Historically, insurers have always been data-centric and dependent on spotting risks in large volumes of information. While earlier they were dependent on their own organisation’s retained customer data and consumer-stated information at point of quote, data from claims management applications, billing systems and administration solutions amongst others, today they are becoming more dependent on data available from public records and contributory data sources.
This data transformation is just beginning. A lot more data is being collected and could be accessed real-time. Examples include motor telematics insurers connecting to live data from the vehicle in future, or health insurers connecting to medical monitoring devices or other lifestyle devices.
The need of the hour is to integrate data from these new sources with traditional data sources to form a cohesive ecosystem that provides value to the insurer, while bringing transparency to the customer about what data is being collected, for what purpose and how.
According to insights from Fitch Ratings, one of the big three credit rating agencies, more insurers are looking to build market share by making the best use of big data. Those companies that fail to keep pace will see themselves increasingly marginalised, or pressured to consolidate. The huge potential of the data – with the challenges related to processing, integrating and seamless use – has helped to leave the door ajar for disruptors, or technology specialists and data aggregators, working in the service of insurers.
Increasingly there is a gap between the high-performing insurers who are able to keep up with this ‘arms race’ of data and the traditional insurers.
With bigger and newer data sets available, the insurance industry in India faces a major challenge for their collection and optimisation. Let’s walk through some of these challenges and the way forward.
Challenges related to data collection and integration
There are a lot of challenges related to data collection and integration but lets focus on the few important ones here.
- Lack of seamless access to public data records
One of the fundamental challenges for insurers operating in the country is seamless access to public records, including valuable data sources like driving licence and motor vehicle records, making them more accessible and affordable so as to help in fraud control, but also allowing insurers to trace uninsured vehicles better.
It must be noted that for better Know Your Customer (KYC) processes, linking Aadhaar, the unique 12-digit personal ID number, to insurance policies was made compulsory by 31 March 2018.
However, with the matter being challenged in the Supreme Court of India and judgement on the same still to be pronounced, the Insurance Regulatory Authority and Development of India (IRDAI) extended the Aadhaar deadline for existing policies until the verdict is out. Though for new insurance policies the deadline for submitting the unique 12-digit number is six months, the lack of easy access to all types of public data records remains a challenge for insurers.
- Operations in an environment of legacy applications
This is one of the structural challenges plaguing the insurance industry where companies are operating in an environment of legacy applications (mostly from acquisitions made over years). This is supported by siloed and multiple databases which aren’t integrated with each another. Thus, data is not captured in a format which can be retrieved easily and delivered to the point where needed.
Also, insurers are challenged when it comes to capturing and storing valuable data from third-party sources. This not only degrades the quality of data but also leaves room for anomalies that can impact the underwriting and claims process. For example, it has been found in a research that 35% of people in India have two different documented dates of birth. As widely known, age plays a critical role in determining insurance premiums.
As a solution to these types of data gaps, contributory databases, where multiple insurers contribute data collected from various sources, would not only improve the quality of data, but also help to save insurers from losses due to incorrect data (either due to fraud, manual data errors, or wrong information provided by the insured).
While insurers today have numerous data sources available, there is very little business benefit from raw data if they can’t gain any useful insight or predictive power out of it.
- Issues related to data ownership
The question regarding data ownership is another challenge faced by insurers. While consumers on their part feel their information is their own data and they have the right to decide with whom they want to share it, insurance companies on the other hand have a legitimate right to use that data, to fulfil the insurance contract, and this data forms the crux of their operations. We also have to make the distinction between personally identifiable information, which relates to an individual consumer, and the other data, such as risk scores, attributes and proprietary data which belongs to an insurer.
With Digital India and the government’s push for better data governance, the nation is set to become a data-rich economy before long. Soon to be established protocols on data ownership and data protection would not only help insurers to collect data in a more useful way, but also align themselves with the principle of appropriateness, which refers to selling a product best suited to a customer’s needs and life stages.
- Evolution of the regulatory framework
While the evolving regulatory framework aims to address various important issues pertaining to consumer protection, the continuous changes have also led to high costs of compliance and data collection costs. We can note here that many insurers have had to revamp their product portfolio since 2010, bringing out newer versions of existing products to remain compliant with the changing regulations.
This has led to changing product design and procuring the regulatory approvals, along with setting up of changes in administration systems, thereby increasing chances of errors in the collection and integrity of data.
The way forward
As insurers are looking to leverage and collect data in the future to enhance operations, boost transparency and elevate customer service, there are some issues which need to be immediately addressed. Some of these are:
- Data security
It is known from many research sources that cyber criminals will primarily target the financial services sector in the months and years to come. Any data breach due to a cyber attack may have long-term repercussions on the insurance industry in terms of reputation, reliability and revenues, subsequently making it more difficult for insurers to collect data.
Thus, insurers need to remain innovative, whilst also implementing robust data security measures into their operations to ensure that data remains protected from cyber criminals. In many aspects, neither banks nor insurance companies can defend themselves alone from the new types of attacks, coming through devices in the IoT or massive botnets of zombie computers.
- Digitisation and centralised storage of data
With digitisation enjoying backing of the Indian government for greater transparency along with consumer demands for online and mobile-friendly processes, looking for tailor-made products, it is essential for insurers to obtain as much customer-specific information as possible. Then come the challenges of the data audit, data retention, deploying e-certificates and all the micro-processing steps of the data in such a way that is compliant, and that works in the interests of the insurer and the end-consumer.
Digitisation among Indian insurers is still at a nascent stage and there’s a lot of catching up underway at the current time. A report from the Confederation of India Industry (CII) and PWC concludes that insurers need to strategically adopt the necessary technology infrastructure to drive products that are more responsive to the customers’ needs. Insurtech and the technology trends are already better understood. Now is the time for insurers to move towards these new horizons with specialist help.
Follow the link to the LexisNexis Risk Solutions India website to find out more about how we support insurers. Follow these links to read more about specific solutions for life insurance, health insurance, and motor insurance.