Open banking should not be used for underwriting insurance, a federally appointed committee said Wednesday.
In its final report issued Aug. 4, the Advisory Committee on Open Banking recommended that the “initial phase” of open banking, in Canada, be up and running by January, 2023.
Property and casualty insurance brokers have a vested interest in open banking regulation because of how Uber and Airbnb disrupted the taxi and hotel industries respectively, suggested Danish Yusuf, founder and CEO of Zensurance, during last year’s Insurtech North conference.
Open banking – also known as consumer directed finance – is the concept of enabling consumers to instruct their financial institutions to share their banking data with other parties chosen by the consumer. This could give fintechs increased access to consumer financial transaction data, which the fintechs could use to develop products more tailored to consumer needs and preferences.
“Insurance data is a complex case and banking data should not be used for underwriting insurance policies as part of the initial scope of open banking,” the Advisory Committee on Open Banking said in its Aug. 4, 2021 final report.
“Future consideration of insurance in open banking should evaluate potentially discriminatory or inequitable outcomes in insurance availability and coverage in order to ensure consumers would be protected.”
The advisory committee – which has been working since 2018 – is recommending the federal government appoint an open banking lead who would report to the deputy minister of finance.
The purpose of the Aug. 4 report is to outline what an open banking system could offer Canadians and a roadmap for how to deliver it.
“I want to thank the committee for their work and look forward to reviewing their recommendations as we develop next steps,” federal finance minister Chrystia Freeland stated Aug. 4 in a release.
“Automated financial tools delivered through an open banking system can streamline the management of bills, invoices, payroll, and taxes to reduce the complications of running a small business,” the committee said in the report.
The committee is recommending the initial phase be read-only, meaning service providers could receive consumer financial data (if and only if the consumers consent) but not edit this data on banks’ servers.
“Once the system is in place and operating well, consideration could be given to expanding the scope to write access functions, such as payment or account creation functions, as well as including new types of data,” the committee said in the report.
Feature image via iStock.com/Ridofranz
