Written by Rajesh Chawan
The insurance industry, a cornerstone of financial stability and security for centuries, is currently witnessing one of its most profound shifts – the transition towards ‘open insurance’. Rooted in the broader movement towards open banking and data democratisation, open insurance promotes transparency and customer-centricity, leading to better, more personalised insurance services.
In traditional insurance models, policy premiums and coverage are determined based on a customer’s profile – including aspects like medical history, job, salary, and educational details. Each insurance provider uses their proprietary algorithms and risk assessment models to do this. However, the customer often has little insight into how these variables influence their insurance terms.
Open insurance revolutionises this approach. The customer’s data, once exclusively held by individual insurers, can be shared with third-party providers (TPPs) with the customer’s consent. Data is no longer confined to the walls of a single insurance provider but can be harnessed by multiple entities to drive better, more customer-friendly services.
Taking the Brazil open insurance framework as an example, we can discern four key benefits this pioneering model offers:
- Democratisation of Data and Enhanced Customer Transparency: With the Brazil open insurance standard, customers’ data is no longer confined within individual insurance providers. Customers can willingly share their personal, professional, and financial details with TPPs, significantly improving transparency and providing a clearer understanding of how their particulars influence insurance premiums.
- Informed Decision-Making through Comprehensive Data Analysis: The detailed information provided through the open insurance framework, such as monthly income, profession, and informed patrimony, facilitates comprehensive data analysis. TPPs can employ these details to offer superior insurance advice and coverage suggestions, empowering customers to make more informed decisions.
- Personalised, Cross-Product Insurance Solutions: Open insurance enables TPPs to leverage the aggregated data across their user base and derive patterns that can be beneficial for suggesting improved policies. For example, data from life insurance could indicate a customer’s health-conscious lifestyle, which could lead to lower premiums in health insurance. Similarly, careful driving indicated by auto insurance data could suggest the customer is a low-risk candidate for home insurance, potentially leading to better policy terms.
- Innovation and Affordability through Competition: Open insurance promotes competition, creating a more diversified and dynamic insurance landscape. Not only do third-party providers (TPPs) bring innovative approaches to policy recommendation, but insurance providers themselves, acting in the role of TPPs, can offer more precise and personally tailored policies. They can make use of the more comprehensive data set to understand their customers better, which can lead to more appropriate and cost-effective insurance solutions. This creates a win-win scenario where providers get to innovate and grow, and consumers benefit from policies that better fit their needs and financial capacity.
To summarise, the Brazil open insurance framework exemplifies the power of data democratisation, heralding a more consumer-centric, transparent, and innovative era in the insurance industry. It transforms consumers from passive policyholders into active participants, empowering them with insights and control over their insurance decisions. As we move further into the era of open insurance, it will be intriguing to see how this trend continues to redefine the insurance services landscape globally.