Bancassurance 2.0: Innovative Use Cases on how Insurers Can Benefit from Banking Data and PSD2
Bancassurance: There has been a discussion of the revised payment service directive (PSD2) and its influence on the European banking and fintech environment.
In a nutshell, banks have to provide standardized non-discriminatory access to customers’ bank accounts (XS2A) to third-party providers, always with the consent of the end-customer. Following PSD2, the third party providers (TPPs) want to be supervised by the federal banking authority (in Germany BaFin) and want to be divided into two different groups:
- Account Information Service Providers (AISP), being able to access 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 several entry points for insurance businesses. In the following blogpost, 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 risk or opportunity is worthwhile (eg it is worth to build a drone or bike insurance). Additionally, consumer trends may be early on (much earlier than public market studies) and may be ready to enter the market as soon as demand arises.
Administration of Insurance Policies
Insurers can take a proactive approach to administration and policy maintenance. With XS2A, insurers (and digital insurance broker apps, like Clark), which can be used as an insurance policy holds. Furthermore, insurers can make changes in the circumstances (MTAs), and react to the information
Consultation & Sales
Based on the existing insurance situation of customers, insurers can show existing coverage, identify gaps, and make active suggestions for improvements. Additionally, there are no 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 protected – bypassing unnecessary meetings with brokers. Moreover, insurers can approach customers at the “point of payment” and offer specific insurances (eg item insurance can be purchased when a MacBook or eBike has been purchased).
Through a cooperation between banks and insurers, so-called “bancassurance”, insurers could integrate their services directly into banking interfaces (eg through push notifications within banking apps or web-pages). , meaning customers can manage all banking and banking through one portal.
In relation to the underwriting process, insurers can it 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, 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 to be valuable in health insurance and financial lines. With the XS2A, insurers would be able to generate beneficial information on creditworthiness and other rating parameters of customers. Creditworthiness is typically an indicator or proxy of how to incentivize a customer.This information is potentially and fraudulently – and not only at a specific point. Without XS2A, gathering this KPI for the sales process is too costly and not possible for ongoing renewals.
For the claims process, banking transaction can add value to both customers and insurers. During the submission of a claim, a customer could select the specific payment. Normally, a customer would have to prove lost items / valuables by handing in invoices, but there is always more risk involved in physical evidence (eg paper invoices could be burned 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 with their customers at a time when risk coverage is due. Insurance providers, like ELEMENT or online brokers, like Clark , are already working on these cases and realizing the impact of PSD2.