Open Insurance is coming! On 24 January 2022, the Treasury released the Consumer Data Right (CDR) Strategic Assessment Outcomes Report (Outcomes Report). The Outcomes Report recommended expanding Australia’s CDR to Open Finance. The recommendation follows the launch of open banking in Australia in 2020, and a number of reports concerning the expansion of the CDR including the First Interim Report of Australia’s Select Committee on Financial Technology and Regulatory Technology handed down in September 2020.
The proposals will bring together datasets from across general insurance, superannuation, merchant acquiring and non‑bank lending service providers. Open Insurance may soon be a reality and not just another buzzword.
What is Open Insurance?
Open Insurance generally refers to a concept which allows customer information to be shared between entities. The European Insurance and Occupational Pensions Authority (EIOPA) released a discussion paper in 2021 on Open Insurance. The discussion paper contains this definition:
EIOPA has considered open insurance in its work so far in the broadest sense, covering accessing and sharing insurance‑related personal and non‑personal data usually via APIs.
In other words, Open Insurance will allow insurance companies to exchange data about particular customers (such as what is insured and the claims experience) and allow this data to be sent easily between companies within the ecosystem.
Open Insurance is part of the ecosystem of Open Finance. The emergence of Open Insurance largely stems from the rise of open banking which has been rolled out in many countries around the world. Some key events in the evolution of Open Finance include:
- 2015: the European Parliament passed the Payment Services Directive (PSD2);
- 2016: the UK Competition and Markets Authority issued a ruling which required the 9 largest banks to allow licensed start‑ups to access transactional level data. A specific open banking implementation entity was created;
- 2018: the Hong Kong Monetary Authority issues the open banking framework for the Hong Kong banking sector;
- 2019: Australia passes the Treasury Laws Amendment (Consumer Data Right) Act 2019 (Cth) paving the way for the CDR;
- 2020: the Australian CDR launches;
- 2021: expansion of the CDR to the energy sector; and
- 2022: expansion of the CDR to the telecommunications sector and work begins to create Open Finance.
Check out our FinTech Pulse Podcast where we spoke with Brenton Charnley, CEO Australia & New Zealand at TrueLayer about Open Insurance.
Where are we currently at in terms of Open Finance?
The Outcomes Report provides some insight into the current state of Australia’s CDR.
The number of accredited data recipients (ADRs) has been steadily growing and there are now 26 ADRs, 11 of which are active. In November 2021, rules were made to implement the CDR to the energy sector. Expansion to the telecommunications sector is also underway and is set to be implemented during 2022. According to the Outcomes Report, Treasury undertook a rapid, high‑level assessment of sectors and datasets across the economy.
Treasury’s strategic assessment provided an opportunity to assess the most effective approach to successful CDR implementation across the economy. It also explored the evolution of the CDR and its potential utility in all aspects of Australians’ lives. Four policy objectives were identified to inform the future CDR rollout. These are:
- consumer benefits;
- competition and market efficiency;
- innovation; and
- safer and more secure data sharing.
Multiple sector designations?
According to the Outcomes Report, it is proposed that general insurance will be designated together with three other sectors, being superannuation, merchant acquiring and non‑bank lending service providers. It is expected this will enable the CDR to create a broader range of higher value use cases.
One example provided in the Outcomes Report was that key datasets in superannuation and general insurance could potentially support applications that provide consumers with a richer picture of their current and expected financial circumstances and enable them to improve their financial planning and key life decisions.
Specific reference to general insurance was made in the report, noting there might be a focus on ‘product/attribute data’ for general insurance to start with, as well as government held insurance data. Price comparator website Finder noted in its submission that home and car insurance were pressure points with high switching costs, and suggested priority be given to these insurance categories.
The Outcomes Report states that Treasury will prioritise a smaller mix of targeted datasets across these sectors which will enable the CDR to unlock a broader range of higher value‑use cases compared to expanding one sector at a time which has been the approach so far. Furthermore, the CDR has so far been limited to ‘read only’ access and Open Finance may hasten the progress to ‘read and write’ access, enabling transaction initiation.
Some concluding thoughts
While it is still early days, the coming months will influence how Open Finance rolls out. First phase assessment and designations are targeted for early 2022. Once designations are made, work will progress on defining the rules for this next phase of the CDR. Implementation of CDR initiatives, especially in larger institutions, can be a significant project.
Open Insurance has the potential to dramatically transform the way insurance companies conduct business, develop products and change the way customers interact with insurance products. It is exciting that Open Finance is finally coming. However, in shaping the development and implementation of Open Insurance, policymakers and corporates should have an open mind, not just replicating what Open Banking does but making it work for the insurance industry and the people it protects.