Open banking and payments are becoming essential for on-demand insurance products in today’s economy. By leveraging diverse data sources, open banking empowers insurers and financial institutions to deliver personalized products, enhance risk assessment, and streamline claims processes—all while granting customers greater control over their data. Within the insurance sector, open banking is poised to drive innovation across core functions, such as billing, collections, claims payments, and other financial operations.
To unlock this potential, insurance providers must focus on creating a connected systems architecture that seamlessly integrates underwriting, policy servicing, and claims processes through a comprehensive application programming interface (API) suite. This approach ensures efficient data flow, fueling improved customer experiences.
Open Banking’s Benefits for the Insurance Value Chain
Integrating open banking enables insurance carriers to achieve greater platform agility, allowing them to quickly adapt to regulatory changes, market opportunities, and customer needs with minimal disruption. This model also boosts customer satisfaction by facilitating personalized services and faster response times through streamlined data sharing and API-driven connectivity.
By reducing manual processes and improving data accuracy, open banking helps insurers lower operating costs. The strategic use of APIs to access real-time underwriting, claims, payments, and general ledger platforms drives these efficiencies. However, carriers must carefully mitigate operational and financial risks—a critical consideration in any digital transformation initiative.
The urgency to embrace open banking strategies has intensified with the upcoming compliance requirements of Dodd-Frank Section 1033 in the U.S. Insurance carriers with over $10 billion in revenue must meet these regulations by April 1, 2026. For more insights into Dodd-Frank 1033’s implications, explore our experts’ perspective at leancoded’s Open Banking & Payments division.
A key step in enhancing consumer financial data rights involves building connected systems via API development and forming partnerships with emerging and established FinTech companies. Secure APIs, compliant with Open Authorization and OpenID Connect protocols, ensure safe data sharing while meeting stringent privacy regulations. Third-party FinTech providers can then leverage this data to drive innovations in dynamic pricing, personalized offers, and integrated financial products. Meanwhile, insurance carriers can optimize core functions like underwriting, billing, claims, payments, and disbursements to enhance operational efficiency and customer satisfaction.
Leveraging APIs and FinTech Partnerships in Open Banking
The growth of open banking API hubs in the U.S., led by platforms like Finicity by Mastercard and Plaid, is driving real-time data exchange between customer banks and insurers’ core systems. Globally, open banking API volumes are forecasted to rise by 470% from $102 billion in 2023 to $580 billion in 2027, reflecting the increasing adoption of these technologies.
Robust API infrastructure facilitates instantaneous claims payments, significantly improving customer satisfaction by reducing the time between claim submission and payout. Real-time data validation via APIs ensures accuracy, reduces delays, and enhances fraud detection. Systems can analyze multiple data points in real time, identifying red flags such as duplicate claims and suspicious transaction patterns. This not only mitigates fraud risks but also enhances transparency and compliance by maintaining detailed, traceable records.
Real-Time Integration with Underwriting, Policy, and Claims Systems
Integrating open banking with underwriting and policy administration platforms allows insurers to access real-time data from brokers, agents, and customers. This improves transaction reconciliation, compliance reporting, and management insights into liquidity and delinquency rates. Enhanced data flow also supports more flexible payment options for policyholders, such as customized payment schedules and instant payouts.
Claims management, the most complex aspect of an insurer’s financial transformation, stands to benefit immensely from open banking. Enhanced data consistency and traceability from policy creation to claims settlement improve compliance, reporting, and payment flexibility. Meeting the expectations of both regulators and customers will require carriers to offer near-instant claims payments by 2026, addressing financial hardships during catastrophic events like hurricanes and wildfires.
Advancing Payment Systems and General Ledger Integration
The demand for instant payments is driving innovation among insurance payment vendors, who are simplifying claims processes and reducing manual entry for customers. Prebuilt API connectors expedite implementation, ensuring compliance with advanced payment security requirements and enabling real-time account-to-account (A2A) transfers.
Additionally, partnerships with payment processors and FinTech firms present new revenue opportunities for insurers through referral, cross-sell, and loyalty programs. Open banking’s integration with general ledger systems also strengthens financial reporting, providing insights into capital adequacy, liquidity, and solvency while streamlining responses to regulatory requirements.
Overcoming Challenges in Open Banking Adoption
Transitioning to open banking requires a robust strategy aligning finance functions, policy platforms, payment providers, and general ledger systems. Insurers must invest in systems that ensure regulatory compliance, transparency, and operational efficiency. With the Dodd-Frank 1033 deadline fast approaching, insurance carriers must act swiftly to stay competitive in an evolving market.
For tailored guidance on navigating this transformation, connect with leancoded’s Open Banking & Payments and Insurance experts today.
