With 99% of insurance professionals in an ITI survey agreeing that digital transformation is essential to remaining competitive, the insurance industry is no stranger to APIs. They’ve been used to connect user interfaces to databases and integrate with other systems and services…
However, the API scene is evolving and with new API types come some new use cases. Let’s look at how APIs provided by third parties holding customer data (open banking, accounting software and marketplaces) can be leveraged in an insurance context.
Open Banking
Payment Initiation Services (PIS)
The premise of PIS is that it enables a business to trigger a payment directly from a customer’s bank account with their permission and without a debit or credit card involved. This, in turn, allows ordinary customers to make day-to-day payments using bank transfers.
Benefits of using PIS
- It offers a smoother and more convenient experience for the customer since they are directed to the bank’s online portal, where they enter a password, PIN, fingerprint or some other authenticator to approve the business’s request for funds.
- This method doesn’t come with the fees associated with credit card payment processing, and it’s also faster than CHAPS and Bacs payments since you can complete a transfer in minutes.
- PIS is a more secure option since the customer doesn’t have to submit information such as card number, Card Verification (CVV) code and expiry date.
Such a solution can help customers ensure that their insurance premiums are paid promptly to avoid eligibility issues when a payout is needed.
Account Information Services (AIS)
AIS converges data from disparate financial accounts held by a single user to give them a comprehensive picture of their financial health. This analysis can reveal their ability to keep their end of a contract.
For example, a customer can use AIS to disclose banking records to a potential lender, who’ll determine the applicant’s ability to pay back the loan as stipulated in an agreement. A customer can also have this arrangement with other third parties like wealth managers who need to analyse your spending patterns and recommend saving and investment strategies.
In commercial insurance, it’s important to understand what a company does on a more granular level, how the company does its work and the scale at which it operates. So admittedly, the reality of applying AIS within the insurance industry is more complex since several factors can continuously affect the risk level and, by extension, the premium to be charged.
Theoretically, AIS can help when administering a single premium payment policy, but there’s still plenty of improvement needed to use this solution in multiple scenarios in the insurance industry.
Accounting APIs
When it comes to understanding what a business does, how it operates, and its size, accounting APIs are the final boss. While AIS primarily offers an amalgamated picture of account transactions, accounting APIs take it further.
Service providers can use these solutions to access a company’s accounting information, including invoices, balance sheets, revenue and expenditure comparisons, and other documents detailing creditors and debtors and profit and loss.
Once connected to a company’s accounting software with the help of an API, you can evaluate the company’s long-term ability to meet certain obligations and not just its near-term liquidity.
An example of Accounting APIs in use
A business like MarketFinance provides business loans and invoice financing solutions. In a setting with no API usage, an applicant would need to manually upload documents such as bank statements and other related information, which would be pretty time-consuming.
However, if you have a Xero account, an API can facilitate seamless integration between this account and your MarketFinance account. MarketFinance can automatically access your accounts, bank transfers, credit notes, overpayments, invoices, purchase orders, contracts, prepayments, reports and more.
Marketplace APIs
As we wind up our review, let’s examine one of the more niche examples of API use cases. The marketplace API is set to become one of the more crucial ones down the road. With more physical goods being sold many businesses are scrambling to expand their online presence by using eCommerce platforms such as Amazon, Shopify, BigCommerce…
This means transcending the basic company website that provides information about your business and its offers. Enterprises are attempting to acquire new customers by setting up stores on marketplaces like Amazon, Etsy, eBay, Shopify and more.
This is where the marketplace API comes in. Suppose you’re a large seller with an already established internal system for managing orders and customer relationships. In that case, a marketplace API can be a strong link between the stores you’ve set up on different eCommerce platforms and your central sales management system.
With a marketplace API in place, you can easily access customer data related to orders, shipment progress, discount eligibility, payment methods and statuses. You can also observe the impact that customer activity has on your inventory on a day-to-day basis.
However, marketplace APIs aren’t restricted to showing your general store activity in one central application. Thanks to the programmability offered by many of these solutions, you can deliver more features and functions to your customers, like the ability to submit customization stencils for products like t-shirts and mugs.
You can also use them to manage the collection of reviews and other social proof in a more engaging manner. Businesses can also utilise marketplace APIs when trying to sell on social media platforms like Facebook, Instagram and Pinterest.
This means shoppers have access to the same catalogue on social media that they’d access if they were on Amazon or even on your official website. These APIs can also clue you in on how to improve communication with customers, whether via email, push notifications or other avenues.
How Open Banking, Accounting and Marketplace APIs intersect with Insurance
Take the example of an entrepreneur in the e-commerce/dropshipping space. As they handle more orders and venture into high-value products, they may have to take out policies of different kinds, such as:
Liability insurance – to cover them in case someone gets injured or develops health complications from using their products.
Property insurance – this will have you sorted if your warehouse/store, inventory or other items you use in this business, like computers and scanners, get damaged.
Transit insurance – to help you recover in case some of your products get damaged while being transported.
As a result, a business owner needs to converge many kinds of data and share the relevant details with an insurer in an organised and timely manner. Therefore, different types of APIs can help in various aspects of their business. For instance:
- Store owners can use marketplace APIs to keep track of orders relative to inventory and understand the impact on the size of shipments made periodically. Furthermore, the APIs can keep business owners updated on the variations in the value of goods stored and those in transit, as couriers’ loads fluctuate along the journey.
Consequently, insurers will have an easier time understanding the changes in the value of what is being insured at any given time and then recommend the most appropriate offer.
- Dropshippers and other e-commerce businesses can use accounting APIs in conjunction with AIS to get a broader picture of the eCommerce store’s finances. While the accounting APIs may lean more towards a snapshot of how the business is doing, the AIS could help zoom in and get more nuance.
For example, your store could have plenty of orders and debtors, with many invoices sent out. However, those who owe you could gradually become more inconsistent with their payments, and certain payment processors may often face downtime and delays in crediting your business.
So while an eCommerce store may look credit-worthy on paper, the near-term reality might be different. Other factors like supply chain issues and returns by unsatisfied customers can also influence the store’s health.
Accounting APIs will paint a clear picture of what you have, what you owe and what you’re owed. AIS will zero in on the bank accounts and online wallets to show how fast the funds become available to you relative to your policy obligations.
While some businesses can accommodate the idea of irregular premium renewals, especially due to the low risk of damage, in other cases, operating for even a minute without insurance renders you non-compliant and subject to penalties that make the premium look very small.
Therefore, you can make it easier to initiate emergency payments and stay out of trouble with PIS.
Final Takeaway
Third-party APIs come in many different flavours and have various benefits. They can:
- Reduce the amount of time it takes to transact
- Bring all relevant data and functions into one place, enabling you to make decisions based on the most accurate insights
- Provide a smoother and more personalised experience for the user and the employee who serves them
- Improve internal productivity
- Foster a more secure digital transaction environment
- Reduce the cost of doing business for both the customer and the service provider
However, there’s still plenty of ground to cover for the insurance industry to realise the full potential of these APIs. For starters, businesses ought to revisit the customer journey to identify processes to speed up when seeking or maintaining a policy.
They should also pinpoint all necessary instances of interaction with other parties and the points at which APIs can facilitate a more integrated approach. Lastly, companies need to understand the regulatory standards governing technology and customer data usage and take all the necessary steps to remain compliant.
These are the three major steps needed to unlock the power of APIs in insurance. A recent study shows that up to 59% of insurers in the U.K. are upping their digital transformation spend, so the future of APIs in this sector looks promising and we haven’t even talked about open insurance yet…
