For some time now, the EU has been pursuing the goal of creating European data spaces to accelerate innovation in various vital areas and give consumers back control over their data. Such areas are the financial sector and the insurance industry. This is where the concept of "Open Insurance" comes into play and its corresponding EU regulation FIDA (Framework for Financial Data Access Regulation), which could come into force in 2025. Mario Voge, Head of Growth Management at Swisscom Trust Services, explains what it means for insurers and their customers.
Over the last two decades, specific industries, including retail, have undergone significant changes and driven their digital transformation forward. However, highly regulated industries, such as finance and insurance, have faced additional challenges in their efforts due to numerous regulations and the need to protect sensitive customer data. Nevertheless, these two industries now embrace "open banking" and "open insurance".
Open systems for more exchange and information
Open banking and open insurance describe the opening of previously closed systems with the help of standardized programming interfaces. It allows companies and authorized third-party providers to exchange personal and non-personal data and create a larger ecosystem of banking and insurance services. With the Payment Services Directive 2 (PSD2), which came into force in 2016, the EU created the legal framework for opening the banking sector. In June 2023, the EU made a similar proposal with the FIDA regulation (Framework for Financial Data Access Regulation) aiming at the insurance industry. The FIDA regulation is now going through the usual EU legislative process, which includes the so-called trilogue negotiations between the European Commission, Parliament, and Council. The process is expected to take 18 months, and the regulation could come into force by 2025.
However, it is worth observing some crucial details. Sensitive data and related insurance products, such as life and health insurance and credit assessment, are excluded from the scope of FIDA. Like in PSD2, consumers must give explicit consent to sharing their data. For this purpose, insurance companies must provide their customers with an option for granting and revoking authorization to share data. The EU proposal envisages standardized dashboards, or even wallets, as a technically advanced alternative.
Customers and insurers benefit.
Both customers and insurance companies stand to gain significant benefits from the proposed regulation. For consumers, who increasingly ask for more control over their data, introducing a dashboard is a considerable advantage as it empowers them to regain direct control. Moreover, insurance companies can use these dashboards to provide customers with valuable information, such as previous claims payments, an analysis of their claims history, risk profile, and the contributing factors.
Next to a standardized view of their data and a better understanding of their risk, consumers can benefit from customized offers through open insurance. Insurance companies can access data about insured customers, such as information from their fitness tracker or telematics data from insured objects like cars. This allows an insurance company to adapt its product parameters to the actual behavior of its customers. Those who live or drive more risk-free will pay lower fees.
The open insurance concept also offers numerous advantages for insurance companies. They can improve their offerings by incorporating additional services into their insurance products and tailoring them to suit individual customers ("mass customization"). As a result, insurance companies become an integral part of their customers' daily lives. Open Insurance also enables them to develop more innovative software solutions and use cases, increasing their customer base.
The time is right for changes.
In the long run, open insurance has the potential to create a highly interconnected digital ecosystem that offers maximum flexibility for all stakeholders involved. What is necessary to make it a reality? First, IT systems must be capable of efficiently handling large numbers of requests from different endpoints to simultaneously process data, grant insurance coverage, settle claims, and initiate payment processes.
Furthermore, there is a need to digitize other insurance processes, such as the conclusion of contracts. Take, for instance, specific insurance policies, such as pension insurance, that require an identity check beforehand. Potential customers often find themselves physically visiting a post office or bank branch to have their identity verified by employees. Moreover, the contracts' signature is still signed by hand and then sent back by post. All of these processes are time-consuming and need to be more aligned with customers's expectations, especially those who digitally organize their entire lives.
The insurance industry is facing significant changes. One area that insurance companies must address is process digitization. Insurers gain advantages in improving their customer experience, get time to prepare for FIDA and initiate processes that take advantage of the regulation's resulting opportunities. All these measures provide insurance companies with a clear competitive advantage.
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