APIs are vital to digital transformation — but insurers aren't using them correctly
Application programming interfaces, otherwise known as APIs, are vital to operations at every life insurance organization, but many insurers aren’t using them properly. Understanding not just how these interfaces work, but how best to use them as part of a strategic approach to digital transformation will help organizations to extract full value from APIs.
The basic functionality behind APIs is quite simple — they act as an intermediary between multiple backend systems and technologies.
When a user asks for information from one of those systems, the API does the work for them — processing the request, translating the information so every system can understand it, and standardizing inter-system communication to easily extract the needed data. However, life insurers often misstep by implementing APIs in a vacuum. Essentially, they design the APIs with a legacy mindset, not recognizing that other systems will need to be assimilated with the interface later on. This can be a costly mistake.
If life insurers want to extract the full organizational benefits from APIs, the key is integrating them into their companies’ systems instead of only implementing them.
As insurance companies grow, the number of back-end systems they have will grow too. An organization might start off with only one policy administration system (PAS), but a couple of acquisitions or additional third-party partners later, that number could grow tenfold. This is where things can get tricky. Many companies only build their APIs to work with the systems that exist when the interface is initially created. But as new systems are added on, if insurers don’t take the time to properly and fully integrate them with the API, the end result is an interface that can only do surface-level and rudimentary functions, losing some of its innate value.
To address the issue of having an API that’s limited in terms of the systems it can communicate with, insurers might then build additional APIs and layer them on top of one another with technologies like GraphQL. While this can work, it adds additional complexity and can create further issues down the road when more technologies are onboarded, or older technologies are phased out.
Part of what makes APIs so valuable today is the number of new technologies and systems on the market, but this can also be a hindrance.
The sea of available options means that insurers can pick and choose the technologies that work best for their organization and how they do business. But life insurance companies can’t extract the full value from these systems if their APIs aren’t functioning properly. This is an issue that is especially prevalent when an organization has multiple systems of varying degrees of digital maturity. An insurer might have an API that works with modern systems, but that same API could be unable to reconcile and communicate with the legacy systems, leaving behind treasure troves of valuable data.
If life insurers want an API that is integrated into their organizations and not just implemented, they need to work with a third-party API service provider who understands the intricacies of life insurance policy administration systems and provides end-to-end integration capabilities. The ability to move data in and out of these systems should be a priority from the outset, with proper planning to eliminate the need to crack the system open and overhaul how it integrates at any point in the future.
When faced with this API challenge, life insurers might look to “API-driven” technology companies to solve the issue.
While this technology sounds promising, the reality is the resulting interfaces aren’t production-ready due to their inability to extract, transform, and load data to and from the backend systems. For example, say a life insurer wants to send information to a bank, including data from multiple different systems, both modern and legacy. Instead of individually going into each system, pulling out the information, and sending it separately, the insurer can leverage an API to extract, consolidate, and translate the needed materials.
Where insurers and their third-party API developers can get stuck is moving in the opposite direction, taking in information from an external organization — the bank in this case, translating it into multiple different data formats and heterogenous integration technologies, and apportioning it out to the proper systems. It is this highly complex functionality that could spell the difference between an API that simply operates and one that functions.
The creation of APIs has reshaped the insurance value chain. While in the past companies would rely on multi-functional monolithic systems, they now have more agile, component-based approaches that enable them to tailor their organizational systems to match their business functions. In a sector that constantly needs to respond to changing risk, it is vital to be able to connect multiple systems together and extract specific data with ease. If insurers want to extract the full value from APIs, they need to understand exactly what they want out of the interface and work with a partner that can help ensure that they are fully integrated, rather than simply implemented.
Brian Carey is the senior director of core insurance solutions for Equisoft.
