Technological advances and the rise of big data in the global risk transfer industry enables insurers and reinsurers to develop new solutions and adapt their business models to remain relevant in a rapidly changing world, which should benefit consumers, says Insurance Europe.
In response to the European Supervisory Authorities’ (ESAs) joint discussion paper on the use of big data by financial institutions, Insurance Europe – the European re/insurance federation, has highlighted the opportunity technological advances across the insurance sector provides insurers and reinsurers in today’s challenging, and changing risk landscape.
“With technological advances, the wealth of data and computing power is changing, which, in combination with advanced data mining and analytics tools, enables insurers to adopt new business approaches and products, enhancing existing internal models, processes and services,” said Insurance Europe.
In line with the ESAs joint discussion paper, Insurance Europe agrees that such advances in the insurance world has the potential to make more existing exposures and new exposures more insurable, by enabling re/insurers and risk managers to develop better models and be able to offer more tailored products to consumers.
In areas such as motor insurance and health insurance, Insurance Europe highlights more comprehensive and accurate customer information from big data sets, which could make it easier to determine a more accurate customer risk profile, which in turn could promote more accurate and even reduced premiums.
Big data can also aid with prevention, which Insurance Europe describes as “one of the cornerstones of any insurance scheme.”
“Helped by big data analytics, insurers are better able to advise consumers on the right prevention measures they need to implement to reduce risk, which in turn can make their properties more insurable,” said Insurance Europe.
Greater understanding of catastrophe exposures via advanced modelling techniques and more granular data, for example, promotes more accurate risk assessment and should enable insurers and reinsurers to better understand and therefore price catastrophe risk, which in turn should make insurance available to a wider range of people in both developed and emerging markets, in a more affordable manner.
Despite potential improvements in risk assessment driven by technological advances, Insurance Europe does highlight that in some instances, “more accurate pricing could result in an increase in risk segmentation, which may render insurance more expensive for some consumers.”
“However, so far there is no sign, that insurance might become unaffordable for certain groups of insureds, and insurers have every incentive to offer attractive insurance products for all segments of the population.
“Additionally, Insurance Europe does not share the view that more granular pricing leads to reduced risk pooling. Rather, in line with the principle that homogenous risks should pay homogenous prices, more granular segmentation should lead to reduced cross-subsidies. This should not affect (re) insurers’ ability to pool risks.”
In fact, Insurance Europe feels that big data will most likely expand the offerings available to customers by enabling more reliable and focused risk-pricing and, at the same time big data has strong potential to expose ways that consumers can lower their risk, ultimately reducing their premium.
“These developments will allow firms to offer innovative products to specific market sectors to fill niche requirements expanding the range of policies and also the ability of consumer to tailor these policies to individual requirements,” said Insurance Europe.