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Library: Adacta Fintech – Digital Transformation in Insurance: APIs, Platforms, and Ecosystems

November 2020 featured report:

The pandemic will only accelerate the digitalisation of the insurance industry. So says the report from Adacta Fintech, which is this month’s featured report.

 The Digital Insurer reviews ADACTA FINTECH’s Report on Digital Transformation in Insurance: APIs, Platforms, and Ecosystems

There’s more to digital insurance than APIs – but it’s a start 

Digital transformation makes it easier for businesses to scale up their businesses in existing – but also new – areas. It has transformed the ability for businesses to partner and integrate with others and to resell their products.

APIs make digital easier

Application programming interfaces (APIs) – which is what Adacta are all about – have greatly increased the efficiency of business processes. This software creates an off the shelf package of instructions and standards that allows others to integrate different businesses more easily. For instance, Google Maps, which is not only an application in itself, but can be used by thousands of other companies and individuals.

The use of APIs to build platforms that in turn allow the creation of digital ecosystems is disrupting many sectors.

Many of the world’s biggest companies these days are not manufacturers or retailers, but platform-based businesses, with Uber, Airbnb and Amazon being among the best known.

They rely heavily upon their APIs, which not only allow them to make their services available to others, but enables those services to be integrated more easily into other businesses.

For instance, Uber drivers use the Uber API. But Uber uses Google’s maps API, while payments, receipts and messaging are handled not by homemade solutions, but other third parties APIs.

Uber is a great example of using third party APIs to create an ecosystem that provides both a valuable service and customer experience, says the report. As we know, these are essential to the successful deployment of any digital business model.

Insurers are focused on APIs

So, what about insurance? A study by Celent says that APIs are fast becoming the primary method of transforming insurers’ systems. In Europe, a half (50%) of insurers intend to build their own ecosystem using APIs.

This won’t happen overnight, but the first step the report recommends insurers tackling is to identify existing business relationships to create APIs that will facilitate those existing interactions. That means building APIs to be used by agents, aggregators, banks and other service providers.

Next, insurers should, look beyond those existing relationships to where insurance might generate value. That could be through partnering with other businesses –  retailers or financial services companies – that might offer policies to their own customers.

This could be extended to smart home security providers who may benefit from adding optional insurance to their own offering.

The report identifies Qover and La Pariseinne as examples of businesses that are bending over backwards to make integration as seamless and frictionless as possible.

Digital, first – and only?

An important thing to consider is that you don’t even need a distribution channel to make insurance work in the digital world. Some insurers – for instance, Lemonade – have no physical presence in the market, and are identified as an ‘API native’.

They still need to find a market, and without a sales channel are fully reliant upon API-based distribution channels.

A simple market carries just the single insurer. But partnering brings together APIs from other providers, to create a more advanced marketplace that offers insurers access to clients and customers that the partners have – and vice versa.

This is a potentially disruptive force, says the report, that may drive innovation as insurtech startups gain access to an insurers’ services.

Of course the elephant in the room when it comes to API’s is existing technology.

Tech is crucial, but so is culture

Traditional insurers remain hampered by legacy IT systems that either can not be – or are not easily – updated. Creating APIs for these systems is often not cost effective when insurers are trying to jockey for position with insurers that have modern core systems with APIs built into them.

But legacy alone is not the only obstacle. One of the greatest obstacles to digitalisation and digital transformation within the insurance industry remains resistance from the culture within the business.

Using APIs can help digital insurers to scale their partnering processes. It provides an onboard a standard way of onboarding new partners. And they make it possible to integrate with innovative inshore tech startups who can tap into the functionalities of an insurance system to develop new ideas and user experiences.

You need help

If this sounds like it’s not going to be possible to build this on your own, you’re absolutely right. The report says that, trying to go it alone wastes valuable resources because you’re trying to reinvent the wheel.

It recommends focusing on core competencies and investing in developing an ecosystem of customers, partners – and even competitors. This will allow insurance companies to extend their reach and offer more services than ever before.

The path for traditional insurance companies is laid out by their digital native peers. First they have to develop insurance products using an API, then start to participate in platform ecosystems. The report says McKinsey has predicted that industries will converge to build cross sector ecosystems that will account for 30% of global revenues by 2025.

That’s really not very far off. If insurers are not to miss the boat, they need to participate in these ecosystems, become open to APIs and become digitised.

Look east for inspiration

Europe is lagging behind China and Ping An offers an excellent example of a company trying to digitise everything, starting with distribution, making use of AI, and adopting cloud-based technology.

Whether insurers can build platforms like Uber or Google remains to be seen. Most are still looking at how to access existing partners through APIs, says the report.

It concludes by saying that insurers who want to take part in these ecosystems, must invest properly. This is because before long they’re going to face competition from outside the industry. That means from tech giants, like Amazon, who have the means – and already have the technology – to be able to disrupt the whole insurance market.

For more, see the full report.

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