- Press Review
Open Insurance: Technology platforms follow the business model
- HAMBURG
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- Thomas Löchte und Norbert Wolff
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- Quelle: St. Galler Trendmonitor für Risiko- und Finanzmärkte 1/24
The evolution of the Open Insurance (OPIN) business model and its special version, Embedded Insurance, as well as the race between models for market share in the insurance industry have long since begun. Traditional structures are coming up against new business models. What do these evolving models crash mean for the insurance market?
Growing market opportunities for open and embedded insurance
The market for these business models is becoming increasingly dynamic: in Europe, the USA and Asia, open insurance and embedded insurance have long been considered successful disciplines. They are likely to grow into a global trend according to a forecast by InsTech London; international sales from the OPIN sub-segment of embedded insurance alone will climb to 722 billion US dollars by 2030 (InsTech, 2021). Statistics from new growth strategist Simon Torrance even predict exponentially growing global market opportunities of three trillion US dollars for embedded insurance alone by the same year (Torrance, 2020). According to this study, the overlapping Open Insurance business model is expected to have a potential of three to five trillion US dollars by 2032.
How this will affect the practice of these business models? Agile InsurTechs are already supporting the dynamic OPIN and embedded business segment with the infrastructural greenfield advantage of their IT: as direct insurance companies. The US company Cover Genius, "End to End Insurance," cooperates with sales platforms such as Booking Holdings, Amazon and eBay. Meanwhile, Qover in Belgium is working hand in hand with Tesla's e-car drivers. These players have long since presented smart business cases to the insurance community. The motto is simple and complex at the same time: if you are not active at the customer interface, you will soon be outclassed by sales-relevant target groups with a high digital affinity. This applies not only to the Anglo-American world and Asia. In Europe, the new insurance cooperations promise huge potential while the number of cooperations is increasing significantly.
However, the growth opportunities, particularly in Europe and Germany, lie in collaboration with SMEs - in cooperation with manufacturers, direct sellers and local service providers.
Cooperation opportunities for new and traditional players in the insurance market
Open Insurance gives external partners access to data, products and services. This creates new business models for insurers and their partners. B2B2C value chains often form the basis for strategic partnerships so that companies (B2B) can ultimately supply a product or service directly to end consumers (B2C). The cooperation models of the various players are diverse and can be roughly divided into the following classes:
Partner companies such as manufacturers or retailers maintain and shape direct customer relationships. By partnering with insurance companies, they add insurance products to their range.
Examples:
- Embedded insurance concept: Products or services can be sold directly with an insurance option.
- Bank-assurance cooperations: Banks and insurance companies work together and bundle financial and insurance products.
Insurance companies are expanding their range of services to include benefits that go beyond traditional insurance products. This increases added value from the customer's perspective.
Examples:
- Providing a rental car after a motor vehicle claim
- Supporting vehicle registration
- Offering additional financial services as part of the insurance package
Customers use services from insurance companies and other complementary providers via a central platform. However, the platform operator maintains the actual customer relationship.
Examples:
- Comparison platforms such as Check24 or Verivox bundle and compare a large number of insurance offers.
- New business models and platforms offer innovative insurance and service combinations such as doctor searches or telemedicine such as Air Doctor or Doctolib.
Partner companies use specialized platforms and present their customers with the most suitable insurance offer for them. They distill this from the portfolio of several participating insurers.
Examples:
- Travel portals, vehicle marketplaces or real estate platforms that offer their target customer groups suitable insurance coverage for their desired product.
Insurers offer customers additional, non-insurance services on target group-relevant platforms. This increases the overall value of their offering.
Examples:
- The Onpier platform supports insurers in bringing services such as vehicle registration or a vehicle purchase to the customer.
These different models show that open insurance is fundamentally changing the insurance industry. The key is simplified interfaces and easier access to insurance-specific customer data. This gives customers unprecedented control over who they share their personal data with.
Sharing their data has long since become a habit for customers - with decreasing concerns about data protection compliance. But especially in this dynamic environment, control over the customer interface is and remains of crucial importance in determining and strengthening the customer relationship. It also offers strategic advantages in negotiations and market positioning: Insurers who occupy and maintain the customer interface themselves not only secure the direct customer relationship. They also lay the foundation for being able to offer their customers innovative, monetizable products and services in the future.
In addition, open insurance facilitates innovation and competitiveness: the discipline helps new players to enter the market and encourages traditional insurance companies to rethink, revise and optimize their offerings and business models.
Platforms and intermediaries: how customers, insurers and service partners benefit from these networks
Onpier, an intermediary and digital platform in one, focuses on vehicle registration services, among other things, and is open to non-insurance B2B2C services. Insurance companies such as HUK, LVM and Signal Iduna use these services. Partners on a cooperation platform automatically work together with a service provider network: Insurers that integrate Onpier thus offer their customers customized and value-added services. This goes far beyond the range of traditional insurance services. Onpier outlines how business models can be developed so that all parties involved - insurers, service partners and, above all, customers - benefit. This automatically strengthens the customer relationship. Despite all these benefits, however, there is a risk for insurers that the partner who holds the customer relationship is more likely to be able to assert its interests.
However, an intermediary or corresponding mediation platform helps to align the balance of power and interests of all parties involved:
- Simplify communication: The platform serves as a central communication hub for all parties involved.
- Standardize interfaces: Technical standards guarantee simpler system integration.
- Adhere to data protection and compliance/security standards ensuring both are respected and implemented.
- Resolve conflicts even in the event of divergences: Differences of opinion can be negotiated and balanced.
- Ensure quality: A platform ensures that the quality standards for partner services are met.
- Promote innovation: More emphasis is placed on the exchange and implementation of new ideas and technologies.
- Optimize market overview and management: This improves the overview of supply and demand in the market.
Anyone implementing platforms according to this model is clearly challenged: Neutrality, financing and the development of technical solutions that meet all requirements must be ensured at all times. Apart from this, the role of a platform as an intermediary is often essential for the successful management and scaling of cooperation models such as open insurance.
This creates added value for everyone involved. This is both a challenge and a goal. This is because the parties involved must carefully weight interests and values: Ideally, customers receive improved access to suitable products and services. Partners open up new sources of income through integration into OPIN models. And insurers diversify their offerings and expand their customer base at the same time.
The role of data and AI
In the context of open insurance and its associated digital platforms and intermediaries, data and artificial intelligence (AI) play a central role creating added value and increasing efficiency. The amount of data generated by the interactions on these platforms provides a rich basis for the use of both classic and generative AI. These technologies provide deep insights into customer preferences. Customized solutions can be developed enabling both clients and partners with access to the data to gain significant benefits. Customer communication can use AI solutions to provide clients with highly individualized offers, which in turn are tailored precisely to the needs and wishes of the buyers. In addition, the integration of AI into process handling leads to significantly increased efficiency: routine tasks can be automated and decision-making processes greatly accelerated. These advances in data usage and AI application not only deepen customer loyalty through personalized experiences and optimized internal processes but also reduce costs and increase the competitiveness of insurers and their partners in the digital age.
Here too, the partners who receive (customer) permission to use data gain a competitive advantage.
Technology and platforms: Why technical and functional decoupling creates freedom
To ensure that OPIN - from the point of sale to the core system along the entire customer journey - functions securely and creates freedom, system landscapes with OPIN ambitions should be technically decoupled, for example with the help of a flexible core system with open API interfaces on the one hand and smart integration layers or an integration platform on the other. With their help, insurance companies and underwriters can set up new products faster than before (time to market) and manage them more cost-effectively and flexibly.
However, technical decoupling alone is not the key to economic success. Insurers can only be competitive in a real-time environment if they are able to launch relevant products at the point of sale on a daily basis - keyword: technical decoupling. An OPIN or embedded insurance platform must therefore support real-time functionalities. This is not an option; it is a must.
Interface standards are therefore essential for the integration of open insurance business models. It is therefore understandable that the German-speaking insurance world is considering establishing standards for communication and processes in order to improve the scalability and efficiency of its offerings. The standards will probably be based on the existing inner-market standards such as those of BiPRO (Brancheninstitut für Prozessoptimierung) or FRIDA (Free Insurance Data Initiative).
How Open Insurance will continue to develop: FIDA data exchange mandatory by 2027
In view of the impending regulatory changes - with the introduction of FIDA (Framework on Financial Data Access) and the associated obligation to implement open insurance, probably from the beginning of 2027 - insurers are at a decisive turning point (European Commission, 2023). Contrary to the skeptical attitude of some market participants who had hoped that the open insurance trend would pass due to national data protection concerns or political changes, the reality is different: The industry is moving inexorably towards a more open and consumer protection-driven market.
This development not only offers insurers an opportunity, but rather an imperative, to actively participate in the design of sustainable business models. By engaging with open insurance at an early stage, market participants have the opportunity to continue to successfully occupy the customer interface. At the same time, they benefit from standardized IT approaches and lower implementation costs.
Experience from the implementation of the Payment Service Providers Directive PSD2 has shown that active participation drives the development of industry standards forward.
The mandatory introduction of open insurance from 2027 will open up the market to other players. Insurers who prepare for these changes now are already aligning themselves with the new market potential and thus strengthening their customer relationships. They are also preparing for the strategic and technological requirements of this change at an early stage. Conclusion: Those who get started now with open insurance will be among those who successfully tap into the growing market potential in a hybrid landscape of traditional and open insurance models.
To the guest article in the St. Gallen Trend Monitor for Risk and Financial Markets of the University of St. Gallen (only in German)
Authors
Thomas Löchte
Managing Director of Informationsfabrik, a technology consultancy focusing on AI and data analytics in Münster, Germany, an X1F company.
Norbert Wolff
Senior Manager and Open Embedded expert at IKOR, an international technology consultancy headquartered in Hamburg, Germany. IKOR is part of X1F Group.
