TThis week Dougie Willins, analyst on our Market Intelligence product, takes a look at a UK challenger bank, Starling Bank.
Starling is building a marketplace of providers on its platform – including insurance. What does this mean for the future of bancassurance?
WHAT IS THE STARLING BANK MARKETPLACE?
Starling Bank is a UK-based digital “challenger” bank founded in 2014. The bank serves both retail and business customers and this month passed the one million account milestone.
One of the bank’s big differentiators is its “Marketplace”. The Marketplace is an app-store of third-party partners whose services accountholders can access from within the bank’s app. The partners provide a range of financial services from insurance to credit scores and mortgage broking.
Earlier this year Starling Bank caught our attention by announcing a partnership with Direct Line Group’s Churchill Brand to provide contents insurance. Enabled by APIs, which can transfer personal data between the two providers, Starling customers can quickly request a quote, purchase and manage their policy.
Today, insurance products available to personal and business customers include:
- Personal insurance: Mobile phone cover from SoSure, life insurance from Anorak and contents insurance from Churchill
- Pensions & investments: Pensions management from PensionBee and investment & savings management from Wealthsimple and Wealthify
- Commercial insurance: Invoice protection from Nimbla and a range of SME insurance products from Digital Risks (e.g. cyber, professional indemnity)
Starling is not the only digital bank to partner with insurance providers. Monzo and Revolut, both of which are popular with younger customers due to their preferential rates for foreign exchange, have previously partnered with incumbent insurers to provide travel insurance.
WHAT DOES THIS MEANS FOR INSURERS?
With the emergence of digital financial ecosystems such as the Starling Marketplace, insurers have the opportunity to access new digital distribution channels. This trend will only accelerate with the development of Open Banking.
On the flip side, ecosystems could lead to a re-aggregation of demand. In other words, customers who might previously have chosen their bank and insurance provider in separate journeys, might now buy both products from one single point of distribution. This trend is also accelerating with the emergence not only of new digital financial service providers, but also of other (and currently much larger) digital ‘connectors’. These platforms have genuinely global reach and often literally millions of customers – Xero (the accounting platform for SMEs), Amazon Marketplace (for retailers) and Facebook are examples. Insurers will likely need to look for existing business in new (digital) places before too long.
THE OXBOW PARTNERS VIEW
Insurance could be a critical service provider in many emerging ecosystems, including finance. The big impact of ecosystems for insurers is that distributor relationships, like bancassurance, will move from being handovers to integrations.
This has consequences in two main areas:
First, insurer and banks will need to redefine the operating model – in other words how much of the insurance value chain each of them will control or provide. For example, the bank is likely to want to offer the quote and buy experience (maybe within its own app) but the insurer will likely want to control prices. The bank may be relaxed about mid-term adjustments and have no interest in claims – or it could see these as critical customer touch points or revenue opportunities. The insurer’s role could be anything from end-to-end provider to little more than balance sheet capacity. The parties need to agree who collects which data, and what is shared. And much more.
Second, the insurer will need to build technology that facilitates the operating model. This is not trivial as many bancassurance relationships are currently simple ‘handovers’ of leads. In the future, the bank and the insurer’s technology will need to interact seamlessly with each other. This will require the insurer to build new technology stacks allowing them to integrate with banks in different ways depending on the operating model and level of sophistication of the bank. An example architecture is shown below.
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