Open Banking Brings Insurance Industry Closer to Instant Payouts

The groundwork is being laid for the movement of the insurance industry fully into the digital age.

One Inc. Chief Product Officer Sarah Owen told PYMNTS in an interview that insurers and banks are modernizing their legacy and back-office systems to embrace the steady drumbeat of open banking.

As she told PYMNTS, “the world of insurance has gone through a massive transformation. It started with moving from old mainframes to … modernized core system providers.”

The modernization is aimed at delivering a streamlined consumer experience, where the goal is to make interactions as streamlined as possible, she said.

“If you think about the claims process, it’s something that can be pretty onerous, and it’s the time when the claimant or the insured relies on the carrier the most,” she said.

Having gone through an accident and worrying about a loaner while the car is in the shop can be a nerve-wracking experience. In the meantime, the carrier must work to determine if there’s a lien on the vehicle and if the car is salvageable or a total loss.

“There are so many steps in the process that any way we can make it simpler will create a better experience for the end user,” Owen said.

The Seamless Experience

An optimal experience is on the horizon, where — with everything in sync and firing on all cylinders — an insurer, working with a carrier, would be able to reach a policyholder through an agent without the individual consumer having to upload various documents (including their checking and routing number).

“They would simply log into their banking app or banking website, and then the carrier would be able to access the [bank-level] information to help the individual decide on the policy,” she said. “The policy would be enacted, and the consumer would be able to choose how they will pay — and if it’s through the checking account they can go ahead and leverage open banking to set that up. They can ‘set it and forget it’ with recurring payments, on a particular day of the month, and the experience is seamless.”

In this hypothetical example, the payments continue until the day the policyholder gets into a fender bender and the claims adjuster has determined a payout amount.

In that event, using the One Inc. platform — which processes premiums paid by the consumer and disbursements from the enterprises — consumers have elected that refunds are paid directly into the One Inc. wallet.

The rise of open banking and consumer-permissioned data “will allow insurance carriers to enhance that consumer journey,” Owen said

This seamless experience is fast becoming a reality. More than 90% of consumers have used open banking, whether they realize it or not, she said. Peer-to-peer (P2P) payment services such as Venmo and PayPal use banking authentication. Open banking simply codifies the standards of data sharing, as the Consumer Financial Protection Bureau ’s Section 1033 of the Consumer Financial Protection Act will have to be implemented by larger financial institutions by this time next year, with smaller banks to follow by 2030.

At a high level, with consumer-permissioned access to account information and spending patterns, insurers can create personalized insurance plans that, in effect, allow the relationships to grow as policyholders pass various milestones, from, say buying a house to starting a family, she said.

The Data Advantage

“This is the time that is about building the foundation” to have access to demand deposit accounts (DDAs), credit card accounts, debit accounts and payment wallets, she said. As is the case with any large corporation, insurance carriers are tackling the technological and engineering lift that comes with that access. Tapping into the One Inc. platform ensures that the carriers comply with payments regulations and that data is kept secure.

Payments are getting speedier, and insurance disbursements are moving toward instant status. The combination of open banking and real-time connectivity to the FedNow® Service and The Clearing House ’s RTP® network is displacing batch files and data transfers done at staggered intervals, Owen said. Consumers want the same experience they have with account-to-account payments and no longer have the patience to wait three days for ACH payments to settle. They expect push to debit, and they expect to be able to use their wallets for paying insurance premiums or for their payouts.

As Owen told PYMNTS, “the claims experience is the most important experience for the carrier to get right.”