Big data has a bigger future

Major insurance companies in the UK and beyond are no longer just window shopping when it comes to big data – they are ready to buy.

According to research by Teradata in March this year, 82% of UK insurance companies with a turnover surpassing £500m are prioritising big data strategies during 2016.

However, while the big boys have jumped on board, it seems the smaller the company the less willingness there is to take the leap into big data. The same survey polled 42 respondents from companies with a turnover of £50m– £500m, against 22 companies with a turnover of £500m or more. Among the former group, the
number prioritising big data fell dramatically – to a minority of 46%.

So if the smaller the insurer the lower the interest in big data, can we assume that retail brokers, with lower premium volumes in general, have a passive attitude towards big data? If they do, that is a mistake, says David Umbers, CEO of Ascent Underwriting. 

“Brokers have not been great innovators and adopters of technology – but the use of big data and the technology platforms that surround this will provide enormous efficiencies as well as create better margins for brokers and their clients, breaking down a somewhat antiquated and bloated process,” he says.

Changing times
Big data benefi ts customer, broker and insurer alike as it allows for more accurate assessment of insurance risks; this is the fundamental use of big data in insurance terms.

Thanks to advanced analytical procedures it has become possible to make sense of vast amounts of digital information. Statistical and predictive modelling can work out what will happen in the future by understanding and measuring as much as possible from the past. Models then make predictions while measuring variables from the data collected. 

The result, for the insurance industry, is a host of potential benefi ts, including: Car insurance: With price comparison services ramping up competition for consumers, the need to accurately assess risk, particularly among younger drivers, is stronger than ever. Telematics-based packages allow an insurer to make accurate assessments of the likelihood of an accident based on comparing behavioural data across thousands of drivers. 

Aviva Drive, for example, is an app that monitors driving habits and measures accelerating, braking and cornering. The data is factored into the premium, and safer drivers are being rewarded with cheaper premiums. 

Health and life insurance: Wearable technology, including the Fitbit and the Apple Watch, offers new ways to monitor people’s habits and make assessments of their lifestyle. Research by Accenture in the US showed that one third of insurers are already using information from these devices, rewarding healthy behaviour with lower premiums.

Home insurance: Smart home-tech is seeping its way into home insurance too. In the US, providers American Family Insurance and Liberty Mutual Insurance have formed a partnership with Nest Labs to o er its smoke alarms and carbon dioxide monitors to their customers. As part of the deal, customers are able to enjoy reductions on their premiums as the insurers receive data from the devices.

Each insurance sector has the potential to benefit from the arrival of big data. According to Susan Penwarden, chief underwriting officer, commercial lines, at Aviva, this benefit can make insurance a more appealing and fairer proposition for customers too. 

“Big data provides the opportunity to change the level of potential insights and understanding that we can have regarding the customers and exposures we insure,” she says. “This allows us to offer more tailored insurance solutions and potentially more accurate pricing.”

Controversy
Of course the collection of masses of personal data is not without its critics – and concerns have been raised about how this data will be stored and used by insurers. In Canada, for example, there is widespread debate about the use of genetic testingin determining life and health insurance premiums. Canada is currently the only country in the G7 without a law in place to protect people from discrimination forged from their genetics – and the S-201 Bill, also known as the Genetic Non-Discrimination Act, has been put forward in an effort to make it illegal for anyone to request that someone else has genetic testing. Insurers, of course, do not request genetic testing – but they can ask about family and medical histories, prompting controversy about how this data can be used against people. Indeed the last thing the insurance sector needs is a situation in which vast numbers of people become ‘uninsurable’.

The risks go beyond what data is gathered, however, and extend to how it is kept secure – the more you know about your customer, and the more personal the information you hold, the greater your responsibility. 

“The collection of data from multiple sources should enable the insurance industry to improve their assessment of risk and lead to more bespoke pricing models,” says Andy Mintern, commercial and finance director at Lorega.

“The risk, however, is the source and control of that data and whether it is subject to any rights or control. In addition, the data may be considered ‘personal data’ in that it relates to an individual and could, if it was subject to a data breach, potentially enable others to identify and make a value judgment about that individual. Such a breach could be a notifi able event under the Data Protection Act. Companies need to be aware of this – of the increase in the responsibility of holding
this type of data.”

Effect on brokers
There is little doubt that there are risks associated with the explosion of big data. However, big data presents opportunities for brokers by enhancing their insight into consumers while reducing the bureaucracy that prevents them from getting the information they need to make accurate assessments of their clientele. 

“The broker’s role will continue to be that of the expert adviser on the right type of insurance, but they will need to become better at understanding the new emerging exposures like cyber, loss of data, data security, etc,” Penwarden says. “They will be less focused on collecting data that is widely available, and more focused on understanding the unique customer, their insurance risk profi le, and how they support that customer to purchase the best protection.”

With more details about their clients brokers can ensure that policies are tailormade for their individual needs.“Brokers need to embrace the change in technology and use it to help their clients, by tailoring insurance to meet the specifi c needs of their clients,” Mintern says. “Where the broker adds value is in helping the client to understand their risk and in helping them select the insurance which is both relevant and value for money in respect of both their demands and needs. If big data
eases the process of understanding the risk, this could change the role of the broker to become more specialised, to ensure that global assumptions are correct and relevant to an individual case.”

Penwarden adds that brokers can use big data “to better understand their customers, to do pre-screening, for example for fraud, ... for prospecting new customers to better enable them to provide the right proposals, etc.”

Successful adoption of big data could be‘make or break’ for brokers. With more and more insurers moving to direct online models, the consumer pool for brokers appears to be thinning, and it’s vital that they use the tools now available to achieve optimal impact. As the phrase goes – if you don’t do it, someone else will.