API Insurance

Challenges of API Integration in Insurance

The ever-changing demands of today’s customers have propelled the adoption of more agile and efficient business models in the insurance industry. Some insurers have already begun experimenting with the latest technologies, but for most insurers, the focus is still on piecing together a strong foundation for growth in the digital era.

Over the last few years, APIs have become one of those key components: a tool for connecting applications that enables insurers to leverage their internal resources – and incorporate external capabilities – to upgrade their workflows and customer services. Today, APIs are recognized as key drivers of growth that help businesses discover and capitalize on new distribution channels or revenue streams through Open API ecosystems.

With that being said, successfully integrating APIs still presents a challenge to many insurers, who are deluged with vast amounts of data, often tied up in legacy systems, and competing in innovation races on several fronts. In this blog, we will explore some of the main impediments to API integration insurers currently face. Only by overcoming these obstacles can insurers achieve an API strategy that powers their efficiency and customer satisfaction into the digital era.

API Integration Challenges in Insurance

Complex architectures and Lack of digitization of processes

Many insurers embrace APIs because of their enhanced connectivity, but antiquated business architectures can make it challenging to reap the full benefits of the technology. While aggregating access to key data through an API will bring improvement, it won’t generate enterprise-level value if the structure itself cannot adapt for greater efficiency. Insurers are still reliant on monolithic legacy systems – some more than others. To achieve the full value of APIs, insures must first modernize the core to overcome their outdated technology and the complicated infrastructure built to prop them up.

Nowadays, insurers understand this need and are working to address it to some degree, but the challenge remains. Take for example L&A insurers, who often deal in decades-long policies rooted in legacy systems. These carriers are often caught between the rising costs and inefficiencies of maintaining their old systems and the growing complications of migrating. On the other hand, migration is slightly easier in larger businesses and P/C insurance where more third-party software exists that can ease the transition, thanks in part to the faster policy lifecycle of their products.

In any case, the bottom line remains the same: manual intervention and paper-based processing are still normal practices at insurance organizations, creating a convoluted environment for building successful APIs.

Lack of clarity on which APIs to implement

Because an API is such a general tool, even identifying clear cases where implementing an API within an organization would drive maximum value is a challenge. APIs have use-cases across all axes of the insurance enterprise: proprietary data management and analysis, underwriting and policy administration, connecting with partners, providing information and new services to customers, operating social media, and more.

And while CBInsights reports that four areas—data aggregation, workflow, e-commerce, and quoting—are the most frequent use cases for API adoption, there’s a “long tail” of niche opportunities specific to each individual business, and the potential of their data.

Further complicating the decision is the rise of the Open API philosophy, which stresses API-enabled functionality as the fuel for flourishing API ecosystems that will revolutionize the insurance industry in the same way they’ve revolutionized the Banking industry. This is part of an overall trend encouraging businesses to treat APIs as growth drivers, rather than mere technical necessities. In other words, the goal isn’t to simply build an API adapted to the system of record’s capabilities, but one based on the value of the data stored therein. Taking all these decision-making factors into account is a difficult process for many insurers, who may lack the expertise and devoted personnel necessary for API success. From that perspective, the planning phase itself may be an obstacle in the API journey.

Siloed team structures, technological expertise

A successful API strategy forges connections between disparate facets of an operation, and therefore implementation requires high-level coordination between the teams responsible for each function. After all, the purpose of most workflow APIs is to enable applications across departments to “talk” with one another. Where IT, Underwriting, and Claims are highly differentiated, however, it can be difficult to develop an API attuned to the specific needs and technological capabilities of each department. Often this calls for marshalling an API strategy team composed of members from each relevant department and an API project manager, whose job it is to guide the initiative. This means not just answering crucial questions about the audience and utility of the API, but educating company talent to think about value in cross-departmental terms.

The more ambitious and ecosystem-driven an API strategy is, the more emphasis must be placed on this cultural transformation, as well as the technological training. Finding the right personnel to fit these roles and starting to foster productive connections between teams is a problem that many insurers are still struggling to solve.

Security risks

Every connection APIs enable—to customers, distributers, third-party software suppliers, or even between departments–opens up a new point of vulnerability. Responsibly growing an API ecosystem entails taking action to address those risks, for both the safety of private information and overall resilience of the organization.

Implementing an API, whether internal or external, poses these dangers to cybersecurity:

  • Exposing code not designed with scale or reuse in mind can lead to failures that take out connected critical systems
  • Security holes formerly buried in data storage solutions can result in the leakage of sensitive personal data

A rigorous security program is an essential component of any API strategy, but it demands considerable resources in terms of staff, training, and software that may not be available. Monitoring usage rates, encrypting and authenticating all traffic, detecting unusual requests, and ensuring fail-safe procedures to protect critical systems in case of a crash are constant priorities which cannot be neglected. Establishing effective data governance is a major technological hurdle to businesses considering API implementation.

In insurance, another significant and related hurdle is the legal burden that comes with making data available via APIs: rulings on IP rights and regulations as they apply to sharing personal and proprietary data are ongoing. Keeping abreast of state and federal mandates, and carefully documenting whose data is used and how it’s being used for every API is thus a demanding but necessary aspect of building a secure API strategy.

High time & costs involved

Like any major tech initiative, the two overwhelming reasons for inertia in implementing APIs are time and cost. Even in cases where the value of an API is clear, the uncertainty that surrounds demanding, months-long development can delay adoption, especially if it’s the first of its kind. Oftentimes, businesses rightly anticipate hiccups that will slow the project and raise its cost, like navigating lackluster API standardization.

Similarly, organizations are also wary of the constant support that is necessary to maintain the API after the initial implementation. Cheaper and more convenient solutions promising workflow efficiency gains, like RPA, are more appealing than APIs when it comes to insurers with smaller IT budgets. For other insurers, partnering with a vendor or IT services provider can be helpful for developing a robust API strategy. Nevertheless, any carrier hoping to become a digital insurer must embrace and overcome the scale and complexity of API implementation.

Overcoming the Obstacles

The need for a proactive API strategy will only grow as the open API ecosystem model takes shape, and customers’ expectations for personalized, efficient services become more pronounced. The unique difficulties of technological change in insurance, a traditionally slow-adopter, are compounded by the lack of expertise and experience in the various areas—cross-departmental initiatives, technological flexibility, and leading-edge cybersecurity—where it’s needed most for successful API implementation. While these challenges may seem insurmountable, there are tools, vendors with API expertise and successful industry use cases available for insurers to leverage. Keeping the focus on customer experience and with these challenges in mind while building the API strategy, insurers can help set their organization up to successfully compete in the digital era.

Ready to take on the challenges of API integration? Check out how ValueMomentum can help you accelerate your integration journey.