Foreword

I strongly believe Open Finance has the potential to establish a whole new value chain where existing customers benefit from new products and services, with the opportunity for unmet and excluded customer needs to be addressed, as greater efficiencies enable insurers and insurtechs to reach a far wider market.

There are significant steps to put in place as we build this bridge to the future, but now is the time for the insurance industry to fully engage with this inevitable journey, and to start establishing the necessary market infrastructure to support innovation - working together as established insurers, emerging insurtechs, intermediaries, regulators, policymakers and consumer groups. The shared goal of all market participants should be the creation of Open Insurance that works for everyone.

The aim of this report is to encourage greater awareness, wider engagement and communication between these stakeholders – and to inspire the future innovation in insurtech that will drive positive consumer outcomes throughout the next decade and beyond. I would like to personally thank all of those who contributed to this report for their time and expertise.  It is this goodwill, proactive engagement, industry and consumer expertise that will drive the future shape of insurance in the years to come.

Louise O’Shea, CEO, Confused.com & Chair Insurtech Board

Foreword

Insurance firms, established and new, are far from amateurs in Data and Tech. All the narrative from HM Treasury, and regulators such as the CMA and FCA, tells us that opening up Data sources and flows, along with fast-moving, muscular collaboration between established firms and tech-enabled 'challenger' firms, is viewed as integral to Trade Policy, to shaping how Digital Markets will be regulated, and to ensuring what the Kalifa Review(1) calls 'better financial health for all UK citizens'. Open Banking can indeed be seen as  ‘a radical policy intervention’(2), as well as a regulatory response to a perceived lack of competition directly harming SMEs and Consumers. It is obvious to all that Insurance is open to criticism on those fronts, and more. It’s also clear that Open Banking is viewed as a successful experiment that will be extended to other areas of Financial Services, and on the basis of  what’s been called ‘military-grade’ infrastructure of standards and data ‘pipework’. In other words, no excuses.

As someone who believes in both the social necessity and economic power of Insurance, I believe it is essential that we are fully involved in shaping what’s coming, and using this opportunity to build on our Data and Tech experience to move faster and better even than Open Banking. Faster and better how? By  cracking the code for insurance (in all its forms) of becoming a truly valued -- and trusted -- risk partner for SME and consumers:

• (re)inventing tailored products, services and engagement that take relationships with customer  well beyond a series of transactions
• Partnering with innovative, customer-focused new firms to bring genuinely fresh options for SME and Consumer that meet new, un-met and excluded needs
• taking the opportunity NOW to re-set how we gather, buy, manage, use, sell, re-sell and decommission Data

If you -- and everyone else -- were mandated to open up access to ‘your’ Data tomorrow, what would that change in your organisation? What would worry the Board? What Challenges and Opportunities would your people love to get their teeth into, for colleagues and Customer?

This report encompasses a diverse range of views from across the sector. You may not agree with everything written, but my hope is that you come away thinking that you know more than you did; that ‘Open Insurance’ deserves a closer look; and that it requires to be taken seriously as a near-term disruptor to which you can actively contribute.

Shân M. Millie, Founder, Bright Blue Hare & Chair, Insurtech Board Open Finance Working Group

Change is happening everywhere - people’s working and travel patterns, purchasing behaviours, media consumption, and relationship with technology. This change is forcing companies across all sectors to think long and hard about the sustainability of their existing business models, and to plan strategically for what may be a very different future.

The insurance sector is no exception. As organisations and individuals undergo a process of digital transformation, the growth in data collection, storage and usage grows exponentially.  Open data initiatives aim to tap into the latent potential hidden in that data to improve people's experiences as consumers and citizens. Established firms must consider how they will evolve to remain relevant to their customers. Innovators should be inspired to bring forward new products and services as consumers think and behave in different ways. The future will bring with it both new and increasingly complex risks, but also opportunities, and the real challenge is how we adapt to them.

Innovation in the insurance market brings a range of potential benefits from more accurate underwriting and more tailored levels of cover, to greater accessibility, billing efficiency, more convenient interactions, and fraud prevention. Insurance is already changing to meet consumer demand such as B2C digital-based pay-as-you-go policies for those in the gig economy, or B2B software enabling more personalised underwriting for motor policies using telematics.

Building on existing initiatives, such as Open Banking and the Pensions Dashboard, the Financial Conduct Authority (FCA) are now looking to the future in broader terms, with the vision of consumers and businesses having greater control over their data, allowing trusted third-party providers access in return for a wider range of products and solutions.

This report provides a quick and simple introduction to the history, progression, and potential future developments in Open Finance. It encourages insurance stakeholders to reflect upon what this means for their business, their customers or their next entrepreneurial endeavour, and the issues we need to consider collectively as we take the next steps on this journey.

Questions we explore include:

• What do the origins and learnings of Open Banking mean for Open Finance?
• Is the insurance sector already making the most of Open Banking?
• What other collaborative data initiatives are already underway in insurance?
• What might Open Finance solutions look like for insurance customers and SMEs?
• What needs to happen to ensure the potential benefits of Open Finance are realised?
• What challenges and risks could Open Finance pose?
• How do we mitigate any associated disadvantages that might occur?
• How do we keep consumers central to Open Finance outcomes?
• How do we engage consumers in these new possibilities and encourage adoption?

Whilst Open Banking applies to banking (current accounts), it is an important precursor to Open Finance. Understanding its origins, development and lessons learnt is important when looking to the future potential application of its principles to insurance.

Origins of Open Banking

Open Banking was initiated by the Competition and Markets Authority (CMA) in 2016 to drive greater levels of competition and innovation within the UK retail current account market:

“We are requiring the largest retail banks to develop and adopt an API banking standard so as to share information to a specified timetable and we are requiring it to be an open standard so as to enable it to be widely accessible. This will enable intermediaries to access information about bank services, prices and service quality.” (3)

CMA, Retail Banking Market Investigation 

The legislation to enable Open Banking took effect in January 2018, coinciding with the introduction of the Second Payment Services Directive (PSD2) (4) across Europe.  The Open Banking Implementation Entity (OBIE) was established to create the supporting software standards and industry guidelines necessary to bring Open Banking into existence. It is governed by the CMA and funded by the UK’s nine largest banks and building societies (5). The potential value to consumers from Open Banking-enabled services has since been estimated as £12 billion for individuals and £6 billion for small businesses. (6)

Developments within Open Banking

Three years on there are now over 315 registered firms within the OBIE Directory, made up of 85 account providers and 228 third party providers (7). Over 3 million UK consumers and businesses were using open-banking enabled products at the start of 2021. (8)

Many of the use cases for individuals and SMEs were envisaged within the initial intention of Open Banking (9). These include account aggregation services and personal financial managers, allowing customers to see and manage all of their current accounts in one place. Most high-street banking apps now offer this to some degree, as well as third-party fintechs like Yolt and Money Hub, and the Current Account Switching Service continues to explore how Open Banking can create further efficiencies in the switching process (10). Small businesses have also been able to use Open Banking to directly connect to and populate accountancy software such as FreeAgent and Intuit.

Wider benefits have also been built out, including micro savings, whereby firms like MoneyBox sweep change into a savings account with the account holder’s permission. Also faster credit assessments for individual and SME loans, where sharing Open Banking permissions is quicker and easier than submitting previous bank statements. This is now utilised by companies such as Experian and Equifax, and fintech innovators including iwoca, Funding Options and Funding Circle.

Open Banking also enables greater financial inclusion, with alternative sources of data being drawn upon for credit assessments through bud, Credit Kudos and CreditLadder, and more tailored, personal debt advice being provided through organisations like Tully. Newer capabilities, of particular relevance within the Covid pandemic and perhaps not envisaged at the outset of Open Banking, include enabling alerts for carers in the event of unusual activity on the account of a vulnerable customer.

“There are a lot of use cases that serve vulnerable customers. Extracting your bank account data and sending it to a debt advice charity means they can validate that data with you more quickly and accurately, and provide more timely advice”

Olly Betts, CEO, Version 40 and Co-Founder, Openwrks

Evaluating Open Banking

The OBIE recently published its first Open Banking Impact Report (11) with key metrics to determine whether Open Banking is delivering the intended end-user outcomes. The Consumer Evaluation Framework (CEF) focuses on availability, adoption, outcomes, and benefits. Whilst acknowledging that accurate measurement of outcomes depends on volume of take-up, the assessment of progress (summarised below) paints a positive picture. 

Availability: The ecosystem has grown strongly with 109 live to market propositions in three outcome areas:

• Improved Financial Decision-Making
• Better Borrowing
• Extended Payments

37 propositions target consumers; 25 target small businesses; 47 target both.

Adoption: 450% growth in APIs from 2019 to 2020

• Estimated that 60 – 70% relates to propositions supporting Improved Financial Decision-Making
• Estimated 5-6% of digitally active end users in UK are now using Open Banking, with strong growth through 2020

Outcomes: End-user ratings suggest experiences of these propositions are positive, with average ratings of Open Banking-enabled services: 4.5 out of 5.0

Ultimate outcomes (Benefits): This explored whether customers are experiencing sustained benefits from being able to access and use open banking-enabled products and services in a way that improves their financial position:

• Better Borrowing for Small Businesses and Increased Savings and Investments for Consumers saw the highest ratings at 4.7 out of 5.0
• 79% of SMEs reported Improved Financial Decision-Making propositions had a net positive impact, with benefits including reduced time on paperwork/better insights.

Open Banking Consumer Evaluation Framework - Outcomes Areas

(1)  Improved financial decision-making

(2)  Increased access to advice & guidance

(3)  Better borrowing

(4)  Increased savings & investments

(5)  Expanded payments choices

(6)  Increased switching

Lessons Learnt from Open Banking

There are lessons to be shared and learnt from the evolution of Open Banking. It’s taken time for Open Banking to be put in place, and for consumer adoption to grow. Use cases are constantly being refined and reimagined, so like many technologies its future use might not be fully known at the outset.

Another key learning is that the benefits of data portability are only as good as the infrastructure which supports it. Effective market infrastructure consisting of high-quality Application Programming Interfaces (APIs), in the case of Open Banking developed as part of a mandated and standardised approach, is the driving force behind new entrants coming to the market or allowing established players to innovate and offer consumers wider choice and greater competition.

Adopting an iterative approach was also seen as important. Mirroring this in the roll out of Open Finance suggests the insurance sector should monitor progress closely and be ready to act as opportunities present themselves, solutions develop, and evidence bases deepen.

“Our (OBIE) approach to doing this, over a period of time, has worked well. Starting with a few big players early. Our approach has been agile with learning as you go. Not coming up with all the answers on day one has been effective.”

Alan Ainsworth, Head of External Affairs, OBIE

Consumer data rights

The UK is widely heralded as having moved faster and further on Open Banking than many of its international counterparts. However others are now leapfrogging ahead with a more encompassing consumer data right covering a much wider range of sectors, with the concept that ‘data belongs to the individual’ increasingly taken as given.

In Australia, for example, the Consumer Data Right (12) has been developed to allow individuals to "own" their data. Starting with granting access to banking data, in the future it will also enable access to energy, phone, and internet transactions, as well as the right to control who can have and use what. The CDR aims to help an individual better monitor their finances, utilities, and other services, and compare and switch between different offerings more easily. The system also aims to encourage innovation and competition between service providers, including start-ups.

Smart Data

This concept of consumer data rights is being considered in the UK by the Department for Business, Energy, and Industrial Strategy (BEIS) through the Smart Data (13) initiative. This is looking to introduce new laws on data usage to improve security in how data is shared with service providers, give consumers greater control of their data, allow for new and accelerated innovations in products and services, and ensure customers and SMEs can benefit from better deals and savings.

This would be a significant development as primary legislation would mandate industry involvement in Smart Data initiatives – and would cover all regulated sectors, including financial services by enabling HM Treasury and the FCA to initiate the rules required for Open Finance.  The Smart Data Working Group, overseen by BEIS, are already focusing on how legislation can help ensure high standards, coordination and positive outcomes for vulnerable customers. 

Defining Open Finance

With the advent of wider Open Data initiatives, the FCA has been considering how best to enable the opportunities presented by Open Banking within other banking services, and for insurance and investments too (14).

Open Finance is based on the principle that the data supplied by and created on behalf of financial services customers are owned and controlled by those customers. Re-use of this data by other providers takes place in a safe and ethical environment with informed consumer consent.

Under Open Finance, banks, insurers, and investment firms would act as data providers using Application Programming Interfaces (APIs) for pooling and sharing personal data. Third-party providers, insurtechs or fintech innovators could then act as data consumers accessing customer data (with their consent) to offer advice on the best services for the customers’ needs, or new personalised products tailored to their specific situation. Investing in these technological capabilities could also help established insurers to increase efficiencies, improve the speed and convenience of their own services, and build out new products and partnerships.

The FCA’s definition of Open Finance covers services based on both a ‘read’ and ‘write’ basis for accessing customer data (15).  ‘Read’ is where third parties can access consumer data.  ‘Write’ is where third parties have the authority to make transfers, switch and open or close products on an individual or SME’s behalf.

The future trajectory for Open Finance in insurance

The FCA acknowledges immediate progress is more likely in those markets with natural synergies with banking - savings, consumer credit and mortgages. This is understandable given the insurance market is a large ecosystem of over 5000 different firms and intermediaries, and policies are not commoditised in the same way as a bank account. However that does now mean there aren’t changes that could start to be initiated now to modernise the underpinning systems and approaches, especially given the investment and long lead-in times required. The FCA Feedback Statement makes clear a sense of inevitability that, despite the longer-tail risks within the pensions, insurance and investment markets, the evolution towards “Open Insurance” is already underway.

This report acknowledges that the application of Open Finance to insurance, and the concept of “Open Insurance” still needs to be more clearly defined, with key questions such as “which data should fall into scope” and “which customer problem is this solving” viewed in many different ways by many different stakeholders. The following sections explore this range of views further through industry interviews and excerpts from relevant research.

Is the insurance sector making the most of Open Banking?

Before exploring the potential of Open Finance within the insurance sector, a legitimate question is whether the insurance sector could do more to embrace the opportunities already presented by Open Banking. Most immediately there is greater potential for banks and insurance firms to work together to simplify customer journeys. Beyond this there are a number of ways that insurers could also seek to draw on this existing data and infrastructure.

Quicker credit risk assessment

Using Open Banking to access a customer’s financial data at the point of purchasing insurance to speed up affordability assessments, smooth the customer journey for credit, and reduce the likelihood of defaults.

More accurate underwriting

Particularly for small businesses where finances may be a suitable risk indicator. Open Banking data could also be used to assess propensity for fraud or incorporate lifestyle indicators, although this needs to be applied carefully in order to avoid narrowing the accessibility and availability of cover.

“With the consent of the user, Open Banking could do more to truncate the underwriting process, especially for small and medium enterprises”

Tom William, CEO Certua

Offering more or more suitable/more convenient products and services

Having more information about a customer could assist insurers in providing more personalised recommendations, in the way consumers have come to expect from online platforms and retailers, for example protection products suitable for their family or pets.  Greater availability of data could also help to identify and raise awareness of life insurance needs, be it absence of product or the insured sum not covering the total likely family expenses.

What collaborative data initiatives are already underway?

As the debate on Open Finance continues, there are examples where this is already being advanced in particular areas through legislation (e.g. Pensions Dashboard), as well as a number of insurance industry solutions emerging which look to provide data sharing and data pooling on a voluntary, co-ordinated basis (e.g. through firms such as Lexis Nexis, Percayso and Verisk). The FCA Feedback Statement on Open Finance (16) acknowledges that commercial incentives do exist for arrangements similar to Open Finance to emerge, but questions whether coverage will inevitably be partial, limiting the potential benefits.

“Over the last 20 years there have already been many industry-wide collaborations on data sharing which already work very well to improve customer outcomes and reduce fraud” 

Louise Birritteri, CEO Pikl

What more could Open Finance achieve in insurance?

As the next phase in a longer data-led journey, the FCA anticipates the range of consumer benefits from Open Finance could include (18):

• access to a wider range of more individually-tailored products
• making it easier to compare prices and product features and to switch products or providers
• supporting greater personal financial management
• widening access to advice and support when making decisions
• improving competition between providers through spurring innovation

The European Insurance and Occupational Pensions Authority (EIOPA) has also published ideas and questions related to Open Insurance as a stimulus for further debate. EIOPA considers that steps to realise Open Insurance can have benefits for consumers, for the sector and its supervision “if handled right”. Scenarios put forward for EU developments cover various aspects of motor insurance including underwriting, claims data, Black-Box/IoT and complaints data. For example:

• Insurance firms (including intermediaries) could be required to provide other firms seamless access (via standard APIs) to users’ underwritten policies
• Motor Insurance firms could be required to provide open, interoperable access to their systems
• A legal obligation to ensure full portability of consumer-generated IoT data, including real-time data

“A key consideration on possible Open Insurance solutions is how to find a balance between data protection, insurance, and competition objectives while supporting innovation, efficiency, consumer protection and financial stability”.

EIOPA,Open Insurance: accessing and sharing insurance related data (2021)

What does Open Finance mean for insurance customers?

The COVID-19 pandemic has already driven consumers to make greater use of digital financial services (19). During the first national lockdown (March 2020) due to Covid-19, research suggested 54% of people in the UK acknowledged digital transformation was not a temporary blip, but a permanent trend. The transition towards digital payments, online insurance claims, telehealth services and customer chatbots will become engrained consumer behaviours (20). Open Finance builds on this to facilitate the next phase in digitally-enabled insurance (21). This is particularly pertinent in distribution where, in the absence of options for data portability, customers currently have to re-enter data for each provider or use comparison services. Current solutions also lack holistic visibility across their portfolio of insurance products as customers must use the provider’s own website or mobile app, and there are limited examples of customer journeys or embedded insurance via third party apps.

Open Finance could provide a much-needed prompt to engage and empower individuals with the tools to proactively recognise, understand and manage their protection or investment needs. For example shining a greater spotlight on the details and price of existing insurance policies, the benefits and reassurances these bring, or alternatively any gaps or duplication in cover, as well as facilitating the comparison and switching of products and providers. It could also reduce the risk of inadvertent fraud, stemming from an individual unintentionally misreporting previous claim data.

There is also potential for Open Finance to drive greater competition and greater choice for consumers. Insurance firms could better assess risk (often resulting in lower premium, due to access to the same information as the current provider) and access to a customer’s previous data could level the playing field for new and innovative entrants, encouraging more innovative products such as those based on a real time picture of a customer’s situation.

Potential consumer benefits of Open Finance in Insurance

• All policies in one place
• Quicker customer journey
• Greater choice
• More personal premiums
• Easier switching
• Reduce inadvertent fraud
• Identify protection gaps
• Highlight suitable products
• Feeling protected
• Improved advice
• Product innovation

It is important to note however that these benefits may not be automatic. Appropriate solutions may need careful design to ensure they are realised, and there remain a range of risks and challenges which could arise upon implementation. Many of these are discussed further in Delivering Open Finance and Open Insurance. They include risks around accessibility for some people as pricing becomes more personalised, or products not being suitable in the event of automated switching driven by a third party’s “write” access to transfer policies on the customer’s behalf. There is also the question of the quality and completeness of the data, whether it risks being out of date, and the potential for misuse or enabling of scams and fraud. The extent of additional consumer benefits may also need to be clearly calculated given the significant costs involved in implementation, and there is a risk competition is actually reduced if some insurance firms exit certain markets due to high business or compliance costs.

Potential risks and challenges for Open Finance in Insurance

• Personalisation leading to exclusion
• Exacerbating biases
• Unsuitable switching
• Execution without appropriate advice
• Customer needs not properly assessed
• Value factors beyond price not conveyed
• Misuse of data
• Insufficient quality of data
• Decisions based on out of date or incomplete data
• Lack of customer awareness
• Cost of implementation
• Firms exiting products due to high cost/compliance burden

“We would welcome greater detail on the challenges around cost, time for the market to adapt and the need to avoid any unintended consequences on customers.”

David Sparkes, Head of Compliance & Training, BIBA

What does Open Finance mean for small and medium enterprises?

It is not just individuals who stand to benefit from these new developments, as Britain’s small business owners adopt an open-minded approach to data sharing.  Data from OBIE shows that over half of SMEs have already used and directly benefited from Open Banking services (26). Of those surveyed recently by OBIE 79% reported that Improved Financial Decision-Making propositions had a net positive impact on their business through reduced time on paperwork and better insights (27).

In 2020 there were nearly 6 million small businesses in the UK, with many already consuming a wide range of banking, payments, and insurance services. Open Banking alone is estimated to generate up to £6bn of benefits to the UK’s small business community (28), including driving efficiencies and building financial resilience, a key requirement as the UK maps its economic recovery from the pandemic.  Building on this, Open Finance has the potential to further assist entrepreneurs and their firms through a range of new opportunities within the commercial insurance market, similar to those outlined above for individuals.

"Small & medium businesses are critical to the UK economy. Over 200,000 companies were established in Q4 2020, the highest figure for a decade. It is crucial that these enterprises can access relevant insurance propositions, purchase with confidence, and administer coverage with the minimum of effort. Open Finance can help to deliver modern, efficient customer journeys and outcomes."

Richard Phipps, Senior Project & Delivery Lead, Swiss Re

Tech Nation’s Insurtech Board commissioned Cicero/amo to survey 1,000 business owners across the UK to explore the scope for improving products and services through data sharing with third parties (29). The findings suggest that small businesses would like to see more choice and greater value within commercial insurance, or at the very least need to be better informed about the protection offered by the policies they possess.  SMEs also have needs which are going unaddressed. To help fill these gaps in provision, information and advice, small business owners would be willing to share a greater range of business data, such as business bank accounts and insurance policy details, with other insurers and third-party providers, where they recognise that clear consumer benefits are likely to be generated. 

SME user experience of insurance

SME business owners support data sharing to improve their insurance outcomes

In its Feedback Statement (March 2021), the FCA reflects on the key issues still to be addressed including feasibility, costs, regulatory frameworks, risks and common standards (30). Delivering Open Finance for insurance will require efforts and change across the whole insurance ecosystem. Success will require a clear regulatory framework with strong governance and oversight, standards and high-quality infrastructure. It will require defining and standardising the appropriate data. It will require strategic investment and inspired entrepreneurs. Finally it will need to be underpinned by clear understanding of consumer needs and priorities, appropriate consumer protections and accompanying efforts to raise consumer awareness of these new-found possibilities.

The final section of this report draws on desk research, industry and consumer group interviews to put forward a number of necessary building blocks for the benefits of Open Finance to materialise across the insurance industry, including the questions yet to be resolved and the collective challenges to tackle.

The building blocks for success

• An enabling regulatory framework
• An implementation entity
• Clearly defined datasets
• Informed consent and channels for redress
• Protecting and increasing access to insurance
• Adoption: Trust for take-up
• Strategic investment
• Inspired insurtech innovators

An enabling regulatory framework

Open Banking has been successfully driven in the UK due to a mandate from the Competition and Markets Authority (CMA) Order and Strong Customer Authentication Regulatory Technical Standard (SCA-RTS) providing a clear framework or regulatory ‘tramlines’ on which to run the infrastructure.  This has established the UK as a global leader with regulators in many other markets – Hong Kong, Australia, South Africa and Brazil – subsequently adopting UK practice.

“You need a regulatory framework for data sharing, setting out the rights and responsibilities of both the data providers and data consumers in that ecosystem”

Alan Ainsworth, Head of External Relations, Open Banking Implementation Entity

The alternative is a more market-led evolution, similar to developments in the United States, although this is likely to produce a more fragmented, slower moving approach.  Stronger commercial incentives have also been proposed, for example, where institutions get paid for providing the data.  This was precluded under Open Banking in order to ensure a level playing field, although some parties support co-funding “freemium” pricing models if this drives up the quality of APIs and if the fees charged for premium APIs are cost-effective. The challenge then is to mitigate potential for market concentration between a few larger third party providers, with smaller third-party players or individual insurtechs excluded.

To complement Open Finance and Open Insurance developments, it would also be advisable to ensure consistency across all areas of regulation governing Smart Data. For example if a customer has consented to share bank data, the process should look similar when sharing their insurance data, or data about their mobile phone bill. A consistent consumer journey across market verticals will support consumer familiarity and trust, for example by following the security frameworks already developed within Open Banking’s technical architecture.

An implementation entity

The Open Banking Implementation Entity (OBIE) has been the central driver for developing a suite of tools to enable firms to join the Open Banking ecosystem, share data securely and swiftly via APIs, and implement standards consistently. Much of this technical architecture can subsequently be adopted by and built on for future initiatives within Open Finance. 

Whilst the need for an implementation entity for Open Finance is clear, the conversation is ongoing in terms of how best to achieve this.  UK Finance has proposed a ‘new service company’ to enable the transition from OBIE within Open Banking (31). In the event this is taken forward there may be advantages to housing this expertise and responsibility together for Open Finance. However it would need to demonstrate independence from the supply-side institutions and mitigate concerns of larger firms outweighing the voices of market disruptors, so in reality the final design may be more complex. Alternative proposals include a cross-cutting umbrella entity for Smart Data to ensure harmonisation of common standards, with sectoral entities (either as part of this or separately) determining the requirements of their specific markets be it insurance, energy or telecoms.

Clearly defined datasets

Data will be the driver of Open Finance, but within insurance and pensions how will this be defined? What data is available? Where is it currently standardised vs differentiated across providers? What will be classed as consumer data vs proprietary data from the provider? Will it be real-time access or a recent snapshot?

“Open Finance data will be less uniform and more nuanced than the standardised transactional data driving Open Banking. We need to dedicate time and discussion as an industry to explore what data is to be shared and in what format.”

Louise O’Shea, CEO Confused.com

The FCA’s Call for Evidence (32) acknowledged that features of these markets, such as the type and range of data, may make Open Finance more challenging to implement than its precursor in Open Banking. Potential data points discussed by the regulator include:

Insurance

• Product information (policy features, terms including fees or charges, exclusions)
• Basic customer data (name, address, claims history data)
• Additional customer information

Pensions

• Product information
• Fund value and projection
• Contribution history
• Fees and charges for invested assets
• Current contribution rate
• Drawdown rate in decumulation insurance

“The challenges of implementing these principles into insurance are complex and cannot just be copied and pasted from open banking. Considerations must be given especially to how the data legacy systems can be extracted effectively and blended with third party data to help previously uninsurable groups get cost effective cover.”

John Warburton, Founder, Konsileo

Beyond this there may be further information that customers wish to share, or that providers seek to include such as information on financial means tests, how customers pay, the APR charged on any credit arrangements, and payment history.

“Any future moves to enable greater sharing of consumer data across the industry will be easier on simpler products as we’re already seeing innovation like this occurring in motor and travel insurance”

Alex Wheal, Commercial Client Manager, Hiscox

Informed consent and channels for redress

Whilst there is clearly substantial learnings from Open Banking for Open Finance, gaps remain which should be addressed for Open Finance. For example, in the event of data breaches within Open Banking it can be difficult for individuals to access redress mechanisms. This situation is complicated by data chains with a lack of traceability and significant implications for liability and consumer protection.

Consumer advocates encourage a move beyond the debate around consumer consent to think more about informed consent: making it more than a box-ticking exercise where consumers may not understand what they are giving consent for. A report by the Financial Services Consumer Panel has previously shown how even among younger, more financially savvy consumers, people generally have little idea when it comes to managing their consents (33).  A liability framework which sets out consumer protections and redress, designed in line with consumer behaviours, should be a priority within the development of Open Finance.

“It is unreasonable to expect people to pay too much attention at the point of sale. For example, if you look at the approach taken by the Information Commissioner’s Office relating to GDPR privacy notices, they have not been designed with consumers in mind. Who has time to read them?”

Faith Reynolds, Open Banking consumer representative

“We really need to explore what outcomes-based regulation means for consumers. We could look towards Canada which has already adopted a consumer protection framework which sets clear expectations for the fair treatment of consumers. This includes areas which related directly to Open Finance including improved disclosures, changes to consent requirements, customer cancellation rights and redress protection”

Johnny Timpson, Financial Services Consumer Panel

Protecting and increasing access to insurance

There are many potential advantages from Open Finance in terms of more tailored, more personalised products and services. Indeed competition policy sits at the heart of the UK’s Open Data debate – a sense that competition will result in more providers entering the market, increasing choice and lowering prices.

Yet there are many within society who are currently unable to access or afford the protections and reassurance that insurance can offer, with the potential that they also fail to reap these future benefits. When creating a new financial system it is essential to avoid locking in the exclusions of the past, rather it should seek to eradicate them. This means promoting the development of ‘socially useful’ innovation, and broadening financial inclusion and market access, particularly for vulnerable customers and those with protected characteristics under equalities legislation.

Research by Fair by Design and the University of Bristol revealed that people with protected characteristics are the ones who are most poorly served when it comes to exclusion and the poverty premium (paying higher costs for essentials like electricity, gas, credit, and insurance) (34). Their report demonstrates that the risk of underinsurance impacts most on the protected characteristics groups including race, gender, age (for those under 35) and disability.

As a result of ongoing disruption from the Covid-19 pandemic, the population of vulnerable customers is also now getting bigger.  Between March and October 2020, the FCA estimates the number of adults with low financial resilience increased by 3.5 million to 14.2 million or 27 percent of all UK adults (35).

A key point of consumer concern is the potential impact of Open Finance, and Open Data more broadly, on the underlying traditional foundations of insurance such as risk pooling (36).  There is already a trend towards increasingly accurate risk pricing driven by advances in technology and the growing sophistication of data science techniques (37). As the amount of personal customer data that is available increases, insurance firms and insurtechs will be able to further refine pricing to better match individual risk profiles, with potential consequences for financial exclusion.

“The risk transfer, to individuals from institutions, in reality means that low-income consumers’ “insurable needs” will either be limited to more expensive coverage or become so unaffordable that insurance becomes a lower priority”

Martin Coppack, Director, Fair by Design

“Open Finance risks exacerbating the difficulties faced by vulnerable customers, who due to circumstances beyond their control, are more likely to be classed as uninsurable, face higher costs, or even have negative lifestyle changes forced upon them in order to access essential services”

Marloes Nicholls, Head of Policy & Advocacy, The Finance Innovation Lab 

Greater research is needed alongside the development of Open Finance and Open Insurance to ascertain where these risks are highest, with cross-industry dialogue on appropriate mitigations. Precedents are already in place to this effect within the insurance industry with initiatives such as Flood Re to protect those priced out of the market, and the previous Concordat and Moratorium on Genetics and Insurance agreed between HM Government and the Association of British Insurers to draw an ethical line under the appropriate level of personal data to include in the underwriting process.

The recent report Open Finance & Vulnerability (38) by The Finance Innovation Lab is an important first step towards this. Their research is informed by extensive inputs from a range of Civic Society Organisations (CSOs) and their definition of ‘vulnerability’ extends to new kinds of concepts beyond financial resilience or exclusion, to also include vulnerability arising through data. Their recommendations include: 

• embedding inclusive design principles in the way Open Finance is implemented 
• ensuring the future governance of Open Banking/Open Finance/Smart Data incorporates: 
  • a strong legal basis for the consumer voice/citizen representatives to be recognised and acted upon 
  • proper resourcing for consumer/civil society representation, with an independent secretariat and funding to commission research/input from expert organisations 
  • representation for consumer/civil society organisations equal to that for industry actors on decision-making bodies 
• strategic support for purpose-driven businesses, including expand the Dormant Asset Scheme to provide investment to modernise the technology platforms for affordable credit providers and FCA sandbox support for purpose-driven fintechs. 

“The financial sector as it currently operates creates certain risks for people in vulnerable circumstances. Open Finance could exacerbate these risks and introduce new ones. Such risks include a reduction in the control people hold over data about them, greater financial exclusion, careless automation, and the rising power of platform monopolies.”

Open Finance & Vulnerability: A Policy Discussion Report

Adoption: Trust for Take-up

It takes time for consumer adoption of new trends and technologies. For the maximum consumer benefits to materialise, people will need to be aware of, and prepared to use, Open Finance services. In Open Banking users grew from 1 million in January 2020, to 2 million in September 2020 and 3 million in January 2021, with adoption climbing at an average rate of around 160,000 users per month (39).

“Open Banking is proof that if you provide people with the opportunity to put their data to use safely and in their own interest then they will do precisely that” (40)

Open Banking Implementation Entity Annual Report 2020/21

It is important to remember that Open Finance is an enabling infrastructure designed to make choice and value more accessible for end-consumers.  Consumers do not need to be well-versed in how that infrastructure works in order to reap the benefits, any more than a motorist needs to understand the workings of a combustion engine in order to get from A to B.

However, reassuring consumers on the security of data-sharing, and opening their eyes to the new possibilities and associated benefits, will likely require a national consumer awareness campaign. This could take the form of a direct cross-industry or government information initiative, or emerge more subtly as a range of products organically explain and promote their new services.

For the past 20 years we’ve also educated people not to share their financial details, so there is a risk “Open Finance” prompts the wrong interpretation as free access for all. It may be necessary to explore other terms that are less prone to create a false first impression. 

“To fulfill the true potential of Open Finance and encourage its adoption, it will be essential to ensure customer trust in financial institutions and their adoption of wider data sets. Accompanying technical developments with clear, simple explainability will be key to this success.” 

Janet Jones, Head of Industry Strategy, UK Financial Services, Microsoft

Strategic investment

At the outset of Open Banking, the larger banks were often perceived by fintechs and consumer groups as somewhat reluctant partners in innovation. However as it evolves Open Banking has demonstrated that it is possible to change the culture and incentives among established players. Having invested in the technology to make data portability a reality, many banks are now increasingly able to see Open Banking as a business opportunity, applying competitive pressure on each other to improve the quality of their APIs.

“Because banks are launching their own products off the infrastructure, they have an interest in ensuring that the infrastructure is fit-for-purpose.  This has led to banks pressuring each other to improve their APIs which has been good for the wider Open Banking ecosystem”

Jack Wilson, Policy Lead, True Layer

Many leading insurers and reinsurers, including the likes of Aviva, Axa and Munich Re, have well-established innovation incubators developing insurtech solutions across the whole insurance value chain from underwriting to sales and claims management. Many are also increasingly collaborating with insurtechs to deliver consumer benefits, for example, Allianz with Lemonade (motor insurance), Aviva with Carpe Data (fraud detection and analytics), and Axa with MyDrive (navigation aids). Investment in new technology to develop new processes, improve data capture and personalised underwriting, and to create new products and new sales channels is seen as the primary way to remain profitable and competitive. One in five insurers are already using AI technology such as digital insurance agents, to improve speed and accuracy of customer interactions, and investments in digital front-end platforms and data analytics are the most common types of technology investments by insurers. The Covid-19 pandemic has also further compressed digital transformation helping to accelerate the adoption of cloud, AI, and IT infrastructure.

Given the direction of travel on Open Finance, it will be business critical that such investments begin to foresee the development of data portability.  Those best placed to succeed in the future will be those starting to reflect now on the right technology, software and infrastructure to make it happen, as an opportunity to serve customers with more products, better tailored to their needs, and to secure their own future relevance - be they insurers, reinsurers or intermediaries -  in the insurance market.

Inspired insurtech innovators

Insurtech innovators are already creating a new generation of flexible financial services. To succeed, new entrants will be laser focused on consumers when developing their business models. They will need data to understand the market, investors that recognise the potential in their business model, and support in acquiring appropriate regulatory knowledge.

A major barrier for start-ups can be the data that drives their understanding of the market.  An entrepreneur needs data to create a suitable, customer-focused proposition, which in turn will encourage customers to share their data and enhance this dataset further. Open Banking start-ups have often started by launching a basic product and gradually refining this based on their learnings, but this takes time and can slow user adoption. Wider availability of anonymised or synthetic industry datasets would allow insurtechs to test initial hypotheses, or bootstrap their product creation much faster and with less initial marketing spend. The Digital Sandbox, an initiative piloted by the FCA with City of London Corporation, is one possible mechanism to facilitate this, as and when Open Finance evolves.

“One of the big challenges to building a new insurance company or Managing General Agent (MGA) is a lack of claims history for pricing. If individuals and businesses could share their claims data in an easy and automated way when switching or signing up for new products, it could be a catalyst for more great insurtechs to enter the market.” 

Kieran Borrett, Corporate Innovation and VC, Plug and Play

There is also a role regulators can play in supporting and inspiring innovators as Open Finance - and any Open Insurance - rules are developed. Innovators within Open Finance should look to make use of suitable services from the suite of support the FCA provides through its Innovate Directorate - from Direct Support and the Advice Unit, to the Regulatory Sandbox. 

Finally, whilst this report aims to educate the insurance industry and insurtech innovators about the potential opportunities and challenges in Open Finance, it will be just as important that investors have sufficient knowledge of any future framework to identify the use cases with the greatest potential, as well as the economic and social value of new propositions as they emerge.

In addition to new insurtech solutions emerging through Open Finance developments, existing market leaders in the Open Banking space are already considering how best to build this out into scalable business models.

This report set out to increase awareness and engagement on the potential future application of Open Finance to insurance - to explore its origins and what it might mean in practice, its potential use cases as well as any risks that warrant further attention. It is clear from this research that whilst Open Finance may present many opportunities, it is still in a nascent stage of development, and there will be collective challenges to address along the way.

It is still necessary to define which particular types of insurance might be the most appropriate forerunners in this area, which data within those products will be most suitable to share, and to quantify the potential customer impact (both positive or negative) that is likely to result from those specific changes. The building blocks presented in this report signpost many of the next steps which will be required when exploring these questions.

Everyone has a role to play in helping to discuss and define Open Finance as it progresses from concept to reality - established insurers, emerging insurtechs, intermediaries, regulators, policymakers and consumer groups. The Insurtech Board encourages all stakeholders to continue these conversations, and to work together to design and innovate the insurance market of the future.

Building blocks to deliver Open Finance in Insurance

Building block 1a - A legal right for individuals to own and control their financial data.

Building block 1b - A clear regulatory framework to drive the development of Open Finance and Open Insurance and ensure a level playing field for market participants.

Building block 1c - Consistency across regulation and standards for Open Data initiatives regardless of whether they are developed through the CMA, OBIE, HMT, BEIS or DWP.

Building block 2 - An appropriate Open Finance architecture to oversee harmonisation of common elements e.g. liability, governance, and access rights, whilst adapting the technical guidance where necessary from Open Banking to deliver appropriate outcomes across the insurance market.

Building block 3 - Data definitions and standards which ensure consistency and confidence.

Building block 4 - A clear liability framework identifying who is responsible when things go wrong, including channels for customer redress and compensation.

Building block 5a - More research into potential exclusions from the insurance market amongst vulnerable customers, those with protected characteristics, and those most at risk of becoming uninsurable, as a result of Open Finance and increased data availability.

Building block 5b - Industry dialogue with governments and consumer groups to take action to address the potential challenges and exclusion identified.

Building block 6 -Consumer and SME education and increased awareness of how to draw on Open Finance to realise its full benefits.

Building block 7a - Wider education and higher levels of awareness across insurance firms about Open Finance and its potential evolution.

Building block 7b - Increased engagement within insurance firms to consider how best to incorporate Open Finance into future strategic priorities, allowing sufficient lead in times to ensure data is appropriate and to build and connect with the enabling infrastructure.

Building block 8 - Inspired, informed insurtechs supported by investors that recognise the value in their business model and by relevant FCA Innovate services.

Accenture, Sky high hopes: Navigating the barriers to maximizing cloud value (2020)

Amelia.ai, Next Generation Digital Insurance Agent (2020)

Cicero/amo, Covid-19 Impact: Defining the New Normal (2020)

Citizens Advice, Citizens Advice Consumer Work Plan (2020) 

Competition and Markets Authority (CMA) Retail Banking Market Investigation final report (2017)

Department for Business, Energy and Industrial Strategy (BEIS), Consumers and businesses to be given more control of data under new laws, (2020)

Department for Business, Energy, and Industrial Strategy (BEIS), Smart Data Working Group report (2021)

European Commission, Payment Services Directive (PSD2) (2018) 

European Insurance and Occupational Pension Authority (EIOPA), Open Insurance: accessing and sharing insurance related data (2021)

Financial Conduct Authority (FCA), An opportunity for financial services (2019)

Financial Conduct Authority (FCA),  Call for Input (2019)

Financial Conduct Authority (FCA),  Feedback Statement (2021)

Financial Conduct Authority (FCA), Innovation- Fintech, Regtech and Innovative Businesses (2021)

Financial Conduct Authority (FCA), The Woolard Review (2021)

The Finance Innovation Lab, Open Finance and Vulnerability, (2021)

Financial Services Consumer Panel, Report on a study of how consumers currently consent to share their financial data with a third party (2018)

Grant Thornton, General Insurance: Keeping pace with the new landscape (2020)

HM Treasury, Kalifa Review of UK Fintech (2021)

Insurtech UK, Open Finance consultation response (2020)

Institute and Faculty of Actuaries, The Great Risk Transfer (2021)

Institute and Faculty of Actuaries, The Great Risk Transfer Interim Report (2020)

Legal and General, Income Protection Benefit (2021)

Macmillan, No Small Change (2020)

Moodys Investor Service, CFO survey (2018)

Office of the Australian Information Commissioner, What is the Consumer Data Right?

Open Banking Implementation Entity (OBIE) Impact Report (2020)

Open Banking Implementation Entity (OBIE)  Annual Report (2021)

Open Banking Implementation Entity (OBIE)  January 2021 Highlights (2021)

Open Banking Implementation Entity (OBIE)  May 2021 Highlights (2021)

Open Data Institute (ODI)  / Fingleton Open Banking: Preparing for Lift off (2019)

PayUK, Enhancing Current Account Switching in the Era of Open Banking (2019)

Pension Dashboard Programme, Progress Update Report (2021)

Reynolds & Chidley, Consumer Priorities for Open Banking (2019)

UK Finance, Open Banking Futures: Blueprint and Transition Plan (2021)

University of Bristol, The Inequality of Poverty (2021)

Woodhurst, Uncovering the true potential of Open Finance (2020)

*All links correct as of 21 July 2021

This report is based on a range of in-depth interviews with key insurtech stakeholders including industry experts, consumer groups and regulators.

We would like to thank the following individuals and organisations for providing their experience and insights:

• Alan Ainsworth, Head of External Relations, Open Banking Implementation Entity (OBIE)
• Alan Knowles, MD, Cura
• Alex Wheal, Commercial Client Manager, Hiscox
• Dan Morgan, Policy Lead, Plaid 
• Faith Reynolds, Open Banking Consumer representative
• Ian Searle, Open Finance, Financial Conduct Authority (FCA)
• Imran Gulamhuseinwala, Implementation Trustee, Open Banking
• Jack Wilson, Head of Policy, True Layer
• Janet Jones, Head of Industry Strategy, UK Financial Services, Microsoft
• John Warburton, Founder, Konselio
• Johnny Timpson, Member of the Financial Services Consumer Panel
• John Godfrey, Head of Policy, Legal & General
• Kieran Borrett, Corporate Innovation and VC, Plug and Play
• Leo Miles, Policy Manager, Macmillan Cancer Support 
• Louise Birriteri, CEO, Pikl
• Luisa Barile, CFO, Bought By Many
• Marloes Nicholls, Head of Policy & Advocacy, Financial Innovation Lab
• Martin Coppack, Director, Fair by Design 
• Martyn Matthews, Senior Director of Personal Lines, Lexis Nexis Risk Solutions
• Olly Betts, Founder, Openwrks
• Richard Phipps, Senior Project and Delivery Lead, Swiss Re
• Tom Baigrie, CEO, LifeSearch
• Tom William, CEO Certua

With additional thanks to Tech Nation Insurtech Board members for their views and debate:

• Ben Luckett, Aviva
• Ed Leon Klinger, Flock
• Fraser Edmond, Broker Insights
• Jemima Pitceathly, Tech Nation
• John Warburton, Konsileo
• Kieran Borrett, Plug and Play
• Louise Birriteri, Pikl
• Louise o’Shea, Confused.com
• Luisa Barile, BoughtByMany
• Paolo Cuomo, Brit Insurance
• Parul Kaul-Green, Axa
• Ravi Shukla, Tech Nation
• Rob Moore, Swoop Funding
• Ruta Mikiskaite, Swiss Re
• Shân Millie, Bright Blue Hare
• Stephen Brittain, Insurtech Gateway
• Trevor Maynard, Lloyd’s Lab
• Tom Dixon, Hiscox
• Victoria Roberts, Tech Nation
• Yannis Korgialos, Ticker

Finally thank you also to Mark Twigg and Andrew Roberts from Cicero/amo for their assistance throughout the research and polling of small and medium enterprises.

Disclaimer:

This report has been produced by the Insurtech Board for general information purposes only. While care has been taken in gathering the data and preparing the report the Board does not make any representations or warranties as to its accuracy or completeness and expressly excludes to the maximum extent permitted by law all those that might otherwise be implied. 

We accept no responsibility or liability for any loss or damage of any nature occasioned to any person as a result of acting or refraining from acting as a result of, or in reliance on, any statement, fact, figure or expression of opinion or belief contained in this report. This report does not constitute advice of any kind. 

The views expressed in this report have been collated from a wide range of interviews across the insurtech ecosystem, and therefore do not necessarily represent the views of every organisation for whom the board members work.

1 HM Treasury, Kalifa Review of UK Fintech (2021)
2 The Finance Innovation Lab, Open Finance and vulnerability (2021)
3 CMA, Retail Banking Market Investigation Final Report (2017)
4 European Commission, Payment Services Directive (PSD2) (2018) 
5 OBIE, About Us (2021)
6 Reynolds, Consumer Priorities for Open Banking (2019)
7 OBIE, Open Banking May Highlights (2021)
8 OBIE, Open BankingJanuary Highlights (2021)
9 ODI, Open Banking Preparing for Lift Off (2019)
10 PayUK, Enhancing Current Account Switching in the era of Open Banking (2019)
11 OBIE, Open Banking Impact Report (2021)
12 Office of the Australian Information Commissioner,What is the Consumer Data Right? (2020)
13 Department for Business Energy and Industrial Strategy, Consumers and businesses to be given more control of data under new laws, (2020)
14 FCA Open Finance Call for Input (2019), FCA Open Finance Feedback Statement (2021)
15 FCA, Open Finance Feedback Statement (2021)
16 FCA,Open Finance Feedback Statement (2021)
17 Pensions Dashboard Programme, Progress Update Report (2021)
18 FCA, Open Finance Feedback Statement (2021)
19 FCA, Open Finance Feedback Statement (2021)
20 Cicero/amo, Covid-19 Impact: Defining the New Normal (2020)
21 FCA Call for Evidence on Open Finance (2019) and EIOPA Open Insurance: accessing and sharing insurance related data (2021)
22 Grant Thornton, General Insurance: Keeping pace with the new landscape (2020)
23 Citizens Advice, Citizens Advice Consumer Work Plan (2020) 
24 Legal and General, Income Protection Benefit (2021)
25 Macmillan, No Small Change (2020)
26 OBIE, Open Banking Impact Report (2020)
27 OBIE, Open Banking Impact Report (2020)
28 Open Banking Manifesto (2020)
29 Cicero/amo SME business online survey, (2021). Research based on responses from 1,000 decision-makers in SME businesses  holding a role of Senior Manager or higher and having HR decision-making powers. 
30 FCA, Open Finance Feedback Statement (2021)
31 UK Finance, Open Banking Futures: Blueprint and Transition Plan (2021)
32 FCA, Call for Input: Open Finance (2019)
33 Financial Services Consumer Panel, Report on a study of how consumers currently consent to share their financial data with a third party (2018)
34 University of Bristol, The Inequality of Poverty (2021)
35 FCA, The Woolard Review (2021)
36 Institute and Faculty of Actuaries, The Great Risk Transfer (2021)
37 Institute and Faculty of Actuaries, The Great Risk Transfer Interim Report (2020)
38 The Finance Innovation Lab, Open Finance and Vulnerability (2021)
39 OBIE, Open Banking January Highlights (2021)
40 OBIE, Annual Report (2021)
41 Amelia.ai,Next Generation Digital Insurance Agent (2020)
42 Moodys, CFO survey (2018)
43 Accenture, Sky high hopes: Navigating the barriers to maximizing cloud value (2020)
44 FCA, Innovation- Fintech, Regtech and Innovative Businesses (2021)

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