Innovating insurance through the power of API-led connectivity
But, unlike banking, the t...
With $135.7bn in global investment, Fintech is clearly one of the most attractive sectors for disruptors and innovators.
But, unlike banking, the traditional Insurance industry proved itself to be more resistant towards disruption, which is not surprising, since one needs volume and scale for the probability models to kick in. In the end, it’s math and actuarial science that make it possible to earn on risks.
Mathematics, on par with industry regulations and all-pervading market coverage by industry “old-timers”, creates high entry barriers for new players. Ironically, the same factors also prevent traditional Insurers from showing significant YOY growth. This means that the companies need to optimise costs, find new market segments and offer personalised services that appeal to customers to stay profitable, and digital transformation is critical in delivering on these goals.
“Traditional business models are being challenged and not by innovation in insurtech per se, but by technology shifts in other industries”, says Mike Randall, CEO at Ricston (an IT consulting company working with fintech). “Let’s take automotive, which was traditionally hard to disrupt. Technology innovation and the increase in IoT led to the ability to gain far more data inputs from vehicles. Given an ability to connect with these data sources, one could better assess risks and therefore drive premiums to the most relevant demographic“, he explains. “That’s a significant opportunity for insurance companies, allowing them to offer competitive rates, but also causing the industry to rethink their technology stack. Some of our clients recognised the need for such digital transformation early on and turned to an API-led connectivity approach, harvesting the first results today ”, Mr Randall concludes.
For instance, multinational insurance provider Zurich Insurance is utilising the benefits of an API-economy by creating easy to use, purposeful APIs for their partners and customers to integrate their risk management systems and share data and information together.
And it is not only B2B integration that can benefit an insurance company. APIs can also be used internally to connect backend systems to streamline business management processes and raise efficiency across all subsidiaries worldwide.
"When you operate a diversified global business obtaining a 360 degree view of your customer base is very challenging", explains Kevin Jervis, CTO at Ricston; he continuous, "risk profiles and calculations associated with insurance products, and therefore, quotes and prices will vary depending on which geographic region of the business is handling an account, furthermore, subsidiaries may use different back-office systems". Jervis argues that "one of the solutions is to create a micro-services architecture to enable a common CRM to 'source' data from disparate systems and streamline federated quote-to-cash processes; for instance, the broad connectivity and data sourcing capabilities of MuleSoft's Anypoint Platform are being successfully utilised to enable process automation and end-to-end visibility in Salesforce today".
Public insurance companies, such as icare, are focusing on unlocking their legacy systems and radically redefining end-user experiences to meet mobile-centric market demand. Kevin Jervis explains that this is also achieved with an API-led connectivity approach, “where APIs are used to wrap the core system complexities and enable the orchestration of processes to expose the required data to the consumer”.
Meanwhile, shifting global economics and demographics, rising customer expectations and changing digital environment cause significant challenges and create additional pressure for the companies to become more adaptive.
“The need to adapt and adapt fast becomes crucial for traditional finance industry stakeholders, we’ve put our bet on API-led connectivity approach and are working towards achieving a composable enterprise vision ”, says Mr. Randall.
For more information on all topics for FinTech, please take a look at the latest edition of FinTech magazine.
What are the costs of preventing financial crime?
The survey of 300 financial crime decision-makers working in the financial services sector in the UK, found that on average, organisations spent £53 annually on financial crime defence for each customer relationship they have.
Andrew Jacobs, head of regulatory consulting at DWF, said: "Responses to the survey indicated that firms with a revenue of around £10m per year are likely to spend in the region of 1.72% of total revenue on financial crime prevention and deterrence. Larger firms are typically spending less than 1% of total revenue to fight financial crime, particularly those with l revenue of £50m or greater. As a cross-section of the Financial Services sector, this tells us that proportionately, smaller firms are spending a greater share of their turnover on financial crime prevention.
"Conversely, firms with greater revenue (£10M plus) are clearly spending most of their financial crime spend on human resources, with over 32% of annual spend being on Financial Crime roles, compared to those firms with a turnover up to £500,000 for whom Financial Crime roles never exceeds 27% of total annual financial crime prevention spend. This figure and our wider analysis shows us that Human Resources continue to be one of the most effective ways of detecting human behaviour linked to Financial Crime activity.”
UK spending on financial crime roles
At the end of their reporting periods, respondents said there was an average of nine full-time employed UK staff within their firm performing financial crime roles, spending an average of 46 hours of employee time per week monitoring transaction alerts and reviewing screening alerts. The analysis also showed that every additional 10 hours spent weekly on monitoring transactions and reviewing alerts, result in an additional 1.5 Suspicious Activity Reports (SARs) raised internally.
Technology is key to increasing financial crime detection and prevention, but it is also a significant factor in driving up costs and staff workload. Respondents highlighted that over the last 12 months, £76,000 was spent on financial crime prevention technology, per firm. They also stated that they expect their firms will spend around £800,000 on crime prevention technology in the next five years. Technology usage is widespread – with 82% of firms using an automated system to screen clients and 84% employing transaction-monitoring software for Anti-Money laundering (AML) and sanctions detection.
"The statistics tell us that because technology generates more alerts and highlights more potential risks, it also requires more time on follow-up investigatory work, but exactly how much is created is dependent on whether firms have correctly calibrated their systems. There is the real danger that poorly aligned alert systems simply create a cottage industry within a firm," said Jacobs.