The role of the insurance industry at the forefront of economic development, not to mention economic resilience and protection of businesses and people, can be easily taken for granted. Over the period 2013-2018 gross written premiums in the UK (life and non-life business) have grown at an annual rate of over 4%*.
At the same time, with the rise of the Internet of Things (IoT) and the digital economy, businesses have become more aware and inter-connected. The underlying nature of risk, both well-established and newly emerging, is rapidly shifting. The profile of insured assets, risk types and the way risk is assessed are also undergoing profound changes. In commercial lines, there is a shift from proxy data and broad bands of risk types to greater granularity of data; from tangible to intangible risks, such as the increasing demand for cyber insurance. In all lines of business, the IoT and connected insurers will mean that risk can be monitored in real time, increasing the ability for insurers and customers to prevent risk.
Increased insight may also increase the impetus to invest in technology, with a potential redistribution of the combined ratio from losses to expenses. The explosion of data and the corresponding focus on analytics to drive insights across the value chain will continue.
Digitalisation, increased awareness, efficient distribution, innovative products have increased the number of insurance companies, revenue generated and market penetration. There is a continuing search for innovation, working through the data to find a competitive advantage and new routes to distribution or a pricing advantage.
The UK insurance market is the fourth largest insurance market in the world and a considerable exporter*.
It is heartening to note how the insurance industry has weathered the challenging political and regulatory challenges that have been directed at it, considering Brexit or Solvency II. This change has at least partially been driven by consolidation and restructuring, with insurers adapting to more efficient business structures to better manage their regulatory capital requirements.
It’s likely that the next growth phase will have an element of collaboration between incumbent insurers and the insurtechs, moving from a traditional ‘buy or build’ product focus towards a higher, more personalised customer experience and higher customer expectations, with data as a critical asset.
Based on the findings from the recent World Insurtech Report*, 70% of global insurers and insurtechs said a focus on holistic risk solutions for customers is going to be critical in moving the insurance market forward. Collaboration on data sources is going to a higher level than ever, and more than 70% of insurers and insurtechs said advanced data management is now critical.
There’s a transition going on from asset ownership, where an insurer controls all of its data processes in its own data silos, towards the platform economy, or shared economy, with insurers and other market participants coming together to bundle services.
Overall, in the World Insurtech Report, 90% of insurtechs and 70% of incumbent insurers stated that they want to work with one another. Recent history shows that India has all the capabilities to make the transition to this new digital platform economy and make the right technology adjustments.
Another issue for the insurance industry is related to data availability. Although the industry is sitting on rich piles of historical data, the same cannot be easily used to extract maximum benefits for pricing, underwriting, counter-fraud or other purposes.
Secondly, there is an issue with structuring, integration and standardisation of data with the digitised data spread across different systems of the insurance companies. Another issue that plagues the insurance industry is making third party data readily available in the insurance workflow, especially financial data that is not necessarily built with insurance as the intended purpose.
At LexisNexis Risk Solutions we’re working with insurers on pooling data into a series of shared platforms or data exchanges, creating what is effectively a vast new ocean of shared data insights and risk attributes.
What big data promises?
As we’ve mentioned the insurance industry has long been sitting on piles of data. Traditionally, however, there was a lack of structuring, integration, accessibility and reliability of this data.
However, a lot has changed in recent years. With the progress made in the fields of image recognition, natural language processing, speech recognition along with the availability of massive computing power such useful new data sources can now be made ready for the insurance workflow, with the help of data normalization and standardisation from a data aggregator.
When the data is prepared correctly for the analytics process, it then becomes possible to apply BI (Business Intelligence) tools on these vast streams of heterogeneous data from various sources and derive actionable insights. The insurance industry has evolved tremendously by leveraging big data, although this is still more to be done on this journey. Traditional insurers, along with insurtech companies, are making use of data analytics to create new efficiencies and drive the customer experience, all along the value chain but primarily in pricing, underwriting, claims handling and to some extent in marketing (knowing the right time and the right place to interact in the customer’s lifestages).
The benefits of big data can come through the use of advanced analytics in marketing, and shaping the product or the distribution method, but not limited to customer-facing functions. The insurer can use big data analytics in areas like product development, R&D, risk assessment, product development, fraud detection.
Given that the FCA has created the regulatory sandbox to encourage innovation, testing products to the limit of the regulation, it’s expected that this will further encourage new products, by modelling them internally before being introduced to the broader market.
There are some great examples in the market of insurers leveraging several modern technologies in harmony, like the cloud native, mobile-first approach, API enabled micro-services architecture for the digitisation of the end-to-end value chain. By leveraging big data analytics at the core of the process, together with customer aids such as chatbots, it’s possible to increase conversion rates, launch new products at a faster rate than before, and engage better with the customers.
Another area where big data analytics has a significant impact is in the detection of fraud. This is another important area where we at LexisNexis Risk Solutions are helping insurers. Data analytics can be brought forward to help fraud specialists analyse massive volumes of data and predict instances of fraud, effectively looking at patterns and signals for fraudulent behaviour across large inter-connected databases. This is an important area that helps insurers to drive out unwanted costs, drive out any unwanted participants in the market, whether rogue vehicle repairers or ghost brokers.
Collaboration is the new way forward
We also have to state that the greater the amount of clean data available for the analytics model, the higher would be the accuracy of the analysis. Thus, the way forward for insurers and other stakeholders is to increase collaboration.
We can see that data is not only going to become much ‘bigger’, it is going to become more diverse, deeper, challenging to move around, and also increasingly critical to the insurance business.
Increasing collaboration and data sharing amongst insurers in the regulated space will result in the greater availability of data, what we term the contributory data principle, for gaining better insights.
Through their combined efforts, insurers would be able to improve the quality of protection for the end customer, delivering more appropriately priced products, more appropriate to their needs. The benefits achieved with big data analytics until now represent just the tip of the iceberg.
*Swiss Re Sigma Report.
**UK Insurance and Long-Term Savings: The State of the Market 2019, by ABI
**The World InsurTech Report (WITR) 2019 from Capgemini and Efma, available with free registration.