Data has rested at the heart of the insurance industry since the business emerged in the 17th century, with the roles of the actuary and underwriter primarily focused around assessment of risks based on data. As the volume of data at insurers’ fingertips grows, it is becoming more and more important that they maximise the value of data beyond underwriting.

The Best Experience

The sector is highly competitive and UK insurers are in a constant battle between competing on prices and delivering a winning customer experience at as low-as-viable a cost base. Big data provides three main benefits for insurers: it enhances traditional risk assessment, improves the more recent adoption of fraud detection and aids in the shift towards true customer-centricity.

Insurers are adapting to harness more insights from their large data pools or risk being left behind by more nimble, customer responsive data driven outfits. Competition is not only coming from other insurance firms; internet technology firms are hungry for a piece of the insurance pie as well.

For example, Google acquired insurance comparison website in 2011 and earlier this year launched a comparison website for car insurance in California. They have plans to expand this operation across more states.

The explosion in the amount of structured and unstructured data at insurers’ disposal enables them to transform the way they operate. By leveraging a more accurate prediction of customer behaviours, it allows them to take a more customer-centric approach to doing business. Ultimately, this translates into the provision of more tailored and personalised products and services to each customer.

Being more responsive to customers’ wants and needs improves customer retention and profitability. A recent Capgemini and Pega study into insurance customer behaviour found that the Millennial generation ranks personalised and transparent services at the top of their agendas.

Big data and analytics allow policies to be modelled by integrating historical data, policy conditions, exposure data and reinsurance information. Using multiple data feeds gives more in-depth insights into customer behaviours that companies can use to create more accurate risk profiles for customers.

For example, Aviva ran a pilot scheme in USA where they analysed potential customers’ less conventional data. They found that online behaviour and spending habits were as effective in identifying potential health risks as a medical examination. Having enhanced, real-time views of customer behaviours allows insurance premiums to be updated in real-time rather than only a few times a year.

Growing Trends

In addition, a growing trend is emerging. Insurers are harnessing the power of the Internet of Things and wearable devices to reduce premiums for lower risk customers. For example, Jon Hancock Insurance now provides its life insurance customers with Fitbits. Its most active members are rewarded with up to 15% off their premiums, on top of other perks such as Amazon vouchers and half-priced stays at popular hotel chains.

On top of helping to indicate which customers are less risky and rewarding them, collecting data from wearables uncovers yet more insights and helps insurers develop new innovative products that are better tailored to its customers, enhancing the overall customer proposition.

Fraud is a big problem in the insurance business too. It is estimated that 10% of the property/casualty insurance claims are fraudulent. This accounts for a significant loss of revenue for insurance incumbents given that global profit was $338 billion last year. Using big data allows more data points to be analysed, helping to more accurately flag fraudulent claims.

Big data paves a new way for the insurance industry. Incumbents need to develop the operating model and culture to leverage this opportunity or they risk being disrupted by tech entrants such as Google or more data driven competitors. The way insurers can address this is to learn to operate like lean start ups that build capability incrementally, test and learn, embrace agile delivery methods and engage an ecosystem of partners to get results quickly in non-core areas. 

The question is: are insurers ready to do what it takes to survive the big data revolution?