PSD2: Unexplored opportunities for German insurance companies… ... on their path to digital transformation

About six months after essential parts of the revised Payment Services Directive, PSD2 for short, came into force, it is clear that at least the financial sector is working flat out to do its homework. In the future, banks will allow third-party providers access to their customers’ payment accounts if the customers so desire. Many institutions have started to form alliances and initiatives that jointly work on creating consistent technical interfaces for data exchange.

In its monthly report for April, the German Central Bank expressed confidence that credit institutions were taking a constructive approach to tackling the challenges and opportunities of the new European Payment Services Directive in order to promote competition and innovation in payment transactions and strengthen consumer protection.

Unexplored opportunities for insurance companies

Payment transaction data is generally of high quality and informative value. It provides the basis to better identify and understand customers’ wishes, aims and needs. Leveraging this opportunity will allow insurers to enhance customer interactions and extend their (digital) customer touch points.

In fact, based on existing national solutions, the German insurance industry would have been able to analyse and use payment transaction data for years. So far, however, the industry has made little use of it. Against this background, many expected the significantly easier and standardised access to information under PSD2 to act as a clear accelerator.

A look at the German insurance industry, however, reveals an entirely different picture: Most insurers are yet missing PSD2 and the use of payment transaction data on their agenda. Only a very few insurance companies have started to analyse the opportunities and risks of PSD2 in more detail and to strategically position themselves accordingly.

Booster for sales activities

Leveraging PSD2 payment transaction data opens up opportunities for performance improvement along the entire insurance value chain—from the development of personalised, customer-specific or sales channel-specific products to enhanced fraud detection in the event of a claim.

The largest potential, however, lies in enhanced sales performance. For example, a segmentation model enriched with payment transaction data makes it possible to better target customers and reduce scatter losses. A channel affinity analysis based on transactional data ensures better communication by approaching customers via their preferred channel. Moreover, payments data enables the identification of new cross-selling potentials by identifying changes in the customers’ living conditions, e.g. a relocation, the birth of a baby or a special purchase. Based on an automatic screening of payment transactions, predefined triggers can be activated and offers prepared accordingly.

Promptly meeting new demands

First-movers in the insurance industry now have the opportunity to meet new demands as soon as they occur. In addition, automation enables a more efficient use of existing sales resources contributing to the companies’ ability to meet their strict cost targets.

What, then, is keeping German insurers from leveraging these opportunities? When asking responsible executives, they often refer to numerous issues with their IT and data landscapes. It is therefore advisable to adopt a modular approach starting with the development of a strategic target image. Insurers should first focus on straightforward use cases, test them and systematically expand upon them if successful. A cross-industry exchange of experiences can provide the decisive impulse when developing customer-centric models.

Proactive use of opportunities

Even if the scope of the potential and the time of the market breakthrough cannot yet be precisely predicted, the integration of customers’ payment transaction data in new product and service offerings will become a key competitive factor. Companies that fail to position themselves in this environment in due time might lose significant market share due to customer churn, especially in standardised property and casualty insurance. The German insurance industry needs to put PSD2 on the agenda.

Christian Meiske

Manager Office Hamburg

Daniel Sander

Manager Office Hamburg

Milena Rottensteiner

Senior Consultant Office Frankfurt

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