How Open Banking and 1033 Compliance are Driving a Finance Revolution Across the U.S. Insurance Landscape
Open banking and payments are quickly becoming a requirement for on-demand insurance products in today’s economy. By leveraging various sources of data, open banking allows insurers and financial institutions to offer more personalized products, enhanced risk assessment and streamlined claims processes, all while giving customers greater control over their data. In the insurance industry specifically, open banking will likely drive widespread innovation through various core functions, including billing and collections, claims payments and other finance-related operations.
To realize this potential, insurance carriers must prioritize a connected systems architecture that seamlessly links underwriting, policy servicing and claims processes through a robust application programming interface (API) development suite. In turn, this will ensure efficient data flow to help fuel enhanced customer experiences.
The Benefits of Open Banking on the Insurance Value Chain
By integrating open banking, carriers can achieve enhanced platform agility, allowing them to respond quickly to regulatory changes, customer needs and market opportunities with minimal disruption. This model also contributes to higher customer satisfaction, as streamlined data sharing and API-driven connectivity enable more personalized services and faster response times.
The cost efficiency gained from reducing manual processes and improving data accuracy supports carriers in lowering operating expenses, making open banking a strategic fit for today’s insurance industry. The use of APIs to enable real-time access to underwriting, claims, payments and general ledger platforms are key to this success. However, special care must be taken to avoid operational and financial interruption — a crucial necessity in any digital transformation effort.
The urgency to embrace an open banking transformation strategy is amplified by the impending Dodd Frank 1033 regulation in the US. As a result of this legislation, carriers with greater than $10 billion in revenue need to comply by April 1, 2026. For additional information on Dodd Frank and the impact of Section 1033 on the US, read our perspective from EPAM’s Open Banking and Payments team.
The leading method that carriers can take to enhance consumer financial data rights is to build connected systems through API development and to create partnerships with emerging and established FinTech companies to share data securely. To secure data, FinTechs are built using APIs that deploy security protocols around Open Authorization and OpenID Connect, that comply with data privacy and security regulations, providing carriers with a standardized method to pass financial and policyholder data to third parties.
In turn, these third parties can leverage that data to provide innovation in personalized offers, dynamic pricing and integrated financial products. Likewise, insurance providers can leverage their open banking data and APIs to connect the core insurance systems of underwriting, billing and collections, claims, payments and disbursements and general ledger accounting to optimize these processes and improve the customer experience.
Using APIs and Innovative Partners to Enable Open Banking
In the US, the evolution of third-party open banking platforms providing API hubs continues to grow, with leaders like Finicity by Mastercard and Plaid leading the way. Globally, open banking API calls are forecast to grow 470% in volume in the next four years, from $102 billion in 2023 to $580 billion in 2027, representing a significant increase in usage. This will further enable real-time data exchange between customer banks and the carrier’s core underwriting, policy and claim systems, enabling carriers to make more informed decisions around risk profiling and premium calculations.
With robust API development in open banking, insurance carriers can facilitate instantaneous claim payments, dramatically improving customer satisfaction by shortening the time between claim submission and payment. By using real-time data connections, APIs enable immediate validation of claim information against a vast network of financial and insurance databases, helping ensure that payouts are accurate and reducing delays often caused by manual processing.
APIs can also enhance fraud-detection capabilities, allowing systems to analyze multiple data points in real-time to identify red flags such as duplicate claims, suspicious transaction patterns or inconsistencies in customer information. This layered, data-driven approach significantly increases the likelihood of identifying fraudulent claims and helps insurance carriers prevent losses from nefarious actors. APIs also provide transparency and traceability, as each interaction is logged, helping insurers comply with regulatory requirements while maintaining detailed records for future audits.
Live Connections to Underwriting and Policy Administration Systems
The integration of open banking into underwriting and policy-servicing platforms allows carriers to design and implement financial reporting structures that obtain real-time data from brokers, agents and policy-administration systems, allowing them to serve new and existing business on the fly. Real-time data flow simplifies the reconciliation of incoming and outgoing transactions between brokers, customers, claimants and third-party administrators. This results in a streamlined financial top-line (receivables) close process but also enhances compliance, regulatory and state reporting capabilities. It can also provide management with strengthened internal reports on carrier liquidity based on customer-payment schedules and delinquency rates.
Live Connections to Claims Systems
Claims management tends to represent the largest area of impact and degree of complexity on a carrier’s financial-transformation plan. By leveraging enhanced data flow through connected internal and external systems, open banking can improve data consistency and traceability from policy to claims and into finance. In turn, this will serve to enhance accuracy and compliance as core systems populate reports that are submitted to regulators. It also allows carriers to offer more flexible payment options to policyholders, including the ability to choose payment frequencies and customized payment schedules.
Within the next two years, carriers will need to enable instant payments to their policyholders. The core mission of the Dodd Frank 1033 regulation is to “give customers more control over their financial lives,” so the implications for the insurance industry are clear: The speed of claims payments must be enhanced to meet both customer and regulator expectations. As catastrophic losses from hurricanes, wildfires, floods and other natural events continue to impact the financial well-being of large populations of insureds, instant payments will help provide immediate relief from those suffering from losses.
Live Connections to Payment Systems and General Ledgers
As future demand for instant payments continues to have a positive outlook, there have been innovative players in the marketplace helping carriers make this a reality. Insurance payment vendors have designed the customer-payment experience by simplifying the application-and-claims process to reduce time, paperwork and manual entry required by the customer. Their prebuilt API connectors to core systems reduce development costs and implementation times incurred by the carrier. They also facilitate all advanced payment security and compliance requirements on their end, allowing for streamlined account-to-account (A2A) transfers that enable real-time claim payments, taking stress off the carrier.
Open banking can also serve as a revenue driver for insurance carriers. By developing partnerships with payment processors and other FinTech companies, carriers can earn additional revenue through referral, cross/up-sell and loyalty programs.
Note: Open banking is top of mind for Chief Financial Officers, as it can facilitate seamless integration between the general ledger and other core systems, ensuring streamlined financial reporting. This functionality plays a crucial role in forecasting a carrier’s capital adequacy, liquidity levels and solvency. It provides carriers with an edge in responding to state regulating bodies, allowing them to demonstrate they are advancing their internal systems to better protect the public.
A Challenging Transition
The transition to open banking is not without its challenges. It requires a comprehensive strategy that aligns the carrier’s finance function and business objectives with its core policy and claim platforms, a chosen payment provider and downstream connections to the general ledger and financial operations. It also necessitates investment in systems and processes to ensure regulatory compliance, including accurate and transparent billing practices, clear disclosure of charges and adherence to billing-related regulations.
The integration of open banking into the daily operations of insurance carriers is no longer a luxury, but a necessity. The target compliance date of April 1, 2026, for the Dodd Frank 1033 provisions is just under 18 months away. Simply put: The window of opportunity is closing fast. Insurance carriers must embrace the open banking revolution if they wish to stay competitive.
For more information on how to navigate this transformation, feel free to reach out to our Open Banking & Payments and Insurance experts.
