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  • Writer's pictureDermot Butterfield

Leveraging Open Data: A Path to Ethical and Transparent Insurance Practices

ethnically diverse group of tradespeople, business customers, and regular consumers interacting with insurance professionals.

In a stark reminder of the potential pitfalls in customer loyalty schemes, a lawsuit filed against insurance giant IAG has exposed a practice known as "loyalty uplift," where loyal customers were allegedly targeted with inflated premiums. This case underscores the critical need for transparency and fairness in the financial services industry, especially in sectors like insurance where trust is paramount. The allegations that IAG used a computer algorithm to manipulate premiums, rewarding disloyalty while exploiting loyalty, have sparked widespread concern. How can such situations be avoided in the future? The answer may lie in the power of open data and the use of APIs (Application Programming Interfaces) combined with predictive analytics.

The Role of Open Data in Insurance Transparency

Open data enables the seamless exchange of data between financial institutions and third-party service providers. In the context of insurance, open data, delivered through APIs can foster a more transparent, competitive, and customer-centric environment. By allowing customers to access and share their data securely with authorised third parties, insurers can no longer hide behind opaque pricing strategies.

Enhancing Customer Trust Through Open Data

  1. Real-Time Data Access: Open data can provide customers with real-time access to their insurance policies and premium calculations. This transparency allows customers to understand how their premiums are determined and to verify that loyalty discounts are genuine and not a façade for inflated base rates.

  2. Easy Comparison Shopping: With open data protocols, customers can effortlessly compare insurance products across different providers. Third-party apps can aggregate and analyse this data, offering personalised recommendations based on the best value for the customer's specific needs and risk profile. This makes it harder for insurers to engage in deceptive practices like "loyalty uplift."

Predictive Analytics: A Tool for Ethical Customer Engagement

Predictive analytics can be a game-changer in ensuring fair treatment of insurance customers. By analysing vast amounts of data, insurers can predict customer behaviours and needs more accurately. However, this powerful tool must be wielded ethically.

  1. Identifying True Loyalty: Predictive models can help insurers identify customers who exhibit genuine loyalty through long-term engagement and low-risk profiles. Instead of exploiting these customers, insurers can offer tailored benefits that reflect their loyalty and risk, ensuring they are rewarded fairly.

  2. Risk-Based Pricing: Predictive analytics can ensure premiums are based on accurate risk assessments rather than manipulative pricing strategies. This would involve continuous monitoring of customer data to adjust premiums dynamically, providing a fairer and more responsive pricing model.

Implementing Ethical Standards with Technology

To avoid future incidents like the IAG case, financial institutions and insurers need to adopt stringent ethical standards in their use of technology.

  1. Regulatory Oversight: Regulators must enforce strict guidelines on the use of predictive analytics and data-driven pricing. This includes regular audits to ensure compliance and prevent unfair practices.

  2. Consumer Education: Educating consumers about their rights and the functionalities of open finance tools can empower them to make informed decisions. Awareness campaigns can highlight how to use open data to compare insurance products and understand premium calculations.

  3. Collaborative Platforms: Developing collaborative platforms where insurers, regulators, and consumer rights groups can share insights and develop best practices can foster a more ethical and transparent industry.

A Global Perspective:

Expanding on the potential of open finance, adopting open standards and aligned solutions for the underlying technology could significantly lower the barriers to entry and foster innovation. In Australia, New Zealand, and the UK, where the adoption of open banking has faced challenges due to high implementation costs, due to providers taking a bespoke approaches to implementation and their aging underlying technology. An off-the-shelf SaaS approach could democratise access to these technologies.

Australia: While the CDR applies in the banking industry, it does not currently extend to the insurance industry. Before designating the general insurance sector, the government intends to conduct a separate sectoral assessment and consult with the insurance industry. Disappointingly, the continual slipping of CDR designation dates for NBL, telco, and insurance means that consumers continue to experience unnecessary costs and reduced competition. The ACCC and Treasury should recognise the fear mongering of industry bodies and trade groups about the risk or costs of open data is an acknowledgement that if their customers could see what they were doing, their customers would go elsewhere.

New Zealand's Approach: In New Zealand, the push towards open banking has seen its four major banks—ANZ, ASB, BNZ, and Westpac—mandated to support secure payments through open banking by 30 May 2024. This move aims to enhance competition and provide consumers with better financial services. However, the staggered rollout of data-sharing services highlights the need for a unified and accessible tech stack that all institutions can adopt swiftly.

Focusing the Scope of CDR on Consumer Insurance Products

It has been argued that commercial lines of insurance are predominantly sold through intermediaries such as insurance brokers, who provide regular comparisons of commercial insurance products within the market and enable business clients to easily switch policies. As such, it is believed that the CDR would not provide any additional benefits to business clients that are not already available to them, to offset the administrative burden. For this reason, the ICA does not see a compelling case for expanding CDR to professional indemnity and other commercial lines of insurance.

With that said innovation won't happen if we believe there is no innovate to happen. For example a business or trades person who has to share their Certificate of Currency (CoC) as part of a project or contract would argue that sharing access to their Certificates would be more preferable than emailing documents. From the project side, the insurance policy could expire or be cancelled after the audit was completed, or the coverage reduced. Automated validation of the CoC among other innovations is a clear benefit that is not considered because as an industry insurance isn't necessarily open to embracing an Open Data ecosystem.

A Call to Action

The lawsuit against IAG whether accurate or not serves as a cautionary tale about the perceived misuse of customer data and loyalty. To build a more transparent, ethical, and customer-friendly insurance industry, embracing open data protocols and predictive analytics is essential. By leveraging open data and ensuring ethical use of predictive models, insurers can restore trust and offer genuine value to their customers.

Implementing an open data approach globally could accelerate the adoption of open banking and finance, fostering innovation and competition. This strategy would not only benefit consumers but also drive the financial services industry towards a more transparent and equitable future.

The time for change is now. Financial institutions must step up and harness these technologies responsibly, ensuring that they serve the best interests of their customers. Only then can we avoid repeating the mistakes of the past and build a more trustworthy financial ecosystem.


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