How are analytics and technology infrastructure changing the insurance landscape? How is the industry responding to the changes brought by COVID-19 with the renewed focus on automation, data-driven processes and self-service? How has the risk outlook been changing and what changes to insurance products and risk management are coming as a result?
These are some of the big questions we at LexisNexis Risk Solutions have been exploring, testing existing products with new data, and working with clients to come up with solutions.
The pandemic has certainly reminded us all of the need to prepare for the unexpected and that not all risks can be assessed based on historical data. What we know up to now is that COVID-19-related market stresses could have initially wiped out up to 85% of the capital buffers of insurance companies*. New risks have appeared in the form of vacant commercial properties, altered driving patterns, the disrupted economic recovery in general, COVID-19 related litigation (for example with new safety concerns for employees) and increased dependency on digital distribution.
The development of effective digital sales and e-trade platforms are increasingly essential with the need for social distancing, and it’s a risk for those market players who are unable to rapidly adjust to the change.
In motor insurance new dynamics have emerged in pricing and underwriting. Our telematics data, together with other industry data has shown the changing patterns of road usage, with lower mileage, higher incidence of speeding, fewer insurance claims but higher claims severity and higher claims cost, together with increased fatalities from road accidents per mile travelled. Increased use of SORN declaration and consequential cancellations and gaps in cover, have caused some risk models to significantly under or overestimate risk.
Similarly, in home insurance, we have seen changing patterns in claims due to changing occupancy patterns. For example, theft claims are reduced, due to increased home occupancy, however, to counterpoint that claims due to escape of water, or to DIY disasters are up. Like motor, existing risk models are not an accurate reflection of current reality.
In these questions data and technology has the answer, and it’s those companies with a more open, agile technology foundation that are more easily able to rapidly adapt and seek out the solutions in the new patterns in the data and quickly bring the product to market.
We are also heavily investing in non-traditional data sources such as vehicle build data, with rapidly changing patterns. So it is more important than ever that the data we lean on is current and relevant. There is a wealth of data in devices, both in cars and the home that can be leveraged. LexisNexis is investing heavily in the automotive OEM space and will be seeing the first products becoming a reality over the course of the next few years.
This year could be where all the dots become more joined up on motor insurance. In-car systems are providing more data than ever. The year 2020 brought renewed interest in pay-as-you-drive, pay-how-you drive and mileage-based insurance products, rather than locking the customer into an annual policy.
The insurance industry is standing at the edge of a significant technology-driven change. Technology breakthroughs in all spheres of life present a world of possibilities. However, when compared to many other industries, customers are less satisfied with the digital insurance experience. For example in the Institute of Customer Service Customer Satisfaction Index for the UK**, insurance is mid-ranking in terms of how consumers perceive customer service, above industries like tourism, automotive or telecoms, but below retail, leisure and banks. During 2020 customer satisfaction with insurance was flat or slightly down, in line with the overall UK trend.
Customers would like to have a simple and more direct experience with the insurance provider. Hence, the future belongs to those insurance providers who are embracing technology, adopting new technologies, streamlining process, and leveraging the true value of data.
Embracing digitisation powered by the evolution of technology infrastructure can:
• Reduce total costs of IT, utilising cloud elasticity to handle peaks and troughs of demand.
• Unify customer data, enabling a single customer view, giving a true picture of risk with data-linking through services such as LexID® for Insurance
• High system resilience, providing high levels of system availability through distributed self-healing architecture.
• Drive better customer engagement through improved online experience, with prefill taking the load.
• Reduce speed to market and drive new business opportunities
• Better manage intermediary relationships, easier and less costly integrations with insurtechs, software houses, consumer apps and other partners
• Maximise customer engagement and streamlining of claims with First Notification of Loss, where insurance apps can deliver alerts and serve as an additional emergency service on the road or in a property.
The insurance industry is all about the selection and pricing of risks. In this regard technologies like the Internet of Things (IoT) and the coming wave of new data from vehicle systems – and other building sensors in the smart world – are going to change the data sets available for accessing and analysing risks.
Evolution of technology infrastructure
Cloud services offer a flexibility not found in most traditional systems, in the days when any start-up can rapidly access processing power, alongside plug and play data analytics tools, established companies cannot afford to stand still. Existing infrastructure and processes are often embedded deep in organisation and can be a burden on resources and a hindrance in delivering the faster processes customers are demanding. This means change is neither quick nor cheap, so there must be a very strong case to make the investment.
Cloud computing is the great leveller, as compared to earlier technology, when only large companies could support the finances to use best-in-class systems and perform complex risk analysis, nowadays every company irrespective of its size can in principle use these tools, immediately available as a pay-per-use model.
Cloud, alongside agile methodologies, allows rapid prototyping of new ideas for products, with very little capital outlay.
While cloud computing greatly facilitates development of new ideas, there are two other significant advantages that moving your systems to cloud bring.
The first of these is the ease of scalability. In the conventional model, if you need to add capacity you have to procure new servers, find a space in data centres, build and install the service. This often takes many months, whereas with cloud it is as simple as just paying for more capacity and it’s there.
The other area, where cloud gives an organisation an edge, is in resiliency. Having a great idea and building an application is only the first stage. If it is unreliable and can’t grow with your success, customers will leave. Once again, cloud removes much of the complexity and time to solve this.
The power of data analytics
Cloud has the power to revolutionise the way we manage our infrastructure, what it can do for the way we manage and analyse data is just as innovating.
The insurance industry as a whole is sitting on piles of data, often far more than could be analysed with existing systems, for example data that could be actionable in new areas like smart buildings. Only the largest organisations could afford the big data tooling and have a team of specialists to manage them. With today’s services available on a pay-as-you-go basis, the barrier to entry is reduced, from managed database services to machine learning software. No longer is product innovation limited by infrastructure and tools; rather today’s limitations are governed by regulatory limits and getting access to the data. Data becomes the king, rather than the technology.
What should I do?
This leads to the question, every organisation should address: if transitioning to cloud and agile development brings so many benefits, why wouldn’t everyone simply make the move?
The answer at its core comes down to the cost and disruption in making the move. For organisations with large technology estate this is a huge endeavour and will inevitably cause disruption to existing or new product while migrating. I hear many people promote cloud as a cost-saving exercise. But while it may save some costs, it is unlikely to have a return on the investment cost. Move to cloud if you need the agility and flexibility it brings.
At LexisNexis® we recognise the insurance market is a dynamic market, with new and innovative data sets coming available on a regular basis.
As the leading data provider in this market, LexisNexis Risk Solutions has invested heavily in transitioning our existing platforms and products onto an agile cloud-based solution. This means that we can make new products and data available much more rapidly than before. One example would be our Hosted Data service, connecting an insurer’s own data (such as loyalty card or other affinity data) directly to our infrastructure. This factor, combined with our LexisNexis® Capstone technology, means our customers can take advantage of the flexibility our system provides to rapidly ingest new scores and attributes with minimal effort for them, all delivered on a highly resilient and scalable platform.
You could say that by taking data through our services, they get much of the power of cloud, without the cost and pain of transitioning.
*Source: S&P Global Ratings, ‘Top Risks For The Global Insurance Industry’.
**The UKCSI is the national barometer of customer satisfaction published twice a year by the Institute of Customer Service since 2008.
Follow the link to the LexisNexis Risk Solutions website to find out more about how we support insurance providers.
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