Tuesday, 17 January 2017

EU directive in 2018 to transform insurance

Looming EU payments directive to ‘fundamentally change’ insurance. Disruption likely to accelerate move by insurers teaming up with fintech providers

An EU rule called the revised payment services directive (PSD2) will transform insurance and banking, opening both industries to disintermediation from fintech firms by 2018.

That is the prediction of a leading authority on the subject, Ian Fraser, who has studied the directive’s implications. The Webhelp director of operations – financial services was speaking at a roundtable on customer-centricity in insurance, organised by Insurance Times, StrategicRISK’s sister publication.

Although the change is primarily directed at banks, Fraser says the PSD2 insurance implications will be huge when they come into force in 2018.

PSD2 a gamechanger

The new EU ruling will mean third-party providers – whether that be Amazon, Facebook, Google or any fintech challenger – will be able to access people’s bank accounts and transaction information.

In the past, banks were the sole custodians of customers’ banking financial information and transaction data.

But under the new directive, banks will have to provide third parties with access to customers’ bank accounts and transaction information via an application programme interface (API).

It means all customers will have to do is tick an online box and then tech-savvy firms can harvest their personal financial information to build specially-tailored products.

And Fraser believes that insurance is vulnerable because competitors can do the same in building bespoke insurance product once they have the data.

He believes that this directive will drive a big acceleration in insurance firms teaming up with fintech providers, meaning greater disintermediation in insurance.

There is also the possibility of data-savvy tech firms using APIs to set up their insurance companies, potentially working with reinsurers carrying the risk.

“It is going to fundamentally change banking and insurance,” Ian Fraser says.

“This will cause the insurance industry to become dis-intermediated.”

The directive will also cut out the middlemen in online transaction payments, meaning the customer gets a better deal as less intermediaries take a cut.

Fraser is not a lone voice on the subject, as both Accenture and PWC have written widely on the subject. Accenture believes it will be a big disruption factor in putting around 43% of retail banking payments revenue in the UK at risk between 2015 and 2020.

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