Digital transformation in insurance: APIs, platforms, and digital ecosystems

The new kid in town – API on the rise

Even before the existing COVID-19 pandemic, Application Programming Interface (API) related topics in insurance became a hot topic in 2019. Several insurers, such as La Parisienne and Slice, showcased API-based ready-to-use insurance products for the European market. In Germany, One Insurance proved that the “API only” model (pure digital, without owning direct sales channels) can work. And finally, market analysts Celent concluded that API strategies are a key priority for European insurers.

We too, were in the thick of it as we wanted to share our experience by joining the discussions across Europe with topics tightly connected to APIs in insurance. At Global Insurtech Roadshow we planned to discuss API platform ecosystems and wanted to tackle the importance of APIs to drive and expand distribution channels at DIA Amsterdam in June. 

As it became evident that the pandemic will only accelerate the digitalization of the industry, the API topic became even more relevant. In this post, I will look at the broader trend of platforms, the role of APIs and how they play out in the insurance industry. In the follow-up articles, we will discuss what API compliance means for insurance companies and investigate the details of what Adacta is doing in this space. Spoiler alert: with our “out-of-the-box API” functionality, API is at the heart of our AdInsure platform.

APIs are the core of every digital strategy 

Digital transformation has made it possible to scale up things that used to be difficult to expand. Partnering, integrating or reselling used to require hard work by everyone involved. As a result of digital transformation, an increasing share of business processes is digital so these things can be done far more quickly and more efficiently. 

Despite being around for decades, APIs are gaining momentum in insurance. The reason – InsurTechs. Essentially, APIs are software instructions and standards that expose certain functionalities or data within your company to others. Take the example of Google Maps. Google Maps are not only a mobile app but also a service accessible via APIs which are used by thousands of companies and individuals.

We are living in the era of the platforms and ecosystems 

However, APIs are just the beginning. They are the foundation for building ecosystems, using platforms as building blocks that are driving seismic shifts across industries. Uber, Airbnb, and Amazon are the most well-known companies that are based on platform business models.

Uber provides a marketplace connecting millions of drivers and users and exposes its own services as APIs so they can be easily integrated into other applications and solutions. At the same time, Uber also aggregates and orchestrates third-party services and relies on other companies’ APIs for a multitude of other functions; instead of creating its own maps, Uber uses Google’s API. Payments, receipts, and messaging are also carried out by external APIs.

Uber is a powerful example of how to build a scalable and effective platform, and how to leverage third-party APIs to create an ecosystem that provides a truly valuable service and experience to users. Whenever I am abroad, I am a happy Uber user.

Benefits of deploying APIs

As we know, APIs have facilitated new business models across non-insurance industries – they help form new partnerships, increase revenue, improve time to market, develop new business channels and extend reach, access new markets, open up new revenue streams. 

It is no wonder then that APIs became a hot topic in insurance and are topping the priorities of carriers across the globe. A Celent study notes that APIs are increasingly becoming the number one approach to transforming insurance carriers’ systems – in Europe, 50% of insurers intend to build their own ecosystem using APIs. 

The early adopters of API in insurance 

When looking at the state of API in Insurance, it is important to look at digital transformation models. The first step, the easiest and most straightforward way to transformation is to look at existing business relationships and create APIs to facilitate existing interactions. In insurance, this means creating APIs that serve your agents or aggregators, banks, your service providers – essentially, you use APIs to create a simple ecosystem that automates and facilitates processes that fuel existing relationships.

The next step in creating ecosystems is to look outside of existing relationships. To look at any interaction where insurance might generate value. For example, retailers selling insurance for things customers buy from them or financial services that include insurance to mitigate risk. Even smart home security providers may benefit from adding insurance to their offering. 

Several companies focus on offering extensive APIs for others to resell. Qover and La Parisienne focus on making the integration of their offering seamless and frictionless. They are great examples of how ecosystems can be scaled in the digital era using APIs. 

Lemonade is the most well-known fully digital insurance company that I call an “API native”. This term is used for a type of insurers that do not have any physical presence, who offer clients the ability to do everything using an online portal or a mobile app while also offering APIs so they can be integrated with the broader ecosystem. Some API natives do not even own sales channels but rely on API-based distribution channels. 

An API platform is more than connecting distribution channels

A true platform, however, is more than exposing the APIs. A true platform also needs to connect as many people as possible to the APIs, which is done through a marketplace. A simple marketplace is basically just a way to extend your ecosystem strategy. As you make your APIs available, you can look for ways of monetizing them – you could adopt a commission model, get customers to pay or offer them for free among many other options.

A more advanced marketplace would include APIs from other providers. These might participate because they want access to your customers, or you might involve them because your customers need their services and would be best served through a common platform. 

An example would be Wefox digital broker platform, which connects brokers, carriers, and customers. This makes them a potentially disruptive market force that will dictate the direction of insurance innovation in the future.

Legacy technology – the key obstacle on the way towards the API-based future*

If APIs can solve all of life’s toughest challenges of insurers, why are they not embraced fully by traditional carriers? Why don’t they leverage the enormous upsides of going API?

While digital insurers are API natives which means they are ready to leverage APIs full potential, traditional insurers are struggling with technology. The legacy IT systems are inflexible, resistant to change and not designed for the digital economy. Making legacy “digital-ready” means building API layers which is costly, time-consuming, and not competitive when compared to insurers that run modern core systems where APIs are built into the very design of the systems.

*To be exact, obstacles are legacy technology, the absence of standards, and lack of strategic imperative.

The current state of API is just the beginning 

By using APIs, digital insurers abstract processes and products to scale up the partnering processes. Instead of generating individual integrations, APIs provide a standard way to onboard new partners. APIs also drive innovation. They make it possible to integrate and work with innovative InsurTech start-ups and allow external developers to tap into the functionalities of an insurer’s system to create and deliver new user experiences. 

All of this reflects the reality that succeeding alone is becoming increasingly difficult. Doing everything on your own means you are wasting valuable resources by reinventing the wheel instead of focusing on your core competencies. By investing in developing an ecosystem of customers, partners and sometimes even competitors, insurers can extend their reach and offer more valuable services than ever before.

How will insurance evolve and look like in the future?

The digital natives show a path that traditional insurance companies must embark on to remain competitive in the digital ecosystem-based future: first opening insurance products via API. Second, participating in platform ecosystems.

McKinsey predicts that industries will converge to build cross-sector ecosystems that will account for 30% of global revenues by 2025. To participate in these ecosystems, insurance companies must become fully open and digital. They need to offer insurance products and later on even more specific insurance services. See Figure 1. 

In terms of digitalization and technological advances, European insurers lag behind China. In 2018, I had the opportunity to listen to Jonathan Larsen, Ping An’s Chief Innovation Officer for the first time. Already back then, my takeaways from his story were: 

• Digitize everything.
• Start with distribution channels. Have the technology ready to replace physical channels with hefty margins.
• Use AI to automate processes such as underwriting.
• Put technology in the cloud and offer it to other companies and industries.

Invest in the ecosystem mindset or even build up non-insurance related ecosystem technologies such as health management platforms, etc.

The example of Ping An provides some insight into the possible roles of an insurer within the ecosystem. It is difficult to predict whether European Insurers will be able to build platforms to transform business models as we see in other industries. While today, we are mostly at the level of existing partners and API access to insurance products, real transformation requires going outside of insurance competencies and building enough technological capabilities. 

Insurers will need to invest properly to achieve the desired level of digital transformation to participate in these ecosystems and platforms of the future. And they will be facing stiff competition from outside their industry. The advantage could lie with big tech companies that have the means, reach and necessary technology - the companies that are already major players in the ecosystems. 

Adacta is closely monitoring this space and we have all your future needs fully covered – from API creation to using external data to automate decision-making processes. It does not matter whether you are an aspiring digital pure-play or a traditional insurer, our core insurance systems provide out-of-the-box API support that makes it easy to become an API provider. This paves the way for moving forward with digital initiatives and expanded services that deliver enhanced customer experiences.

What is an API?

An application programming interface is a piece of publicly available software providing services to other software.

What is an API provider?

An organization that exposes its data and capabilities through APIs.

What is an API platform?

An organization that exposes resources to other ecosystem partners to provide new business value. The key difference to a provider is that a platform brings together many distinct groups.

What is a Business ecosystem?

A collaboration of organizations from different industries that provides an interconnected set of services allowing users to fulfil a variety of needs in one integrated experience.

What is a platform (business definition)?

A business model in which participants interact, create, and exchange business value.