Open architecture will power the future of insurance
An open approach to insurance technology is becoming more common, and that's a good thing.
Across the insurance landscape, there is much talk by carriers of open business platforms, as well as positioning and posturing by core platform suppliers about building “openness” into their solutions.
For context, this means that their technology solution is able to connect, securely, with systems and data provided in ever-broadening ecosystems: other insurers, distribution partners, insurtech and other vendors, inside and outside of the insurance market.
Solution vendors typically pursue openness through the creation of an open architecture for their applications and achieve open connectivity through the use of an API (application programming interface), REST APIs in particular.
To be clear, openness is being achieved in varying degrees by practitioners, but the fact that an open approach is becoming more common is exciting. Here are five reasons that openness will power the future of insurance.
The rise of customer-centricity
For years there’s been a debate across the insurance industry about who actually represents a carrier’s most important customer. Is it the agents who sell an insurer’s policies, or the actual policyholder, who should be considered as the highest priority? While it’s easy to say “both,” industry-wide we’re seeing those insurers that focused their initiatives on policyholders separate themselves in positive ways.
This has led to a number of requests and demands from carriers to their core systems providers. An insurer’s core policy administration system (PAS) is now counted on to connect directly with customers to self-serve their policies as well as inform them about renewals, new offers, risk advisories and serve as an insurance-specific customer relationship management solution. It’s being asked to support customer service through bots as part of an omnichannel strategy. Essentially, in addition to serving the core functions of an insurer, PAS providers are now building in — or integrating to — capabilities typically found in solutions like Salesforce, MailChimp and Zendesk. This can only be achieved with open architecture.
The insurtech ecosystem
It’s true that there are many insurtech startups looking to compete directly with legacy insurers.
Lemonade is perhaps the most famous but companies like BiBerk, Hippo and Pie also fall into this bucket. However, these companies represent a small fraction of the insurtech market, where a majority of startups are looking to partner with incumbent insurers to improve elements of their policyholders’ (and yes, agents’) overall experience. There are CRM solutions providers building platforms for instances where communications with a customer need to fall within the guidelines of HIPAA. There are also insurtech companies building microservices that address a tiny component of a customer journey, such as an online signature.
Carrier acceptance and willingness to leverage a new insurance ecosystem is growing fast, but incumbents won’t be able to utilize these new offerings unless their PAS is open.
A data explosion
From real-time weather to social media, and wearable technology like smartwatches and fitness trackers, the amount of data that insurers can utilize it growing by leaps and bounds. Devices can track the actions of drivers in order to provide carriers with information that can be scored to offer either guidance or reward driving behavior. In 2018, there was a report that 90% of the world’s data had been generated in the last two years. Data creation hasn’t slowed down in the last year either.
The availability of new data is compelling carriers to seek out data-savvy platform partners to help them attain a wide range of goals related to their core operational functions. With new types of data, carriers have an opportunity to make their processes more efficient, accurate and customer-focused, while also considering new products and pricing strategies.
Actionable insights
Access to data is virtually meaningless if there isn’t a coherent, fine-tuned approach to gaining insights and acting on them. These programs can address very specific goals. Data analytics can alert a carrier when a policyholder needs outreach, and when that person might need enhanced insurance coverage. Or it can help a carrier determine a more accurate and appropriate level of coverage for an applicant and arrive at an appropriate price more easily. And it can incorporate machine learning to identify claims with a higher than normal likeliness of being fraudulent.
Looking at the very nature of ingesting and analyzing data from multiple sources and locations, it becomes obvious that open architecture, where a wide range of applications share data, is critical to success. However, many of the legacy systems in production today limit which applications and data sources are able to interact. Insurers are forced to draw conclusions based on fractions of the overall information available to them. It’s akin to trying to complete a 1,000 piece puzzle but only having access to 150 pieces.
Open PAS platforms not only offer an enterprise-wide view of pertinent information, but they leverage a whole new generation of technology for event generation that can trigger actions — based on insights — within policy, billing claims and customer processes, often in real-time.
The cloud
While cloud implementation is generally regarded as a table stakes offering today, the value of scalability and speed offered by storing data and executing transactions in the cloud can’t be understated. Whether we’re talking about the ability to scale up (and down) storage for new data ingestion, or the ability to increase computing power for AI initiatives, it’s the cloud that’s powering today’s forward-looking insurer. And cloud-native design of applications is facilitating faster and more efficient use of the cloud.
Simply put, the cloud can handle far more data and volume than carriers can. PAS vendors view acceptance of the cloud as central to most carriers’ ability to deliver on policyholder expectations.
Many insurers are burdened by legacy core systems that have outlived their usefulness. The idea of a “digital transformation” can be daunting. However, insurers that incorporate open architecture principles into their PAS will immediately see a wide range of benefits, from being able to access and analyze more data, through the ability to provide rapid, personalized customer engagement initiatives.
Tony Grosso (agrosso@eisgroup.com) is vice president of product marketing & industry strategy at EIS Group in San Francisco, Calif. He has more than 20 years of hands-on experience leading innovation, business development and product management for insurance carriers, financial services and software companies.
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