It is universally accepted that data is integral to the future-proofing of the insurance industry, however its value diminishes when insurers lose sight of what they set out to achieve, according to Tom Payne, Managing Director UK & Europe at Verisk Underwriting, speaking in a recent interview with Reinsurance News.
With data becoming increasingly important and valuable, Payne noted that the current markets are fiercely competitive and how there is now a pressure on participants to retain and expand their customer bases.
He said: “Data, analytics and technology platforms are often seen as integral components towards future-proofing an existing business.
“Throughout the pandemic, we’ve seen operations, attitudes and society accelerate towards a more digital environment. What was initially a gradual change has been expedited into a matter of urgency.
“From a business continuity perspective, data, models, platforms and solutions that aid remote underwriting and claims handling have demonstrated their value, which will likely be retained as life returns to a new normal and the ongoing value is realised.”
When asked if there’s a quantity vs. quality argument to be made with how insurers use data, Payne said that insurers need actionable intelligence that can turn information into profitability, adding that it’s important to imbue data with meaning and get the customer to understand how that information will drive effective decision-making.
“Hypothetically, I could give an insurer ten different data points for a dollar, but if they’re not relevant and they don’t help that insurer achieve a particular business outcome, then that’s a wasted dollar.
“But what if they were to spend two dollars and get less data, but that data helps delivered the desired business outcome, for example expanding their market or reducing operational costs, then it’s data worth the investment,” he continued.
Payne also discussed the market’s priority when discussing data, noting that when an insurance carrier or agent reviews their operations, they need to have clear understanding of what works and where there is room for improvement.
“Businesses should make it very clear what they are trying to achieve when evaluating external data sources and partnerships with any data vendors.
“Do they want to save operational costs or improve loss ratios? Do they want to use bigger data sets to shorten the customer journey or retain more customers at renewal? Do they want to enter new markets where they have no experience data, or understand and improve the management of their aggregates to reduce their reinsurance costs? When you understand the business outcome you want to achieve, then we will find the data you need to achieve that,” he explained.
He went on to discuss some examples of better business outcomes through data, noting that a syndicate may review their US property book of business and find that their attritional losses are having a substantial negative impact on their overall combined ratio, and that this is something they want to remedy as best they can.
“They may realise that the data they have on US property is quite old or lacking in some form, and the existing process of validating property information and their relevant exposures is time-consuming and unreliable. Knowing that they want to mitigate this exposure and price accordingly, this would be a good opportunity to see how they can use third-party data to bolster their understanding of US property.
“Another example may be a UK motor insurer that continues to lose customers at renewal, with customers complaining they are being overcharged for car insurance when they have rarely driven their vehicle over the past year due to the pandemic.
“With customer retention becoming a top priority for that insurer, it now wants to see how third-party data can help offer more flexible packages at renewal by using telematics to come up with a usage-based payment model,” he explained.
Additionally, he said that customer experience is changing in a new way as from a customer perspective, insurance should be convenient, transparent, fairly priced and flexible. He stressed that since the beginning of the pandemic, customers have been more likely to ask questions about the cover they are getting to ensure it is fit for purpose.
“The increasing prevalence of electric vehicle and IoT devices is an example of where we may likely see more bespoke insurance packages. Building on the groundwork laid by telematics data, it seems likely that we’d be able to measure and price variables we haven’t been able to in the past.
“It’s possible that we could get to a stage where each individual’s policy is totally unique and spans multiple lines of business, unlike anyone else’s. But as we head in that direction, there must be an upside to the customer.
“Innovations in insurance are unlikely to resonate with customers as intended unless an insurer can be open and honest around the sharing of data and maintain that fidelity.”