Open banking has been transforming the financial sector, allowing for challenger banks and digital financial platforms to deliver greater customised digital products that ultimately help consumers better manage their finances. With the accelerating expansion of open banking, insurers are also increasingly seeking to benefit from access to customer information.
Findings from GlobalData’s 2019 UK Insurance Consumer Survey indicate that only 18.6% of motor insurance customers choose to purchase motor insurance online via a smartphone or tablet. This is in contrast to the 49.3% of consumers choosing to purchase motor insurance via a PC or laptop. The increased implementation of open banking and greater understanding of customers’ information will lead to an uptake of purchases through apps and mobile devices. This is due to the information exchange that insurers will have access to, allowing them to require less information from customers. It will also enable customers to use apps in a fast and more confident manner, as current app purchases still largely require extensive information that is more comfortable to fill out on a computer.
For example, insurtech By Miles was one of the first insurtechs to implement open banking in January 2020, offering customised motor insurance premiums that only charge consumers for their usage. By Miles sells insurance through both its personal app and website. But due to the unique aspects of its product, the provider needed to adopt open banking in order to understand the financial risks associated with potential new customers, particularly as its pay-as-you-go services could lead to fluctuating monthly premiums. It no longer has to rely on credit scores or extensive background information and can offer customers a much more accessible purchasing journey instead.
As of July 2020, By Miles has also announced a partnership with personal finance app Yolt. Accessing By Miles’ services through Yolt will provide further understanding of how and where customers spend their money, while having access to this information will ensure that customers can pay for their premiums. This would also give the insurer an indication of how much customers can spend on motor insurance and if they are likely to default. Additionally, the partnership will also give By Miles access to a wider client base in the UK and help the insurer position its policies as easy to use and cheap, thanks to its ability to utilise the benefits of open banking.
Going forward, more insurers will seek to benefit from open banking through partnerships.
This will lead to a reduction in direct information exchanges between the customer and the insurer, which in turn will make the purchasing journey less complex and more adaptable to mobile app-based systems.
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