Challenger banks such as Monzo, which offers an app-based account popular with the under-30s, could look at offering insurance price comparison services in the near future as the finance industry is transformed through what’s known as ‘open banking’.
Open banking is gaining some serious traction, particularly in Europe. In short, it’s a movement that is pushing banks and credit card firms to open up their client data, allowing third-party developers to build their own applications and services around it using what are known as application programming interfaces (APIs).
A new European directive, PSD2, came into force at the beginning of this year. As part of that the UK, which has its own Open Banking Initiative, will see its top nine biggest banks forced to share customer data with third parties if a customer agrees.
The intention is to encourage customers to switch and compare. Experts say it could completely upend the way that we bank, and open up the system to a whole range of new challengers.
But it could have some significant implications for insurance too, according to Paul Dix, vice president of insurance at consultancy CGI.
Some of the emerging fintech offerings are streets ahead when it comes to engaging their customers compared to the insurance industry. Add open banking into the mix, and it’s not unlikely that they could look to offering insurance services soon, Dix said.
“There is a burgeoning regulatory environment for new banks to enter the market and come along with new ideas, and typically those ideas have been ones that are perhaps less about traditional banking, and more about helping customers manage their finances,” he said.
Banking apps such as Monzo, which helps users to manage their money and create budgets, are building a presence in their customers’ day-to-day lives. That, combined with the data as to what’s in their accounts, lends itself to branching out into wider services, according to Dix.
“That to me is a very different way of thinking about yourself as an organisation. You’re then part of someone’s financial planning for the year,” he said.
“I can well see a situation where the bank would then say, if the [insurance] price comparison website gives me an API, I can then link my bank account interface and find you the best price for your insurance. I will do that with the knowledge of what you have saved in your insurance account, and maybe I will suggest that you buy insurance differently as a result.”
The challenge for insurers and brokers is working out where they fit in the new ecosystem – but, crucially, Dix says consumers will decide the direction of the future.
“Whereas maybe 20 years ago, you as an organisation could actually dictate the technology that a customer used to interact with you…things have completely turned on its head now. You now have a situation where consumers are driving technology take up, and they will decide the channel that they want to interact with you on, and they will also decide where you fit in their value chain,” he said.
“The key thing is ultimately this will not be dictated by a bank or an insurance company, this will be dictated by how consumers adopt technology.”
