As in the banking world, Open Insurance, facilitated by regulation and platform technology, could have strong benefits for both incumbents, new entrants and especially customers. But is the industry ready to move into the 21^st century?

We were chatting to a friend of the firm last night, who recently successfully sold his software platform startup, about the concept of Open Insurance. He laughed at the idea, not so much for the technology capabilities being possible but the fact that the insurance industry is centuries old and its movements to modernisation have been slow relative to other industries. He felt that technology has not fundamentally changed the industry over the past 100 years, besides bringing some efficiencies and better customer experiences, and allowing actuaries to measure risk.

Can the Open Banking initiatives that have been put in place across Europe in the past few years provide a model for truly changing the insurance industry? PSD2 has certainly removed some barriers in the hitherto very closed banking industry, providing rules for 3^rd party access to customers’ bank accounts, including the implementation of platform interfaces. Payments underpin banking, and by taking one of the most important elements of an industry and turning it on its head, we open (but not necessarily change) an entire industry.

One of the most important technological advances that have been boosted by PSD2 is the concept of Application Program Interfaces (APIs). APIs enable entities to concentrate on their core offering and not have to expand their offering to be the 800-pound gorilla in order to effect quite fundamental change. One wonders if Microsoft would have reached its level of dominance if Open Banking-type regulation and platform APIs has been around in the ‘80s.

I started using Word Perfect in the ‘80s and watched with fascination as Microsoft used its power in Excel to take apart its competitors. Lotus 123, another program that I used at university, simply did not keep up with Excel and, with Word Perfect, got eliminated by Microsoft Office, especially once it started bundling its offering, on top of the virtual monopoly Microsoft had in the Operating System environment.

Back to Open Insurance. According to WNS, the top trends in the insurance industry are new models (e.g. personalised products), AI and automation for faster claims (read more efficiency), advanced analytics (read reduce risk), Insurtech partnerships (more on this) and blockchain.

Insurtech partnerships are probably our main interest and so we will talk about how these partnerships could work. Many of the CVCs that invest in Insurtech businesses with the objective of commercial collaboration with their General Partner insurance company, have found that this has often proved to be impractical due to the difficulties in integration with legacy systems and customer databases.

At Citi in the early ‘90s we were trying to undo the old Cobol systems’ power but given that many instances had been programmed in the 60’s, simply re-engineering this was virtually impossible and the European CIO at the time took the approach of taking away bits of functionality from the core banking systems in the hope that one day the core would be so small that it could be simply replaced in a “big bang”. One wonders why it was so hard, but having been there I do understand. What if APIs existed then…

Hence my fascination with platforms. A more recent entrant into the innovation space has been Xero, the SaaS accounting platform. I say platform because the company enables partners to integrate through APIs and indeed simple integrations. ERP vendors don’t have to worry about financial controls, payment providers can sell their services through this platform and of course (thanks to Open Banking), you can have direct and simple links to your bank accounts. Payroll and tax returns are made simple through partnerships which integrate simply.

I’m excited by the idea of Open Insurance! However, it is not on the immediate horizon and will need to start with legislation.