value in terms of its ability to validate the financial consequences in commercial terms on businesses impacted by an insured peril.

What are the advantages of open banking for insurance companies and consumers?

Jo: Consumers can receive personalised prices, quotes, products and a service experience that are developed from a rich understanding of their risks and needs based on various data points that open banking brings. The big one for companies is that it offers a fast-track to innovation that some of their legacy systems and processes couldn’t deliver at all, or too slowly and expensively. That’s particularly the case now as COVID-19 has seen many companies focus on their core lines. For companies like CPP it offers a really strong opportunity to bring in ancillary services that create additional value for business partners and customers.

Richard: It has the potential to transform the way money is managed, putting the consumer in control over how and where they access, monitor and manage all of their accounts. It also has the potential to deliver value to users through offers and personalisation driven by analysis of the data relating to their accounts and spending habits. This in turn creates commercial opportunities for businesses that are able to apply these capabilities to deliver compelling customer propositions.

Paul: In terms of Blink Interruption’s use of open banking, the benefits to policy holders derive from our capacity to validate the impact of the peril by automatic financial analysis and track the ongoing impact on business activity daily. This results in immediate liquidity (seven days) being provided to a business when it needs it most. No paperwork is required to support a claim and the business benefits from claim certainty which aids meaningful business recovery planning. For insurance companies, open banking access is part of the toolkit that enhances their ability to service claims, eliminates the need for TPA, reduces forensic accounting costs associated with BI claims and helps them respond rapidly to high volume, high frequency, low severity claims.

How much are insurance companies taking advantage of open banking?

Paul: We are entering a period of exciting innovation in insurance and open banking coupled with parametric technology will have a key role to play in the evolution. I totally understand the fear from an underwriter’s point of view that they might wake up and discover a huge pay-out has happened but that nobody checked it first. For me, the big thing is reducing the risk for the underwriter, which we can do with a robust validation process. If there was a COVID-19 lockdown in a city and every company got a pay-out because it was parametric, that’s clearly too blunt a tool for that kind of claim. But in reality pay-outs would go to the people who have been impacted and that’s what open banking and real-time financial analysis delivers: as more data confirmatory points in the validation side of things emerge, as opposed to just the ‘event’ occurring it will make parametric or automated indemnity much more palatable for underwriters.

We are entering a period of exciting innovation in insurance and open banking coupled with parametric technology will have a key role to play in the evolution.

Jo: Some companies such as PingAn, BBVA, Santander and ING have really embraced opportunities in open sourcing of products and services but for some there is wariness of losing control of the value chain and eroding of margins. Many businesses are slow to adapt simply due to their legacy systems. I think consumers and companies alike are concerned around the privacy and security aspects of sharing their data, plus open banking/insurance is still not really well understood. More education is needed on the benefits and security aspects of open-banking.

Richard: The de-centralised approach of open banking may be a barrier to confidence among some consumers. Any services built on open banking need to present significant value to target consumers in order for them to change their behaviours and to overcome concerns about security and control and that forms a key part of our product planning.

So is open banking safe?

Paul: Yes, it is: it’s governed by the same protocols and regulations of the financial services industry, which are robust and subject to constant review and resilience testing. Of course, account holders have the same responsibility to safeguard their data and protect against unauthorised access so the security considerations are the same. In our case at Blink, we do not transfer or store any account data that we access. We run data analysis on fixed criteria only, based on account holder approval in order to validate a claim.

What kind of opportunities can Blink’s API create for insurance companies?

Paul: We partner with insurance companies to build next generation parametric products that provide:

• Simple, trustworthy, automatic commercial insurance solutions
• Clarity on cover, real-time claims and resolution
• Reduced cost of claims handling
• An API delivery that is white label and configurable

We design solutions for existing programs to convert them to a parametric cover or to complement existing cover with a parametric component.

Has the COVID-19 pandemic heightened or reduced the benefits of, and demand for, open banking?

Paul: Without question, the pandemic injected a new sense of urgency to better meet the challenges faced by the industry in 2020 and into 2021. The best thing we can do is use it as a catalyst for change and provide smart, innovative, real-time solutions that make a difference.

The UK’s Open Banking Entity has reported that the use of open banking doubled in six months in 2020

Jo: Some are saying that COVID-19 is paving the way for open banking as more people are using online banking apps, as well other digital services than they had before the pandemic. The UK’s Open Banking Entity has reported that the use of open banking doubled in six months in 2020 so that supports the thinking.

What are your predictions for open banking in 2021?

Jo: It still has a way to go in terms of awareness for consumers – it has been three years and there are around 2m UK consumers benefitting from it. However we could see increased investment from banks and insurers developing models and strategies that are eco-system based such as the Mastercard acquisition of open banking platform Finicity at the end of 2020. Fintechs and insurtechs that are already in the space could also expand into more banking and insurance parts of the chain. If you think when open banking started there was a flurry of fintechs focused on the payments element of banking but some like Revolut have really expanded their businesses quickly thereafter.

Richard: It will underpin a steady evolution of the user experience and functionality of online banking and associated services from both banks and third party entities over the coming years. It’s uncertain whether we’ll experience an inflexion point in 2021. There will be interesting success stories but the question is whether we’ll see a step change in user behaviours or commercial models.

Paul: We can expect to see its ongoing adoption as part of transformative changes in commercial and business interruption insurance solutions. Blink Interruption’s rollout in the USA is our top priority and that has open banking as a key element of its market proposition. We also expect great things working with Beazley on our Blink platform and building the next generation of products to be released this year.