In this rapidly evolving digital world, it seems like innovations lurk around every corner. In the financial sector, Open Insurance has been revolutionising the industry for a while now. And just recently, quite a buzz has been caused by the Financial Data Access (FIDA) regulation. In this article, you will delve into the two driving forces currently reshaping the insurance arena.
What Is Open Insurance?
For those new to the subject, let’s briefly explain what Open Insurance actually is. But to shed more light on this, we first need to touch on the concept of Open Banking, as the two are related. It boils down to sharing data between financial institutions to offer customers better, more tailored services, improving their overall experience in the process.
In light of Open Banking trending up, financial institutions are now looking towards the concept of Open Insurance as the new frontier in innovation. Just like Open Banking, Open Insurance involves sharing data and services among various players within the insurance industry. In a way, it’s a new wave of Open Banking. The goal? Provide customers with more personalised and affordable services with the aim of generating innovative applications and blockbuster business models. All of this to meet the ever-changing needs and expectations of customers.
Now, let’s take a slightly more technical look at it and describe in a few words how Open Insurance works. The core idea behind Open Insurance has to do with integrating open API architectures into insurance applications. Open API access simplifies data exchange between various insurers, banks, startups, InsurTechs (tech-driven insurance startups following the Fintech model), and other entities.
The Impact of FIDA on the Insurance Industry
There’s another issue that’s been talked about a lot in the insurance sector of late. And it’s none other than FIDA.
The Financial Data Access regulation enriches the Open Banking principles to cover all financial services. It mandates the modernisation of data infrastructure, enabling institutions to access data from one another, naturally, upon the customer’s consent. FIDA introduces a unified regulation for the whole financial sector, featuring a data use perimeter and a new entity – Financial Information Service Provider (FISP). It requires insurers to update their data infrastructure to share it with third parties.
What is the purpose of FIDA?
The regulation brings forth an array of primary objectives:
- Secure customer control: FIDA guarantees customers are in control of their data, using it effectively as they see fit.
- Promote data-oriented innovation: The regulation empowers financial entities with access to customer data, driving the emergence of innovative products and services within the financial field.
- Introduce new players: FIDA gives rise to the Financial Information Service Provider, aka FISP, that has access to customer data exclusively for delivering financial services.
- Foster responsible data usage: The FIDA regulation makes data holders use that data solely for the customer’s specified purposes and under agreed-upon conditions.
- Establish a data use perimeter: FIDA introduces the idea of a data use perimeter, overseen by the European Insurance and Occupational Pensions Authority (EIOPA).
- Enact a unified standard across the whole financial arena: With consistency as the focus here, the regulation strives to set up a single regulatory framework covering all areas of the financial sector, encompassing insurance, mortgages, savings, and investments.
How Do Open Insurance and FIDA Benefit the Insurance Sector?
Along with the FIDA regulation, Open Insurance introduces a variety of benefits to the insurance landscape. The key ones are as follows:
- Ensuring fair competition: FIDA’s role in Open Insurance guarantees a level playing field for all in the industry. It sets transparent rules for data sharing, safeguarding customer data privacy while promoting a cooperative ecosystem.
- Boosting operational efficiency: With Open Insurance leveraging open APIs and digital channels, the need for traditional intermediaries is reduced to an absolute minimum. This approach not only significantly streamlines operations but also enhances accessibility and efficiency for consumers searching for insurance solutions.
- Tailored policies: By streamlining data exchange, the FIDA regulation propels insurers to customise policies. This strategy breeds more personalised offerings, catering to individual needs.
- Fraud detection and prevention: FIDA ups spotting and stopping fraudulent activities by making insights exchange throughout the industry smoother.
The benefits of FIDA and Open Insurance seem clear and enticing. But since the regulation is still a new concept, many of the insurance players are approaching it cautiously. They’d rather thoroughly evaluate FIDA’s impact on their businesses than jump head first to adopt it in their operations.
And let’s not forget that an integral part of implementing FIDA is technology, which boils down to finding the right technology partner. With our expertise in insurance, Shaped Thoughts is the one. Connect with us, and let’s discover together how we can help you support your efforts in adopting FIDA and Open Insurance.
What’s the key takeaway here? FIDA is pivotal in paving the way for Open Insurance by laying out a distinct regulatory framework that addresses both data sharing and customer control. This dynamic duo marks a transformative era for the entire insurance industry.
Significant changes are on the horizon, with promoting data-driven innovation, enhanced customer experience, and modernising data infrastructure in the lead. And a lot more are right behind them.
Powered by FIDA, Open Insurance is so much more than just a regulatory necessity – it’s also a driving force for meaningful transformation.