Open banking in insurance companies: how can they benefit?

IT developments in finance and data management have brought about a paradigm shift in the provision of banking services. This development, however, extends beyond banking to other areas that can take advantage of its benefits. This is the case of open banking in insurance.

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Why is Open Banking essential for the insurance market?

Open banking is a new paradigm in which information systems and data mining are essential to provide a better service. This model employs providers whose main function is to collect and categorize data for banks and financial companies.

Thanks to this paradigm shift, the insurance industry is also beginning to embrace this ability to broaden its services and deepen market segmentation. So-called open insurance uses the same model in which user data and profiles are used to provide personalized services and greater personal management capacity.

Benefits of Open Banking for insurers

As far as insurance companies are concerned, thanks to the proclamation of the PSD2 Payment Services Directive, a regulatory framework is obtained in which data collection and processing complies with an international standard. This favors the insurtech, insurance and technology sector, which bases its model on data analysis to provide a personalized service and improve its commercial performance.

Personalize the customer experience

One of the immediate benefits of open banking is the improvement of the customer experience. Indeed, the IT infrastructure offers the possibility of communicating directly with the company and obtaining a personalized service based on the user’s profile.

This generates a substantial improvement in the processing of requests, queries and account tracking. The implementation of APIs integrates all services and offers a wide range of personalized options based on your interests and needs.

Automated operations and improved personal management capabilities reduce administrative costs, making services more cost-effective and customer-specific. Coverage conditions are available and customer service is available 24 hours a day.

More valuable customer information

Historically, insurers have always required a database of clients and potential clients against which to produce and market their services. The conditions of coverage, the type of plan and the requirements necessary to develop a particular type of policy are based on this type of analysis.

Nowadays, this practice is much more agile and accurate, since having up-to-date statistics makes it possible to improve risk management and reduce the chances of fraud or non-payment situations.

In this sense, the open banking model uses algorithms to collect data on users’ online behavior through social networks, websites and applications of all kinds. Access to customers’ banking information – with their prior consent – provides insight into their financial history to reduce risk.

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Open banking and open insurance

While open banking is organized as a set of IT protocols and functions that provide an infrastructure for banking services based on data and applications, open insurance does the same in the field of insurance.

The ability to use mass data providers – regulated by the PSD2 Directive – to learn more about customers and provide them with personalized services is one of its main attractions.

The implementation of application programming interfaces (APIs) ensures that third parties can access banking data legitimately, which speeds up the operation of applications and programs. In short, this new paradigm represents a significant increase in operational and management capacity.

Insurance embedded in financial products

To conclude, it is worth analyzing one of the benefits that are specific to insurance digitalization ecosystems. This is a type of coverage that is obtained during the purchase process of other products (automobiles) or during the contracting of other services (tourism trips).

So-called embedded insurance is integrated during commercial transactions depending on whether or not it is of interest to customers. The data available on that particular user profile ensures targeted and personalized coverage.

This method is very effective and convenient for customers, who get an offer tailored to their budget and particular needs. Its implementation is also very convenient for insurers using this type of IT service, as it does not represent an additional expense.

Open banking offers clear benefits in terms of personal management and automation of operations. And while this guarantees a better service for users and clients, it also constitutes a competitive advantage for open banking companies in insurance.

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