Why an API architecture accelerates digital transformation

Smart agency owners and IT leaders already know they need to automate marketing, ePayments, email and text messages as part of their digital transformation efforts. They are well aware of the need for chatbots, self-service customer portals and remote reporting. And it all needs to be accessible in one unified platform, available to agents and customers anywhere, anytime. The question now is how to get there. What is the most efficient, cost-effective way for insurers to achieve all of this quickly, without disrupting operations?

Legacy agency management platforms often provide a basic toolset, but they don’t make adding new technologies or functionalities easy as an agency needs to change and grow. However, the prospect of building a digital-first agency management system in-house isn’t in the cards for the majority of independent agencies. The budget and resources required for an in-house build are simply too high. Then, there’s the concern of disrupting business processes, negatively impacting customers and agents.

Imagine having the ability to quickly and easily create a customized agency management software platform without hiring a team of in-house developers. With advances in Application Programming Interface technology, this is now possible and easier than ever for insurance agencies, brokers, and MGAs. 

What is an API?
An API is a software architecture that allows two or more applications to connect and work together. The architecture opens up access to back-end data and application functionality in the apps agents use every day. Having access to that data is like cracking the code to improve the agency's operational performance and customer satisfaction. It may sound too good to be true, but companies in other industries such as banking, financial services, and retail have already experienced massive growth thanks to open APIs. Creating an open API architecture gives mid-size agencies the modern, digital-first tools to compete with larger insurance players. 

APIs are a gateway to improved employee productivity, modern client experiences, and better integration between business applications and processes. They can unlock data silos in an insurance organization, paving the way for automation, innovation and digital transformation. APIs are essential to an agency’s digital transformation initiatives and the creation and development of innovative business models. 

From banking to insurance and beyond
The banking and financial services sector was an early adopter of the open API architecture with great success. Open banking, based on APIs, enables seamless integration between banking software and third parties to develop new apps and services that consumers use daily. The reliance on APIs caused an explosion of digital, embedded banking apps that deliver a top-notch customer experience and streamline a myriad of processes. Today, banks of all sizes are highly invested in API architectures to help them scale services and bring in new customers. McKinsey notes that 90% of banking leaders they surveyed planned to leverage APIs for revenue generation with their existing customers, and 75% will use APIs to drive new customer connections.

Similarly, APIs are critical to developing modern, customer-centric open insurance solutions. APIs are the key for insurers to build flexible, robust technology platforms that scale as the agency grows. The most significant benefit for insurers is how an API architecture can share vast volumes of data. Your agency’s customer and operational data is a gold mine, just waiting to be deciphered and acted on. Research firm Celent believes insurers that fail to build APIs into their platforms won’t be competitive in five years. Access to precious customer and company data, mission-critical to insurance, is driving the quest for more API usage across the entire insurance distribution cycle.

The power of the ecosystem
EY recently released its 2022 Global Insurance Outlook, highlighting several key trends that will shape the rest of the year for the insurance industry. One of the significant trends called out in the report is what their experts call “The Era of Ecosystems and the Rise of Open Insurance.” The report states, “Based upon current trends, we expect ecosystems will become a major business model in the relatively near future. As is often the case, what feels innovative today will soon become a baseline.”

What is an insurance ecosystem? Pwc defines it as “an interconnected system of offerings from a variety of participating providers, allowing customers to fulfill multiple needs through an integrated user experience.” We’ve already seen a significant increase in strategic partnerships between carriers, insurers, and insurtechs. It’s an exciting opportunity for mid-level providers to catapult into a new audience or create a new risk product. Agencies must be sure that their technology is modern and robust enough to participate in an ecosystem with their partners.

The opportunity exists for insurers to expand their ecosystems outside of insurance. Pwc notes that 79% of insurance leaders surveyed concurred that “insurers will increasingly engage in ecosystems that serve broad needs of customers, where insurance is only part of the customer value chain.” 

Take a look at the new partnership between credit monitoring agency Equifax and Truepic, a provider of a digital inspection platform. The partnership will help Equifax customers with the property inspection process for origination, applications, and claims. It’s a perfect example of two companies in different industries coming together, using the power of their shared technologies to create a product offering. However, keep in mind that for these two companies to join forces, the open API architecture is crucial for them to work together and provide a seamless customer experience.

APIs are the facilitators of insurance technology ecosystems, enabling partners to connect and collaborate. Not only can they connect partner agencies into a network of opportunities, but APIs can also address some of the challenges that just about all agencies share. According to CB Insights, most insurance APIs tend to fall among four categories of functionality:

1. Data aggregation allows insurers to get a full view of which lines of business are most (and least) profitable, as well as the behaviors and preferences of current customers.
2. Workflow captures all the steps of an insurance business process from the beginning of a policy’s lifecycle, enabling insurers to automate certain processes.
3. E-commerce facilitates an easy, all-digital experience for insurance customers, empowering them to compare policies and quotes, sign documents, set up ePayments, and renew policies without having to speak to an agent.
4. Quoting is a vital back-office function requiring access to larger pools of data, allowing insurers to conduct more intelligent risk evaluation, real-time fact-checking, and reduced underwriting times for customers.

These are steps of the insurance distribution cycle where we typically see a lot of friction. As the industry continues to evolve and new technologies emerge, the savvy, forward-thinking agents of tomorrow will be the ones who leverage the power of APIs today to reduce this friction. Think of the open API architecture as your agency’s a la carte menu, from which you can choose applications that address any or all of these four core areas.
Above all, remember that the future is a moving target. Whatever new processes and technologies you implement to modernize today must be flexible enough to adapt to our industry's next wave of change. Agencies that deliberately build in modularity from the start will never find themselves boxed in by their technology. Open API architectures deliver that future-proof modularity by enabling agencies to plug in new capabilities and services as needed quickly. They also allow you to iterate your growth, adopting new tools (marketing, SMS messaging, e-signatures, chatbots, etc.) as required, without lengthy integration or disruption to the business.

With the proper API framework, your agency can gain access to an ecosystem in which thousands of apps or microservices create a fully interconnected, customer-focused business platform without major IT headaches.