AI and API marketplaces in insurance & financial services

This report delves into the significant impact of AI and the API Economy on financial institutions (FIs) within today’s evolving environment. Open Banking APIs are reshaping the way FIs exchange customer data with authorized third parties, driving advancements in sectors such as payments, wealth management, and lending. Yet, to maximize these opportunities, FIs must leverage the strategic capabilities offered by API marketplaces.

This Ebook covers following topics:

  • The top 5 use cases for AI and API marketplaces in financial and insurance sectors
  • How these innovations enhance customer experience, lower costs, and drive revenue growth
  • Real-life examples of successful implementations

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Unlock the power of DORA compliance with practical use cases

The Digital Operational Resilience Act (DORA) is set to redefine how financial institutions across Europe protect their operations against digital risks. But what makes this white paper different?

Our comprehensive white paper goes beyond regulatory theory – it takes a use-case approach to show you how the requirements of DORA can be implemented in real-world scenarios. This unique perspective sets it apart from other resources on DORA, and provides tangible solutions that your organisation can implement today.

Key Highlights:

  • Practical use cases that demonstrate step-by-step how to integrate DORA requirements into your digital operations.
  • Discover how an API marketplace can play a key role in helping financial institutions meet DORA’s stringent ICT and third-party risk management standards.
  • Learn how to streamline risk management, improve incident reporting and effectively secure third-party partnerships.

Don’t settle for general overviews. Delve into actionable insights that can make a difference to your business. Fill in the form to download the white paper now and get a clear roadmap to navigate DORA compliance with ease.

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API economy: Generate value for your insurance company

Admittedly, the world of APIs is a complex and partially hazy place where you can quickly lose sight of the overview – good reason to keep it simple in this article. So, let’s start with a clear answer to the question if the API economy is essential.

Simply said: yes – because it can not only change and improve business models but also open up new markets, increase customer satisfaction and simplify the collaboration between partners.

Or let’s put it like this:

“The API economy is about making services and data available to generate value for your company.“

If you want to know where the business journey of APIs is going, you must understand where we are coming from. We’ve seen exciting developments over the past few years. Companies were always good at collecting large amounts of valuable data – about their customers, products, supply chains, and more. But they weren’t always good at making the most out of it. And precisely that is the wasted chance at best and a crucial error at worst. That’s why the API economy has seen explosive growth and rapid expansion. It can unlock tremendous opportunities – for insurance companies participating in this new digital economy, for example, by offering embedded insurance products, exceptionally extending their market reach. But let’s say it in numbers: McKinsey estimates that up to 25% of personal-line premiums could be generated through embedded ecosystems by the decade’s end. For auto, that percentage could even exceed 30%.

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So, while APIs make applications and their data easier to integrate, the API economy enables businesses to profit off their APIs and create business models around them. It allows your company to monetize a portion of its data and services by creating a platform for exchange. In this way, business value creation arises, which operates independently and enables the creation of new and unique applications fueling novel and innovative business models. And it doesn’t just expose your business’s internal assets to internal users, but also to business partners, third-party developers, or the public. That brings us to the point that there is a natural way for organizations to reuse, scale and broadly adopt APIs: API marketplaces.

API marketplace – a necessary investment

Sure, we all know online marketplaces like Amazon or eBay, but instead of selling or buying electronics, furniture, or fashion from other users, you can do the same with APIs, granting you access to data or functionalities of IT Services – just like the apinity marketplace does for insurance-specific third-party services.

Sounds great? Yes, especially for API providers who lack visibility. With a marketplace, they have more chances to offer their API solutions to get the attention of customers from all over the world – as a public offer in a specific market segment or visible on the internal marketplaces of large organizations.

Investing in such an internal API marketplace helps companies encourage the development and usage of APIs, increase efficiency, and foster standardization. However, based on industry insights, building a first minimal viable product (MVP) in-house requires a team of around 15-20 people over a period of 18-24 months, including ongoing maintenance efforts. Therefore, purchasing a ready-to-use Software as a Service solution like apinity exchange offers a convenient alternative to immediately start participating in the booming API economy at a fairly low price.

Your advantage with apinity? Almost everything.

At the beginning of this article, we started with the aspect of simplicity. That is also a good point to end with. Because the primary advantage of apinity is to simplify implementation processes for you as a provider or as a consumer of APIs, you can orchestrate your API strategy across different clouds or multiple gateways and standardize your API documentation and integration processes for your developers, partners, and customers. You increase transparency and get support for contracting, billing, and operational issues. This enables your company to become a provider of third-party products yourself or even run your own branded API Shopsystem.

“The API economy is about making services and data available to generate value for your company.”

And this in a faster way than you think! Providers can onboard and publish their APIs in a self-service flow within an hour and get their custom-branded out-of-the-box API marketplace within days.

That saves time and a lot of money, as developers can efficiently find, reuse and scale APIs across projects and departments immediately, establishing a thriving API ecosystem for your company.

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The Insurance Data Landscape and EU Regulations

The European Union’s recent data regulations – the Data Act, DORA (Digital Operational Resilience Act), and FIDA (Financial Data Access) – are poised to significantly impact the insurance industry. While these regulations aim to create a more secure and customer-centric data environment, they also present challenges for insurance companies navigating compliance. Let’s explore how these regulations intertwine and the subsequent opportunities and hurdles they bring.

The Intertwined Web of Regulations

These three regulations work together to form a comprehensive framework for data governance in the financial sector, with each playing a distinct role:

Regulation NameDescriptionLink
DORA (Digital Operational Resilience Act)Acts as the first line of defense by mandating robust cybersecurity measures for financial institutions. This ensures the protection of sensitive customer data from cyberattacks.

Link
EU Data Act

Establishes a framework for fair data access and use. It presents an opportunity for insurers to build a competitive advantage in a customer-centric data environment. By embracing these changes and focusing on transparency, clear communication, and respect for customer data rights, insurers can foster trust, develop innovative products, and navigate the evolving regulatory landscape successfully.

Link
FIDA (Financial Data Access)Builds on the Data Act and specifically addresses financial data. It proposes a secure framework for sharing customer data between insurance companies, other financial institutions, and authorized third parties. It is still waiting for approval, although it is expected before the end of this year.Link

 

Table 1 EU Regulation on Data

Deep Dive: Understanding Each Regulation

DORA: Building a Cybersecurity Fortress

DORA, the Digital Operational Resilience Act, stands as the insurance industry’s first line of defense against cyberattacks. It mandates a comprehensive approach to cybersecurity, requiring insurers to build robust practices that safeguard sensitive customer data. This deep dive explores DORA’s key elements and their interconnected impact on the insurance landscape.

Figure 1 The Five Pillars of DORA Regulation

By implementing these measures, DORA strengthens the overall cybersecurity posture of the insurance industry, ultimately protecting sensitive customer data.

Identifying and Assessing Cyber Threats: A Proactive Approach

DORA compels insurers to move beyond reactive measures. They must proactively identify and assess potential cyber threats and vulnerabilities across their entire IT infrastructure. This all-encompassing view includes systems, applications, networks, and any third-party services they rely on. Penetration testing, vulnerability scanning, and threat modeling become crucial tools in this process, helping insurers pinpoint weaknesses in their defenses. Understanding their cyber risk profile allows them to prioritize resources and implement targeted security measures to address the most critical vulnerabilities.

Swift Response and Recovery: Minimizing Damage from Cyber Incidents

DORA recognizes the importance of a swift and coordinated response to cyber incidents. It mandates clear procedures for detection, reporting, and management. This translates into establishing a well-defined incident response plan that outlines roles, responsibilities, and communication protocols for navigating a cyberattack. The ability to quickly detect and respond is essential for minimizing damage and restoring normal operations. DORA ensures insurers have a process in place to effectively handle such situations, with regular testing and updates being vital to guarantee its effectiveness.

Business Continuity and Disaster Recovery: Ensuring Operational Resilience

DORA goes beyond immediate response, mandating a comprehensive business continuity and disaster recovery (BCDR) plan. This plan serves as a roadmap for how the company will continue critical operations in the event of a cyberattack or other disruptive event. The BCDR plan should encompass procedures for data backup and recovery, alternative site operations, and communication with stakeholders. By having a robust BCDR plan in place, insurers can minimize downtime and ensure they can continue serving their customers even during a crisis.

Governance and Oversight: Building a Culture of Cybersecurity

DORA emphasizes the importance of strong governance and oversight for cybersecurity practices. This translates to assigning clear ownership for cybersecurity within the organization and establishing a reporting structure that keeps senior management informed of cyber risks and mitigation efforts. Regular internal audits and reviews of cybersecurity practices are also mandated by DORA, helping to identify any gaps or areas for improvement.

Investing in a Secure Future: The Benefits of DORA Compliance

While DORA compliance necessitates investment in cybersecurity personnel, technology, and processes, these investments are essential. They protect sensitive customer data and mitigate the financial and reputational risks associated with cyberattacks. By strengthening their cybersecurity posture, insurers can build trust with their customers and demonstrate their commitment to data security. DORA can also act as a catalyst for modernization within the insurance industry, as companies invest in upgrading their IT infrastructure and implementing new security technologies.

Data Act: Empowering Customers, Reshaping Data Use

The Data Act, a cornerstone of the EU’s data governance regulations, significantly impacts the industry. It ushers in a new era of customer empowerment and reshapes how insurers collect, manage, and leverage data. This has several key implications for companies:

  • Customer Control: Customers gain greater control over their data, including the right to access, rectify, or erase their personal information held by insurers.
  • Data Portability: The Data Act allows customers to easily transfer their data between insurance companies, potentially fostering competition and innovation.

Transparency and Consent: Insurance companies will need to ensure clear communication and secure mechanisms for obtaining customer consent regarding data collection and usage.

The framework of the Data Act / Image: Chiara Gallese | ResearchGate

The EU’s Data Act presents both challenges and opportunities for insurers, acting as both data holders (of customer information) and data users (when leveraging that data for risk assessment and product development).

RoleImpact
Data Holder
  • Increased Customer Control: Customers gain greater control over their data, including the right to access, rectify, or erase their personal information held by insurers. This necessitates robust data governance practices to ensure easy access and fulfillment of customer requests.
  • Transparency and Consent: Clear communication becomes paramount. Insurers must inform customers about the data they collect, how it’s used, and with whom it’s shared. Additionally, they need to obtain secure and explicit customer consent before collecting or utilizing personal information. Building trust through transparency is key.
  • Data Portability: The ability for customers to easily transfer their data to other insurers can lead to increased competition. Insurers with a strong customer focus and efficient data transfer processes may attract customers seeking a seamless experience.
Data User
  • Potential Data Silos: Restrictions on data collection and use could limit the types of data insurers can access. This might hinder their ability to develop highly personalized risk assessments and products.
  • Investment in Data Governance: Compliance requires investment in data governance practices, data security measures, and potentially adjustments to data collection procedures.
  • Focus on Anonymized Data: Insurers may need to explore ways to leverage anonymized data sets for broader insights while adhering to privacy regulations.
Overall Impact
  • Customer Centricity: The Data Act fosters a more customer-centric approach. Insurers who prioritize transparency, respect for data rights, and provide value-driven services will likely thrive.
  • Innovation: While the Data Act might initially restrict data access, it can also spur innovation. Insurers may explore new ways to leverage anonymized data sets or collaborate with third parties to access broader data sources while adhering to regulations.
  • A More Secure Data Environment: The Data Act, coupled with DORA’s cybersecurity requirements, strengthens data security within the insurance industry, ultimately protecting customer information.

Table 1 EU Data Act Expected Impact for Insurers

While compliance with the Data Act requires investment in data governance practices, it also presents an opportunity to build trust and transparency with customers.

Customer Control at the Forefront: Transparency and Access

The Data Act places customer control of personal information at the center stage. This translates to a clear shift in power dynamics. Customers gain greater control over their data, including the right to access, rectify, or erase their personal information held by insurers. This necessitates robust data governance practices within insurance companies. They must develop clear and accessible communication channels to inform customers about their data rights. Additionally, mechanisms need to be implemented for customers to easily access, rectify, or erase their data upon request.

Data Portability: Fostering Competition and Innovation

The Data Act introduces the concept of data portability. This empowers customers to easily transfer their data between insurance companies. This interoperability fosters competition within the insurance market. Customers can now leverage their data to seek better rates or explore alternative insurance providers with greater ease. Furthermore, data portability paves the way for innovation. Insurers with a customer-centric approach and innovative data analysis capabilities can attract customers seeking a seamless data transfer experience.

Transparency and Consent: Building Trust Through Clear Communication

The Data Act emphasizes the importance of transparency and consent regarding data collection and usage. Insurers must ensure clear communication with customers about the data they collect, how it’s used, and with whom it’s shared. This necessitates obtaining secure and explicit customer consent before collecting or utilizing their personal information. Building trust becomes paramount. By demonstrating transparency and respecting customer data rights, insurers can foster stronger relationships with their policyholders.

The Road Ahead: Embracing the Data Act for a Customer-Centric Future

While the Data Act necessitates investment in data governance practices and potentially adjustments to data collection procedures, it presents a valuable opportunity for insurers. By embracing these changes, insurers can build a competitive advantage in a customer-centric data environment. Transparency, clear communication, and respect for customer data rights become the cornerstones of building trust and fostering long-term customer relationships. The Data Act can act as a catalyst for innovation within the insurance industry, as companies explore new ways to leverage data with customer consent at the forefront, ultimately leading to the development of more personalized and value-driven insurance products and services.

FIDA: Unlocking the Power of Financial Data Sharing

Building upon the Data Act’s principles, FIDA proposes a specific framework for data sharing within the financial sector.

FIDA, the proposed Financial Data Access regulation, stands as the missing piece in the EU’s data governance puzzle for the insurance industry. While the Data Act empowers customers and DORA strengthens cybersecurity, FIDA paves the way for secure and controlled data sharing within the financial sector. This creates a dynamic ecosystem where insurers can leverage a broader range of data to enhance risk assessment and develop more personalized products, all while adhering to strict data security and privacy regulations.

FIDA, while requiring investment in data sharing infrastructure, holds the potential to unlock a new era of innovation and personalization in the insurance industry.

Building Secure Data Highways: APIs and Standardized Formats

FIDA mandates the establishment of secure APIs (Application Programming Interfaces) to facilitate controlled data exchange between authorized parties. These APIs act as secure data highways, enabling insurers to share customer data with other financial institutions or authorized third-party vendors. FIDA may also introduce standardized data formats to ensure seamless exchange across different institutions. Imagine a universal language for insurance data, allowing for easier integration and analysis. This not only simplifies data sharing but also strengthens data security by ensuring all parties understand the format and can implement appropriate safeguards.

Enhanced Risk Assessment: A New Era of Data-Driven Underwriting

By enabling secure access to a broader range of data sources, FIDA empowers insurers to move beyond traditional risk assessment methods. Imagine incorporating anonymized data on driving habits, health information (with explicit customer consent), or smart home device usage to create a more comprehensive picture of an individual’s risk profile. This data-driven approach allows for a more accurate assessment, potentially leading to fairer pricing and the development of innovative insurance products tailored to specific customer needs.

Collaboration and Innovation: Fostering a Data-Driven Future

FIDA fosters collaboration and innovation within the insurance industry. With secure data sharing mechanisms in place, insurers can explore partnerships with data-driven companies. Imagine collaborating with a telematics company to develop usage-based car insurance or partnering with a health and wellness app to offer customized health insurance plans. FIDA facilitates these collaborations, allowing insurers to leverage expertise and data from other sectors to create a more dynamic and competitive insurance landscape.

The Road Ahead: Embracing FIDA for a Secure and Personalized Future

While FIDA implementation requires insurers to invest in data sharing infrastructure and adapt to new compliance requirements, the potential benefits are significant. By embracing FIDA, insurers can unlock a new era of data-driven innovation, fostering a more secure and personalized insurance experience for their customers. The journey involves exploring the potential of secure data sharing with authorized partners, developing APIs to facilitate controlled data exchange, and potentially collaborating with new players in the data-driven ecosystem. FIDA, alongside DORA and the Data Act, paints a picture of a future where secure data practices fuel a more competitive, customer-centric, and innovative insurance industry.

Embracing the Challenge: A Roadmap

While compliance requires effort, it presents a valuable opportunity for insurers to build a future-proof data strategy. Here’s a high-level roadmap to navigate this transition:

Establish a Data Governance Framework:

  • Conduct a comprehensive data inventory to understand what data is collected, stored, and used.
  • Develop clear policies and procedures for data collection, storage, access, and deletion in line with the Data Act.
  • Appoint a data governance officer to oversee compliance and data security practices.

Strengthen Cybersecurity Posture:

  • Conduct a thorough risk assessment to identify vulnerabilities in IT systems and data infrastructure.
  • Implement DORA-mandated measures for incident reporting, management, and business continuity planning.
  • Invest in cybersecurity training for employees to raise awareness of cyber threats.

Empower Customers with Data Control:

  • Develop clear and accessible communication channels to inform customers about their data rights.
  • Implement mechanisms for customers to easily access, rectify, or erase their data as outlined in the Data Act.
  • Consider offering customer data portability options, allowing them to transfer data to other insurers if desired.

Prepare for Secure Data Sharing (FIDA):

  • If FIDA is implemented, explore the potential benefits of secure data sharing with authorized third parties.
  • Invest in developing APIs (Application Programming Interfaces) to facilitate secure and controlled data exchange.
  • Collaborate with industry partners to define standardized data formats for seamless data sharing.

How an API Marketplace Can Empower Compliance

The EU’s data regulations – DORA, the Data Act, and the proposed FIDA – present a complex landscape for insurance companies navigating compliance. However, an API Marketplace can emerge as a strategic asset in this journey, streamlining processes and fostering secure data practices.It streamlines secure data sharing (FIDA), promotes standardization and interoperability, fosters innovation through access to diverse data sources, and can even offer features to support compliance with the Data Act’s transparency and consent requirements. By embracing API Marketplaces, insurers can gain a strategic advantage in this evolving regulatory landscape, paving the way for a more secure, data-driven, and customer-centric insurance future.

Facilitating Secure Data Sharing (FIDA)

FIDA mandates secure data sharing with authorized third parties. API Marketplaces act as a natural fit for this purpose. They provide a platform for insurers to discover, connect with, and utilize pre-built, secure APIs offered by various vendors. These APIs can streamline the data exchange process, ensuring compliance with FIDA’s security requirements. Imagine an API Marketplace acting as a secure online marketplace where insurers can browse and select pre-vetted APIs for data exchange with authorized partners.

Standardization and Interoperability

Marketplaces can play a crucial role in promoting standardized data formats across the insurance industry. By offering APIs that adhere to these standardized formats, they ensure seamless data exchange between insurers and other financial institutions. This eliminates the need for custom data mapping and reduces the risk of errors during data transfer, a critical aspect for accurate risk assessment and product development. Think of standardized data formats as a common language for insurance data, ensuring everyone understands the information being exchanged. Marketplaces that promote these formats foster interoperability and simplify data sharing within the ecosystem.

Discovery and Innovation

Beyond facilitating secure data sharing, API Marketplaces act as a hub for innovation. They allow insurers to discover a vast array of data-driven services offered by third-party vendors. Imagine a marketplace brimming with innovative APIs – from telematics data providers to health and wellness apps. Through these APIs, insurers can gain access to a wider range of data sources, empowering them to develop more personalized and data-driven insurance products. Marketplaces act as a bridge, connecting insurers with the data and expertise they need to stay ahead of the curve.

Transparency and Consent Management (Data Act)

While not core functionalities of every Marketplace, some platforms offer features that can aid compliance with the Data Act’s transparency and consent requirements. These features might include tools for managing customer consent for data sharing with third-party vendors. Imagine a marketplace offering a consent management tool that allows insurers to easily obtain and record explicit customer consent before sharing data via APIs. By leveraging such features, insurers can demonstrate transparency and respect for customer data rights, fostering trust and aligning with the Data Act’s principles.

Conclusion

The EU’s trio of data regulations present both challenges and opportunities for insurance companies. Compliance efforts will require investment in cybersecurity, data governance, and data sharing infrastructure. However, the potential rewards are significant. By embracing these regulations, insurance companies can build a more secure data environment, empower their customers, and unlock innovative business models that drive a more competitive and customer-centric future. Leveraging an API Marketplace can be a strategic asset in this journey, facilitating secure data sharing, promoting standardization, and fostering innovation in the insurance data landscape.

Author: David Roldán Martínez. Get in contact for more information.