There has been increased discussion around the revised payment service directive (PSD2) and its influence on the European banking and fintech environment. In a nutshell, banks have to provide standardised non-discriminatory access to customers’ bank account (XS2A) to third party providers, always supposing the consent of the end customer. Following PSD2, the third party providers (TPPs) will be supervised by the federal banking authority (in Germany BaFin) and will be divided into two different groups:
- Account Information Service Providers (AISP), being able to access the banking transactions and information;
- Payment Initiation Service Providers (PISP), being allowed to trigger a payment transaction out of the bank account of customers.
Beyond the frequently discussed use-cases of personal finance management apps (PFM) from fintech startups and multi-bank aggregation possibilities for incumbent banks, there are also several entry points for insurance businesses. In the following blogpost, we want to highlight examples of innovative use cases and how insurance businesses can benefit from PSD2 and the usage of banking (transaction) data.
Insurers have the opportunity to develop hyper-personalized, customer-centric products using PSD2. By accessing customers’ bank accounts, insurers can get a near “real-time” (anonymous) overview of the buying behavior of a representative amount of consumers. With this collected information, it would be easier to identify which risks or opportunities are worth insuring (e.g. is it worth to “build” a drone or bike insurance). Additionally, consumer trends can be recognized early on (much earlier than through public market studies) and products can be developed and be ready to enter the market as soon as demand arises.
Administration of Insurance Policies
Insurers can also take a more proactive approach regarding administration and policy maintenance. With XS2A, insurers (and digital insurance broker apps, like Clark) can identify existing insurance contracts automatically (through monthly/annual payment of insurance premium) and see which insurance, annual price and, perhaps most usefully for brokers, which policy a customer currently holds. Furthermore, insurers can detect changes in life circumstances (e.g. moving, having a baby, changing /starting a job) that have an influence on existing policies, so called mid-term adjustment (MTAs), and react to the information by approaching customers first to confirm the changes and present adjusted policies.
Consultation & Sales
Based on the results of the existing insurance situation of customers, insurers can show existing coverage, identify gaps, and make active suggestions for improvements. Additionally, one can see pre-existing insurance policies – from other insurers – that are near expiration and up for potential renewal. For example: home content insurances typically cover a maximum amount of valuables. Using banking data, banks and insurance brokers can make sure clients are always sufficiently protected – bypassing unnecessary meetings with brokers. Moreover, triggered by specific payment events related to individual purchases, insurers can approach customers at the “point of payment” and offer specific insurances (e.g. item insurance can be offered when a MacBook or eBike has been bought).
Through a cooperation between banks and insurers, so-called “bancassurance”, insurers could integrate their services directly into banking interfaces (e.g. through push notifications within banking apps or web-pages, one can directly hint at insurance opportunities present in the transaction history), meaning customers can manage all insurance and banking actions through one portal.
In relation to the underwriting process, insurers can also collaborate with banks when it comes to onboarding. The identification process in banking is more restricted and has higher regulatory requirements. Once a customer is fully identified by a bank, the bank could share this information with the insurer – subject to customer consent. This would eliminate the need for additional identification and reduce unnecessary repeated input by customers. Examples where this could prove valuable are in health insurance and financial lines. With the XS2A, insurers would be able to generate beneficial information on credit worthiness and other rating parameters of customers. Credit worthiness is typically an indicator or proxy of how incentivized a customer is to enable other “income” sources. This information is important and helpful to identify potential fraud – and not only at a specific point, but also in terms of ongoing monitoring. Without XS2A, gathering this KPI for the sales-process is too costly and not possible for ongoing renewals.
For the claims process, banking transaction data can add value to both customers and insurers. During the submission of a claim, a customer could select the specific payment entry as an evidence of ownership and existence (e.g. after a fire damage, properties are lost). Normally, a customer would have to prove lost items/valuables by handing in invoices, but there is always more risk involved in physical evidence (e.g. paper invoices could be burnt in the case of a fire). For consumers, this can reduce manual work and speed up claims payout. Vice versa, XS2A is also helpful for the insurance in the regard of validation and fraud detection to not payout non-existing or overvalued goods.
As the above use cases highlight, PSD2 is a huge opportunity for insurers as well as insurtechs. It offers banks the potential to hugely increase their offerings for their customers and increase satisfaction levels. For insurers and insurtechs, it provides the opportunity to engage more closely with their customers at the time when risk coverage is most desired due to purchases or changes in a customers living situation. Insurance providers, like ELEMENT or online brokers, like Clark, are already working on these use-cases and realising the impact PSD2 has on the insurance market and for customers towards a more user-centered, seamless banking and insurance experience.
ELEMENT is a digital insurance platform and was founded in March 2017 by the Fintech company builder FinLeap. ELEMENT offers insurance solutions in the areas of property insurance, accident insurance and liability insurance, as a fully licensed BaFin risk carrier. With its “insurance-as-a-platform” approach, ELEMENT enables its partners from many sectors (e-commerce to traditional insurers) to create individual and fitted insurance products for their end customers.