It’s the future of the insurance industry, yet big data presents several challenges for insurers.
Big data is transforming American businesses, but despite its well-documented benefits, the insurance industry has largely lagged behind other industries in harnessing its immense power. In fact, a recent study by the International Institute of Analytics found that insurance has the least expertise with data analytics of the 12 industries it surveyed, with health insurance ranked only slightly above it.
Last year, Fitch Ratings concluded in a report that large insurers stand to benefit the most from big data, since they operate on an ideal scale and have the resources to invest in the needed infrastructure. Nevertheless, Fitch warned that constant competition within the industry could prevent many insurers from taking advantage of big data.
“While the more proficient underwriters should improve profitability and return on capital by leveraging big data and advanced analytics, overall industry performance improvements will be more difficult to observe and could prove short-lived due to the cyclical and highly competitive nature of the insurance business,” Fitch researchers said.
Rapidly changing business cycles and incessant competition aren’t the only obstacles the insurance industry confronts in adapting to big data, however. Here are four of the greatest.
Collecting and storing data may be easy, but insurers need to continually monitor and assess the quality of the information they cull. Since data also evolves over time, insurers need to create a system to standardize, audit, and automate data in order to root out errors and maintain quality.
Policyholders may own different policies from the same insurer. The information compiled in those contracts, however, might be stored in different legacy systems, making it difficult for an insurer to gain insights into an individual client. As Samantha Chow, Senior Analyst at the Aite Group, told Information Week, “If you have a life insurance policy and an auto policy or a dental policy with [a particular carrier], they can't get data from one policy to the next policy. They can't merge that together so they can learn more about you.”
Amassing a trove of data will yield few tangible results if the data isn’t applied to a specific business goal or metrics. If an insurer is interested in reducing customer turnover, for instance, it should find a reliable source of information regarding its customers’ behaviors such as the approval and/or activation date of a policy. Unfortunately, that data may be included in separate programs or databases that might not be compatible with each other. If the managers or proprietors of those systems aren’t on the same page, any data contained in them is more or less useless.
To actually benefit from big data, agents and underwriters require timely access to the information. Even less technically literate users must be able to dive into the analytics platform and find the material they need without having to call in a specialist. Finding a data intuitive analytics tool for all users is vital, but it remains a challenge.
As the Fitch report stresses, C-suite executives must strongly support big data initiatives, which means not only investing in up-to-date technology, but recruiting qualified talent, as well. If an insurer decides it doesn’t have the resources in-house to take advantage of big data, it can partner with another company. Either way, insurers should be prepared to overhaul their operational and organizational model to reap the rewards of big data. While that can seem daunting, it’s a project that all insurers have a duty to pursue.