Whitepaper - How Big Data is Shaking Up the Insurance Industry

Posted by Hannah Barnsdall on 15 June 2017

During Module 5 of Squared Online we ask participants to complete a whitepaper on how future digital trends will impact a specific industry. The top 3 whitepapers are shared on this blog as a celebration of all their hard efforts!

Congratulations to team 2 for this stellar piece of work on “How Big Data is Shaking Up the Insurance Industry”. Team members include: Claire-Anais Decarli, Sofia O’Brien, Laska Nenova, Sonia Turosienski, Sophie Forrest and Tom Keighley.


This paper examines how big data is reshaping and innovating the insurance landscape and why senior executives and regulatory bodies are taking more notice than ever.

Executive Summary

  • 2016 was a foundational year for the Internet of Things (IoT), 2017 is deemed to be the year of contraction (1)
  • The number of connected devices is predicted to reach up to 50 billion by 2020 - potentially double the current number of devices we have today (2)
  • The “Big Data” (3) collected from IoT has transformed many industries - the insurance industry needs to transform if it is to survive
  • There is an appetite within the industry to make a change. Andrew Brem, chief digital officer at Aviva states: “Buying insurance is ridiculously retrograde, with endless questions resulting in a quote.” It is acknowledged that the the industry needs to be more customer focused to gain trust (4)
  • “InsurTech” Startups are challenging the incumbents, offering better customer experiences and more flexible policies (4)

What do we mean when we say big data in the context of insurance?

A variety of emerging technologies are set to bring about a significant shift in the industry, by providing new ways to measure, control, improve efficiencies and expand insurability. These include smart home hardware such as Nest, car telemetry, and wearable technology including FitBit and Apple watch. New sources of data can also be gathered from social media without consumers’ explicit consent, to learn about new behaviours and identify risk (5) - ultimately offering scalable opportunities for insurers to personalise their products to individual customers.

Are consumers ready for change?

The Financial Conduct Authority and the Information Commissioner's Office held a joint forum at the end of 2016 to engage the industry on this transformation. The three areas discussed were social media, obtaining consent and transparency of data and data protection (6). Currently only 44% of insurance consumers are confident that they received a competitive quote from their insurer (7), which suggests a widespread lack of understanding and clarity. Implementing individuals’ data into the contract and quote design could help increase confidence. However, policyholders are worried about sharing data and 42% say that they would not disclose additional information (7). Despite this, consumers are willing to reconsider depending on the pay-off, with 36% saying that they would agree to installing telematics systems for car insurance purposes (7). This is the most mature example of data gathering in the industry.

Providing new opportunities

Big data and analytics can help insurers create new data driven products and services as well as forging lucrative alliances with nontraditional partners. With the use of big data, insurance companies are able to discover interesting and accurate predictors of risk that do not involve asking people questions, as ultimately, consumers do not want to spend time dwelling on insurance products. Equipped with this new intelligence, insurers can advise policyholders how to avoid incidents and hence cut the number of claims. They are no longer a source of payments, but trusted advisers (8).

Big Data analytics.jpgData collection has always been a key component of the insurance industry but it is the digital revolution that has changed the way data is collected and analyzed. The emergence of virtual networks, multichannel interaction and direct-to consumer life insurance is fragmenting the value chain. The Internet of things (IoT), block chains and Big Data are extending to more area in the insurance business.

Some of what has been done to date:

  • Better risk management through data analytics across the value chain
  • Managing fraud through better fraud analytics by applying a number of techniques such as: predictive modeling, text mining, database searchers
  • Better risk mitigation strategies driven by insights eg. insurers can monitor routes on real time basis and warn drivers on poor road conditions
  • Developing personalized offers based on the insights collected on consumers eg. behaviours and buying preferences

Some of the gaps to be filled:

  • Find effective ways to extract value from the collected data
  • Improve the analysis and understanding of data
  • Bring the focus on the customers and put them at the center of their business
  • Improve the customer interface eg. websites, forms, overall consumer journey

How to take advantage of the big data revolution

The rise of Big Data, IoT, Blockchain and sharing economies has sparked a transformation in the insurance industry allowing marketers to build niche, customized, UX, mobile-friendly offers and strategies. It’s crucial to engage with audience in new ways, with new value propositions.

  1. Improve your data management system

    Implementing an efficient data management system is essential to improve business, marketing and communication aligned with consumer's expectations.

    Benefits

    • Better understanding of audience: ability to create target groups and personas, identifying key moments of truth in the consumer journey
    • Build flexible, customized ‘pay as you use’ offers and communications
    • Predict trends and adapt ahead of competition

    Risks

    • Data privacy concerns could prevent conversion

    Challenges

    • Not looking intrusive. Our branding/offer should be organically integrated within the key-players UX.
    • Have an agile structure & team that will be able to partner with key players
  2. Design human-centric, personalised, digital communications

    Studies have shown that only 14% of customers were very satisfied with current outbound communication from insurers mainly due to high turnover, low signal of trust and lack of interactions (9). Data analysis combined with a human-centric branding and content strategy can help rebuild satisfaction. UX experience needs to be redesigned to smoothly lead to purchase with a mobile-first approach and responsive design. Communication strategy needs to be articulated around identified personas and showcase them in daily life situations to demonstrate concrete utility in any service.

    Benefits

    • Improve trust and demonstrate benefits to consumers clearly by engaging in a more personal way with consumers through chatbot, messenger, email
    • Build a strong multi-channel CRM program with rewards aligned with consumers interests (i.e offer monthly free music with Spotify, or promotions on Deliveroo)
    • Digitise physical touchpoints to improve customer experience

    Risks

    • Lack of consistency across all touchpoints could cause frustration
    • Credibility issues regarding data privacy and insurance sector

    Challenges

    • Management of expectations during the shift of image - needs to be credible.
    • Credibility issues regarding data privacy and insurance sector
    • Logistical processes and management of launching
  3. Invest in research and development

    Digital is an ever-changing environment. With the rise and fall of many IoT integrations, apps and technologies, it is crucial to innovate and to be aligned with consumers’ reality. Forming partnerships with start ups in a flexible “lab setting” could be a lower risk, agile way of trialling new technology.

    Benefits

    • Predictive marketing that allows business development and competitive advantage
    • Stay relevant to consumers and improve trust

    Risks

    • Diversification should remain close to our core business

    Challenges

    • Diversification should be within strategy and close to our chore business Fundings of the R&D
    • Be up-to-date in terms of fast-evolving regulations

What are the regulatory implications of adopting the big data trend?

The benefits offered by Big Data outweigh the risks but there is no denying that change brings uncertainty. Insurance companies have the opportunity to minimise the risks and shape the future by ensuring they cooperate with other companies within the ecosystem. Organisations need to stay on top of new regulations in this area.

The FCA has identified two key potential areas of concern stemming from the increased use of Big Data (10)

  • Risk segmentation – it could change how firms assess risk, so categories of consumers may find it harder to obtain and afford insurance
  • Pricing practices – it may affect firms’ pricing practices, by improving their ability to identify opportunities to charge more to certain types of consumer, such that pricing does not reflect a consumer’s risks or the costs incurred in serving that consumer.

Domestically, in the UK, The Financial Conduct Authority’s (FCA) ‘Project Innovate’ is a great resource for giving innovators fast access to feedback on their ideas, from a regulatory standpoint. The process will help innovators achieve FCA authorisation. The FCA is also working on a “regulatory sandbox” framework in which insurance innovators could test new products and services without incurring the normal regulatory burdens (11) . The Data Protection Act 1998 also protects consumers by giving them the right to block processing of personal data. In such cases insurers could store but not process the data (12).

On an international scale, insurers may come across restrictions on their abilities to share, store and access data across borders. Firms operating in the EU need to adhere to a new set of rules which are set out by the General Data Protection Regulation (GDPR) including the obligation for companies to report all instances of cybercrime that put consumers at risk within 72 hours. This is to protect consumers (13).

Conclusion

Taking advantage of big data is a real opportunity for insurers to separate themselves from the competition, provide utility with hyper-customized offers and strengthen relationships with efficient multi-platforms CRM. Granular segmentations allows limitation of risk in terms of business and improvement of communication leveraging real insights per target group. Transparency in data management will be necessary to switch mentality and build trust. Partnering with key players will facilitate knowledge sharing opportunities while in the lon -term, investing in a lab partnership with startups will help develop innovative services. The traditional insurance format relies on push platforms but in order to keep up with consumer behaviour companies will need to invest in pull platforms (14). This will enable them to suggest insurance based on the needs of consumers and reposition the industry as a helpful tool as opposed to a commodity.

Appendix

  1. Internet of Things (IoT) Outlook for 2017 - Forbes. Published online 3rd Jan 2017
  2. Internet Of Things By The Numbers: What New Surveys Found - Forbes. Published online 2nd Sept 2016
  3. BIG DATA and Insurance - The Reality of What Matters. Published online 6th Oct 2016
  4. Insurance and the big data technology revolution - Financial Times. Published online on 24th Feb 2017
  5. How nosey insurers use Facebook and your weekly shop to keep tabs on you. The Guardian. Published online 6th Nov 2016
  6. Summary of the Forum on the use of data in retail general insurance Financial Conduct Authority (FCA)/ Information Commissioner’s Office (ICO) Monday 16 January 2017
  7. Consumer and General Insurance, Mintel. Published Dec 2016
  8. Insurance 2020: The digital prize – Taking customer connection to a new level - PWC report. Published 2014
  9. EY Global Consumer Insurance Survey. Published online in 2014
  10. Insurance Big Data – FCA decides not to launch study, but warns of concerns. Osbourne Clarke. Published online on 23rd Sept 2016
  11. Regulatory Sandbox - FCA. Last updated 1st Feb 2017
  12. Data Protection Act 1998. Published 1998
  13. The EU General Data Protection Regulation. Published online
  14. 10 Insurtech Trends for 2017. Published online Jan 2017

 

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Topics: Digital trends, Digital marketing, Whitepaper, Business case studies, Squared Network