Research
What are APIs and how can they help my brokerage firm?
May 23, 2024
Estimated Reading Time – 3 mins
API is an acronym for Application Programming Interface. But what does that mean?
In simple terms it is a mechanism for two organisations to communicate via their software platforms using a set of definitions and protocols.
APIs reduce friction in commercial insurance distribution
In the commercial insurance world, it would typically be a carrier that surfaces an API for brokers to submit request for quotes. If the client risk data submitted meets the underwriting criteria, a quote will be generated and sent back to the broker via the API. This operation can be done in a fraction of the time it takes to do this process manually using proposal forms or extranets.
So, APIs in commercial insurance industry are about speeding up distribution and making things faster and simpler for customers, so something for brokers embrace rather than be wary of!
API adoption amongst carriers will help improve the customer experience, reduce re-keying for brokers and speed up quote response times – all things which brokers were asking for at BIBA last week! APIs do not introduce new risks providing they are secure and accompanied by the right programmatic underwriting models as it is the same information being shared just a different mechanism for sharing it.
Programmatic underwriting helps manage the risk of digital distribution
Programmatic underwriting models sit behind the API on the carrier's side and will automatically assess the risk as soon as the request is sent via the API from the broker. A quote can be generated automatically based on the properties of the company in the API request and if the risk meets the criteria of the current underwriting model.
The quality of the carrier’s underwriting model will determine the profitability of the product line leveraging the API. The underwriting model can be changed without impacting the API. Carriers can set a minimum amount of information required for an API request to be accepted and if more information is required, the API can automatically request this info from the broker via the API.
The Technical Bit
Quote API
A Quote API accepts answers to underwriting questions and returns a quote identified by a unique quote number. REST-based APIs treat the Quote as a resource that gets created via a POST request to a quotes endpoint where the body contains a JSON payload of answers. The response body is JSON that contains information about the bindable quote. Some attributes typically include an ID, quote number, premium, coverage limit and excess. The premium is driven by automated underwriting models that determine eligibility and price.
Sample request
POST /quotes
{
"RiskInfo": {
"BusinessName": "Euro Moulds Limited",
"Revenue": 1000000,
"BusinessActivity": "Activity",
"EmployeesNumber": 45
},
"Product": "cyber"
}
Sample response
{
"id": 00123,
"number": "P45645645",
"premium": 35750.00,
"occurenceLimit": 1000000,
"aggregateLimit": 2000000,
"excess": 0.00
}
Web applications (like Recorder) can render these quotes to the broker in a user interface, and they can even be surfaced to the customer via a broker-branded web portal. This means that brokers don’t have to worry about the technicalities of integrating different APIs, they just need to hit submit.
Having a Quote API expands the possibilities for distribution without needing to repeat the lift for every broker and each new product carriers wish to digitise. Whilst there is a Capex requirement to launch a suite of API enabled products the payback period should be short and the ongoing cost to serve premium for the SME segment should be massively reduced.
Policy API
The Policy API accepts bind orders and can also issue the policy. REST-based APIs do not consider bind a resource since it is an action and not an entity. Instead, the Policy is the resource being created via a POST request to a /quotes/<id>/policies endpoint. The <id> is derived from the quote id generated earlier in the Quote API, and the request body can be left empty. In the response body JSON, a policy ID and policy number should be present.
It is important to note that premium can be collected before or after the bind request is made. However, conflating bind and pay should be avoided as these are two distinct operations as far as APIs are concerned. In future posts, we will explore how payment can be collected online and then reconciled with the broker management system.
Quote and Policy APIs unlock digital experiences that satisfy small businesses, brokers, and carriers. Therefore standing up APIs is important for carrier wanting to advance their digital distribution, and so is gaining adoption. Developers are quick to adopt APIs that are well documented and well architected.
Summary
Using APIs within commercial insurance products allows carriers to distribute their product digital and more efficiently. The implication for brokers are simple – faster and easier premium! Small businesses increasingly expect to complete and submit an online application within minutes, not days or weeks. And to enable this experience, carriers and software providers will need to develop API strategies for their small commercial products to enable the most ambitious brokers to capture the demand of the next generation of small businesses.