The ‘strange and new opportunity’ for insurance from open banking
January 4, 2021 by Greg Meckbach
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If Canada proceeds with so-called “consumer-directed finance,” technology firms could potentially get access to consumers’ insurance data, a Microsoft Canada expert told brokers during a recent webinar.
The federal finance department appointed its Advisory Committee on Open Banking in 2018. The committee recommended in a January 2020 report that the federal government promote what it calls consumer-directed finance.
“Canada has chosen the term ‘consumer-directed finance’ for a reason, because it really articulates the fact that the consumer is going to be at the forefront of decisions,” said Don Klingspon, director of financial services for Microsoft Canada, during a webinar held Dec. 16, 2020, by Reuters Events.
“What it will mean, though, is the government will be telling banks and insurers whether or not to allow ownership of access to data for consumers. This would mean that insurers would have access to banking data, but fintechs would also have access to insurance data, so there is going to be a very strange and new opportunity to modify strategies,” Klingspon said during the webinar, Insurance in the Digital Age-The Future of Agents and Brokers.
“Consumer-directed finance more broadly encompasses financial products and financial data, and is not limited to banking,” Fasken lawyers Koker Christensen and Kathleen E. Butterfield wrote in an earlier blog post.
With the January 2020 release of the Advisory Committee on Open Banking report, the federal government announced a second phase of work. This second phase would examine the merits of open banking with a particular focus on data security, Christensen and Butterfield wrote.
Banking software vendor Portfolio+ Inc. explains on its website how consumer-directed finance would work.
“Once consumers authorize access to their data—either through an app or an online service—their third-party providers leverage secure online channels called application programming interfaces (APIs) to access financial data stored at financial institutions. These third-party providers can then use that data for creative and innovative new services and products focused on helping consumers better manage their personal finances,” wrote Stouffville, Ont.-based Portfolio+.
Open banking could allow financial service vendors to get a “holistic view” of their clients, including the distribution channels from which they typically buy, said Houston Cheng, actuary and senior manager at KPMG Canada, during his firm’s 2019 insurance conference.
With open banking, a person could give a fintech permission to look at a dashboard and view the information on their home and auto insurance, life insurance, investments, and their brokerage account for their registered retirement savings plans, said Justin Ferrabee, chief operating officer of Payments Canada, in an earlier interview with Canadian Underwriter.
Feature image via iStock.com/5432action
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So really, all this will do is create more opportunity for fraud. More people and companies will have access to your finances, leaving a
greater chance of theft. Sounds like a great plan, because,really, what could go wrong? Oh that is correct, everything.
The good news is that these new applications may completly wipe out all future E&O claims against brokers, agents and companies since the expertise now falls on the client.
I believe the main issue with direct distribution channels is not the actual application/portal. Thats very easy to do.
The issue is controlling what the public inputs into the applications, making sure the client knows exactly what he/she is purchasing and ensuring the inputs are 100% honest and truthful.
That will be a little bit tougher to create without completly breaching someones privacy. Perhaps connecting your insurance through your social media account may resolve that? Im not sure how many would go for it.
How do you ensure in a paper form when a person (agent, broker) is involved…that a user has input the info correctly? Whatever is done in the manual arena can be automated.
I agree with the commenter who eludes to making it more convenient for fraudsters and dark web denizens to take advantage when most of an individual’s financial data is available from a single source in aggregate.
The second problem is poor data quality reported by the insurance companies to the General Insurance Statistical Agency (GISA). It is difficult enough for trained insurance professionals to interpret some of the garbage reported by these insurers let alone a layman or even the most complex AI computer algorithms. Garbage in garbage out.
As long as the accessible data is not related to BI claims, criminal code convictions and other such sensitive and personal info then making available data such as expiry dates and the existence of home or auto policies could provide some marketing and consumer insights to these fintech platforms.
For this to be of benefit and a frictionless experience for all consumers then the regulators need to increase the penalties and compliance audit enforcement on insurers who choose to continually pay the minimal fines levied for rejected/inaccurate data rather than fixing their systems to report accurate information more consistently. Can you imagine your bank getting away with this? Fixing this issue would be a good step towards creating a one stop financial Nirvana in an app and allowing personal auto insurance to be sold to all consumers by all insurers 100% online as you can with many other consumer financial products today.