Ecosystems, data-driven insurance, embedded insurance and Open Finance – all the signs are pointing to radical change in the insurance industry. Why is this more than hype or mere buzzwords? Both EU legislators and customers across the globe want a personalised customer experience with fast, user-friendly processes and fantastic offers – in the right place, at the right time. These can be delivered by new ecosystems and Embedded Insurance based on Open Finance.For insurers, this development entails numerous opportunities: less risk, more satisfied customers and reduced costs. Those who prepare themselves for the future today will reap the benefits in the long term. But how do you as an insurance provider get started?
Discover exactly what Open Banking means and where its potential for the financial industry lies in our free white paper: “Banking API: The Interface for the Future”.
The answer is Open Banking! PSD2 is the driving force behind offers and solutions with which insurers can take their first concrete steps towards using data effectively. This both creates new touchpoints and enables insurance providers to offer their customers a user experience that clearly sets them apart from their competitors.
In this blog post, we present four concrete use cases that show how insurers are using Open Banking to overcome their current challenges, make inroads into future issues of the insurance world, and improve their customer experience in an immediate and sustainable manner.
Example #1: Credit Checks for Insurers
Non-payment and defaulting policy holders are a real crux. So how can insurers make sure that customers are solvent and remain so?
Intelligent data analytics can be used to generate real-time financial assessments, which rapidly reduces the risk for product providers. The banking API makes this process simple, convenient and seamless for both the insurer and policy holder.
How the credit check works for insurers
The Digital Credit Check for insurers is based on Open Banking infrastructure that has already proven itself in the banking sector. It enables insurers to quickly assess the solvency of their customers, and thereby create an incredibly accurate, meaningful financial overview in real time. This includes categorisation of income and expenditure, as well as determination of risk characteristics. The range of functionality is comprehensive.
The Digital Credit Check is not only secure; it’s also compliant with all regulations. The data technology behind the credit check is the PSD2-compliant Digital Account View. In accordance with PSD2, access to the bank account by the insurer as well as subsequent data processing only takes place after explicit approval granted by the account holder.
Concrete examples of how the Digital Credit Check is used:
- Fast and convenient credit check for compulsory risk insurance, such as motor vehicle liability, or for insurance policies with high benefit claims, such as private health insurance
- Checking creditworthiness for construction financing or loans in general (selection or process automation)
- Daily updated risk assessment of customers for portfolio risk management (and reduction of default probabilities)
- Fast rating to help calculate premiums (e.g. for products with compulsory insurance)
Example #2: Insurance Policy Check
Providing outstanding customer advice is a key pillar of good insurance. The prerequisite for this, however, is having the most comprehensive information possible on a customer’s policy situation. Using the Policy Check, insurers get an excellent overview of all relevant data and policies. Analysis, enrichment and categorisation of the assigned transactions helps to create a holistic understanding of the respective customer’s situation.
What the Insurance Policy Check offers
The technology behind the Insurance Policy Check goes far beyond simply displaying transactions in lists. Based on the Digital Account View, the Insurance Policy Check is characterised by the following unique features:
- Recognition of the specific insurance product
- Identification of the correct product provider (not only the account holder according to the transaction)
- Display of recognisable additional information, e.g. license plate number
- Transaction split: in case of payment of several policies in one booking, all policies are issued individually
The Insurance Policy Check offers great additional sales potential for both insurers and sales departments. While insurers use the information and data obtained in particular for rescheduling campaigns (e.g. by means of switch rates), brokers and pools can use it to automate the transfer of existing insurances to new accounts.
Example #3: Needs Analysis
A needs check is the logical supplement to the Insurance Policy Check. The first step is to determine which risks are present: what insurance does the customer actually need? The second step is to ask: which of these insurances do they already have? And the logical third step is: what is missing, but also what is too much?
Precise analysis of the customer’s individual life and risk situation serves as the basis for conducting a suitable needs analysis. In traditional sales, this is done by means of a questionnaire or a question-and-answer session that can take up to 90 minutes. The list of relevant parameters is rather long: age, job, income, assets, marital status, living conditions, health status, hobbies, retirement wishes and much more.
Thanks to Open Banking, the duration of the needs analysis can be greatly reduced – because most of the data can be accessed digitally by looking at the account. The broker can focus entirely on making appropriate product recommendations, as the needs analysis checks and categorises all the data in the background. In the end, the customer quickly receives a tailor-made offer. The result? A well-rounded customer experience!
Needs analysis in the context of the Insurance Distribution Directive (IDD)
Being able to offer a seamless, transparent customer journey will be more important than ever for insurers in the future. According to the Insurance Distribution Directive (IDD), it must be comprehensible for the insurance customer in the future as to how and why a product decision was made. The mandatory IDD regulates the duty to provide advice and thus also the needs analysis. The idea behind it? Improved consumer protection!
Insurers, brokers and agencies must therefore ensure that customers receive adequate insurance coverage and be able to provide proof thereof. The data obtained from the Account Information Service is completely digital and structured – and can thus be transferred to the consulting record in a fully automated manner. This way, the digital needs analysis greatly simplifies the documentation requirements for insurers at this point.
Example #4: Insurance Pay
Insurers struggle with the challenge of customers not paying their initial premium. This leads to automatic cancellation of the concluded insurance policy, which is particularly annoying for sales managers, as the policy is cancelled due to non-payment. So how can customers be motivated to pay the first premium while still signing the policy?
This is where a user-friendly Payment Initiation Service (PIS) can work wonders: Insurance Pay works on the principle of a simple online bank transfer. The payment process is fast, simple and works with just a few clicks and without the need to log in again. This causes cancellations to be reduced by up to 45%. White label solutions also provide a payment service in the look & feel of the insurer, thereby enhancing the provider’s brand image.
Thanks to Insurance Pay, insurance providers have yet another lever at their disposal. Through integrable incentives, e.g. a discount on the first installment, the insurer can further motivate its customers to make immediate use of the payment option offered. This way, the provider ensures payment of the first installment, and thus the listing of the policy in the sales results. This is essential for the insurer and highly convenient and beneficial for the customer.
An exciting feature of Insurance Pay is the combination of Payment Initiation and Account Information Services. During the real-time transfer, a comprehensive analysis of the transaction data can be carried out simultaneously. This way, all analytics can be carried out in parallel and issued following the payment – from creditworthiness checks to insurance policy checks. This combination thus enables greater security while generating new sales opportunities at the same time. A true win-win situation for all parties involved!
Open Banking Tools for the Financial Home
As things stand today, insurers enjoy a significant competitive advantage, especially when it comes to the Financial Home. Thanks to PSD2, you can already access data via a banking API. Policy analyses are an excellent way of increasing relevance here via Open Banking.
For example, insurers can offer their own automated switching system – and not just for insurance policies. On the other hand, brokers and agents can permanently occupy the interface to customers with their own customer app and impress with highly relevant, tailored offers as well as personalised content and support.
Whether it’s a policy check, analytics or customised payment solution, Open Banking helps you understand the person behind the account, enabling you to adopt a customer-centric approach and make their everyday lives easier. The account data not only helps with offers and customer communication; it also helps with the selection of other services that a future-proof Financial Home needs to have in order to be as relevant as possible.
By the way, brand-strong insurers, large distributors and digital brokers have the best chances of positioning themselves as Financial Homes now. We’ll be happy to advise you!
Concrete Use Cases for Entry into New Insurance Business Models
Thanks to the possibility of direct connectivity to the banking and financial sector, Open Banking enables a level of openness that is unusual for the insurance industry. With strategic partners for Open Banking infrastructure, insurance providers are now laying the foundation for their own ecosystem and new promising insurance business models.