Updated: Nov 8, 2021
In the age of financial technology and next generation innovations, the insurance technology or insurtech segment is seeing strong acceleration. Innovations like API or Application Programming Interfaces are driving this expansion in scale and scope. What does API in insurance mean? API is one of the significant yet less leveraged technologies enhancing industry offerings by working behind the scenes to create a connected services ecosystem. APIs ensure that all the different components and stakeholders in the insurance ecosystem can communicate with each other and share data and information in a secure and standardised manner. Through APIs, which are inherently small pieces of code, digital devices, data servers, and software applications can communicate seamlessly, offering customers a unified front-end and efficient customer service.
Let’s understand how APIs work.
Assume that you have gone to a restaurant for dinner. Now, you don’t know the list of dishes that the chef can make for you. Even after you decide what you want to eat, you can’t really step into the kitchen and tell the chef what you want to eat. Imagine the chaos that would be created if everyone stepped into the kitchen to ask the chef what he could cook and then placed the order directly with the chef. What you need is a link to communicate your order to the chef in the kitchen and then deliver the food to your table when the order is completed. This is where the role of the waiter comes in. He provides you with a menu of standardized choices and shares your choice with the kitchen in order to fulfil your order. Once the food is made, the waiter delivers it to your table. In this case, the waiter is the API, i.e., the link to connect you to the kitchen and the chef.
There are many such examples of APIs in everyday life. For example, when you book a flight, you might log into an online travel portal. You choose a departure/return date and city, cabin class, seat and other variables like baggage requests, meal preferences etc. Now, the platform aggregates information from various airlines’ databases to see if any seats are available on the requested date and time and then share the estimated costs. In order to provide you with this information, the travel portal will leverage APIs to connect to the different airline databases, retrieve the relevant information, then share it with you in a standardised format. Again, just like the waiter, the APIs connect you to a wide ecosystem.
Role of APIs in Insurtechs
Insurance has been a traditional industry for long, fixed in its ways of working and processing data. However, with a technology revolution underway, the segment has also climbed aboard the tech bandwagon, albeit in a slow and measured manner. In the insurance industry, APIs can connect advisors to service providers and insurers to third-party platforms and other service providers. APIs in the insurance sector are largely distributed APIs which primarily focus on customer acquisition and distribution. However, increasingly, consumable APIs that enable insurance providers and other sectors to connect and provide enhanced offerings are also being explored.
In the case of distributed APIs, value can be enhanced in the following ways:
Easy claims processing: Insurers can combine the GPS functionality of mobile devices with third-party data available through APIs, to enhance the claims process for policyholders. For example, in the case of motor insurance, insurers can enable policyholders to send the location of a car accident, determine the timestamp, and share the photos of the damage seamlessly. The data submitted can be leveraged to pre-fill a digital claims form, arrange for medical support, and proactively initiate the claims process from the site of the accident itself.
Customised product offerings: Swathes of data is housed in the insurance ecosystem. Stakeholders in the insurance ecosystem can leverage tools like artificial intelligence (AI) and machine learning (ML) to analyse, process, and manage this data to create customised solutions for clients. APIs can enable this process by transferring data securely and quickly within the insurance ecosystem so that the relevant stakeholders can effectively harness it.
Enhanced risk assessment: APIs allow insurers to access disparate sets of data which can then be further harnessed to provide more intelligent risk evaluation, real-time fact-checking, reduce the underwriting time, and price premiums more effectively. For example, data generated by wearables can be used to measure an individual’s lifestyle and evaluate risk tolerance, thereby allowing insurers to incentivise low-risk behaviours.
In the case of consumable APIs, the biggest benefit is an opportunity to drive business growth. Inarguably, APIs have revolutionised the way insurers do business. Through APIs, insurers can tap into a wider range of businesses and sectors, partner with third-party providers, and gain access to new revenue channels. For example, an insurer can embed a transactional API into its partners’ website, mobile app, and other digital channels to offer insurance coverage to customers at the point of sale. As a result, home, travel, car, and several other types of insurance can be seamlessly integrated into customer journeys, thereby easing the entire sales and insurance lifecycle for the customer.
APIs can be implemented as public (available to all), partner (available to select associates), and private (only for internal use). Financial institutions new to API technology usually collaborate with partner APIs as these offer adequate guidance and support while also being more efficient and cost-effective when compared to creating a private API. There is strong consensus that insurtech APIs make the entire system simpler and more seamless with carriers enjoying maximum ROI.