Since the EU’s revised Payment Services Directive (PSD2) became law in 2018, potential new business models and private sector initiatives have emerged in the realm of open banking and open finance. Now, buzz is accelerating around open insurance, a model where carriers would share and consume data and services across varied sources and industries. Could open insurance also help facilitate new and powerful value propositions for insurers – creating additional revenue streams for businesses and revolutionizing customer experience for policyholders?

First introduced in 2009, the PSD2 is an EU law introducing rules for electronic payments (e.g. credit transfers, direct debits, card payments, mobile and online payments). Though its intended purpose was to streamline and secure payments between EU countries through strong regulatory technical standards, open standards of communication, and guidelines for security – it also helped lay the groundwork for market development using open financial data.

Open banking refers to the “democratization” or exchange of data and services between financial institutions and third-party providers, typically through sharing of data and services. Open application programming interfaces (APIs) allow these trusted third party providers to create new products and services, bringing optimized experiences and features to customers (e.g. simplifying payments or personalizing the user experience).

In open finance, the model goes further, covering not only the data and services available at a customer’s bank, but looking more broadly at an individual’s entire financial footprint. With their consent, this financial data can then be shared with trusted third-party providers in order to offer customers novel products and services.

Though both open banking and open finance are still in their relative infancy, the movement is understood to have the potential for enormous impact on the financial services industry – influencing everything from bank accounts, to credit card payments, to insurance policies.

Open Insurance refers to the creation of new insurance products, microservices and business models using insurance-related personal and non-personal data provided through an open application programming interface (open-API). In the open insurance model, insurers, insurtechs, banks and start-ups can all share their data through automated interactions, enabling the creation of new monetization opportunities for businesses and improved, personalized experiences for policyholders.

While internal APIs in insurance have been part of the industry’s infrastructure for years, more recent interest has centered on the opening of APIs to the outside world, which would mean working to bridge differing standards on data sharing and a focus on contracts and negotiations between parties. However, the increasing availability and openness of data comes with some risk, as insurers in particular are handling highly sensitive customer data. That means insurers working in more open models will likely need to adhere to stricter rules compared to the banking industry, with more input from regulatory or supervisory agencies to guarantee common API standards. 

The OPIN think tank is providing thought leadership on key issues that define interoperability and compatibility in open insurance, with the goal of helping insurance providers navigate some of these pressing issues to achieve the goal of ecosystem actualization.

EIOPA (European Insurance and Occupational Pension Authority) has also published research detailing some of the potential around open insurance for the sector, its consumers, and regulators – emphasizing the importance of balancing regulatory considerations for data protection, insurance, and competition with innovation, consumer protections and financial stability.

Currently, fintechs are leading the pack in responding to the growing consumer demand for more open financial services products, competing for customers and funding in order to create these opportunities.Though it’s still early to know precisely how the open insurance model will evolve, incumbents would be wise to approach use cases with curiosity and an open mind, particularly those that could fit into embedded distribution models. Successful examples from open banking and open finance initiatives which have led to improved financial journeys for customers should be studied; similarly lessons can be gleaned from failed strategies. That said, keeping the customer and their needs at the center of innovation in new product and service development will remain a crucial objective for the industry going forward.