How is Data shaping the Insurance Industry?

If you asked anyone 20 years ago, would they have said data is going to transform the insurance industry? (I was only 3, so I didn’t know much back then). I suspect the majority of people were only thinking about flying cars and robots, however data has massively impacted the way we live and work! PWC recently wrote an article and its opening sentence was “Data is the lifeblood of the insurance industry”; Pretty bold, right? But they are not wrong at all.

I did some further research and found that Deloitte had written a similar piece to PWC. Their take was that insurance provides financial protection to the community by pooling resources to manage risks. That approach is now being significantly refined by insurers’ increased capacity to examine risks in greater detail through the analysis of large volumes of granular data. The outcome is that increased individual risk pricing will make premiums fairer in that they will be more reflective of that risk.

The ability to compile and analyse those very granular data sets is now transforming the way insurers see large pools of consumers and how they price risks. This will have implications for the cost and availability of insurance for all consumers. The good news is that many consumers will benefit from this new technology and the article (link at end of article) outlines the potential impact of ‘big data’ analysis on consumers and considers some of the resultant public policy issues that society will face.

Due to the modern world we live in, there are many different ways we can access new data and the increased volumes of statistics the industry can now gather about consumer behaviour and increasingly sophisticated techniques to analyse them. This should mean insurers can rely less on crude rating factors, such as age or marital status, when pricing premiums. Through data and analytics, they are able to make more intelligent assessments of each policyholder’s risk factors.

One example of how data analytics is impacting the insurance industry is the motor insurance market. Some insurance organisations across the world, including AIG, Allianz, and AXA, are using driver behavioural analytics to create tailored insurance packages.

AIG offers drivers an internet-enabled app called ‘XLNT Driver’, which records driving performance and scores the journeys completed. It then shares this data with AIG in the Cloud, allowing for a custom-made insurance package to be created, ultimately offering a better insurance package and encouraging safer driving. 

AIG offers drivers an internet-enabled app called ‘XLNT Driver’, which records driving performance and scores the journeys completed. It then shares this data with AIG in the Cloud, allowing for a custom-made insurance package to be created, ultimately offering a better insurance package and encouraging safer driving.

 AXA offers the ‘DriveSafe’ app for drivers under 24. The app records journeys and shares journey data through an Internet-enabled app with AXA. The data generated by the app sends AXA journey information showing your ability to drive safely e.g. keeping within the speed limit. Using these scores, AXA can then offer insurance discounts for drivers.

Health Insurance is another example of the use of data analytics, with markets being projected to be worth $24.5 billion by 2021.With all this big data being drawn from a myriad of health devices, this data is well-positioned to be utilised by the insurance sector offering premium discounts for more active policy holders.

 Developments in big data analytics, coupled with increasing healthcare costs associated with increased fraud and abuse, have created the perfect storm for the healthcare insurance industry, encouraging personalised health insurance products.

Big data analytics was the reason behind a saving of over $210 million in fraudulent health claims. The Centre for Medicare and Medicaid Services (CMS) used big data analytics to identify inappropriate payments using analytics algorithms to analyse billing patterns.

Additionally, platforms like the HumanAPI, which facilitates real-time access to healthcare data from a variety of sources, healthcare (and insurers within the industry) will have access to even more datasets, building more accurate pictures of health patterns, allowing in turn more accurate personalized health insurance policies.

In conclusion, there are so many reasons why data is transforming the Insurance industry and many ways in which it will continue to do so. I hope you have enjoyed reading this and if you would like to read more into how data has transformed the insurance industry, you may find the below links of interest:

PWC: https://www.pwc.co.uk/issues/data-analytics/industries/data-and-analytics-in-the-insurance-sector.html

Deloitte: https://www2.deloitte.com/au/en/pages/strategy/articles/impact-big-data-on-future-insurance.html

If you have got this far, I would like to thank you for reading this article; I am always interested in connecting with new people, so please reach out to me if you have any questions.