3 ways big data will modernize the insurance industry

Craig Sharp

Data, data everywhere! Data is arguably the insurance industry’s most valuable asset, after all, there is no physical product, the model relies on the ability to correctly predict and mitigate risk. For this reason the advent of ‘big data’ is perhaps more pertinent to insurers than it is to other, less data-reliant industries.

It’s still early days for big data, our lives have yet to be revolutionized by it and it’s closely related cousin, the Internet of Things, but that doesn’t mean it isn’t already showing promise. Ahead of Insight and Analytics for Insurance in January, here are four ways big data can (and is) changing the insurance industry:

Take a long term view of operational excellence

1) It will improve the customer experience

One of the key benefits of big data is the ability to spot and possibly even predict trends; this is known as predictive analytics.

Putting that into context, perhaps a sample of your existing customers have started shopping around for cars, you might find this through social media data, search data etc. So as an insurance company, you can begin to present them with offers – not only does this provide your customers with information they may not have otherwise found, but it could also increase customer retention.

According to IBM, this approach to policyholders can cement the relationship and ensure longevity:

"It is possible for an insurer to present just the right offer at just the right time in the way the policyholder prefers to interact. Advanced big data and analytics capabilities can derive insight from more customer data available from more sources than ever before. These new capabilities allow more granular analysis of customer interactions, behavior and attitudes, taking us beyond broad segments and allowing us to understand each customer as an individual. Using data from sources like geo-location, external public data, tone used during a phone conversation and insight from content analytics, it is possible to develop a richer view of the policyholder and deliver relevant, personalized customer interactions, based on their preferences."

Also worth noting is that the same technique can be used to bring in new customers too.

2) Improved fraud detection will save billions

Fraud is a big ticket cost for the insurance industry. According to the Insurance Fraud Bureau, undetected general fraudulent claims cost the industry £2.1 bn last year and added an average of £50 to the annual costs for individual policy holders.

However this is one area where big data is already proving its worth. Because of not just the volume, but the ability to better analyze and understand data, new patterns are being discovered which otherwise might’ve slipped through the cracks.

According to Jane Tweddle, industry principal for banking and insurance, SAP UKI, who spoke to BusinessTechnology:

"Through big data you can start to see patterns in fraud. For example, Mr Smith witnessed Mr Jones’s accident one week, and the next week Mr Jones had an accident and Mr Cliff witnessed it. You can also look at geographical occurrences, where certain types of fraud are happening more regularly. It gives you a much better ability to detect fraud. Big data and modern technologies allow you to look at this data more in real time."

The data being examined here could potentially extend beyond the information currently held by insurance companies and local law enforcement. Social media profiles and other online information that adds details to individual insurance cases could also be taken into account.

Tweddle concludes, "Quite often, people leave a digital footprint thinking no one is observing them."

3) Improved underwriting and risk assessment will mean a fairer deal for customers

As an interesting story on BBC News pointed out last year, insurance is a hit and miss affair, especially if you find yourself unfairly tagged as ‘high risk’ – a young person buying a car for example. However the ability to collect and intelligently use data could well change the way the insurance industry views its customers.

An example offered up by BBC News is a telematic device which, when fitted inside a car, will relay data about driving habits, speed, and other information which could well bring insurance premiums down. In the words of the BBC:

"It's what's known in the business as a "telematic" device, which monitors the speed his son drives every second and what time of day he drives. The device also beeps three times when his son brakes too suddenly."

"When his son accused him of trying to train him to be a better driver, Mr Pratt agreed that was what he was trying to do."

The challenge will be convincing customers that insurance companies monitoring their movements is a good idea in the first place…