The rise in Big Data could usher in a host of opportunities for insurers to expand their customer bases and develop innovative products and services; but it could also prove a test for brokers.
Insurers are increasingly investing in analytics. Many major insurers have set up dedicated analytics departments, which give them greater opportunities than ever to offer products to customers based on their needs.
With that rise has been the increase in direct selling, particularly in personal lines spaces. Instead of needing brokers, with their client notes and interviews to sell policies, insurers are finding themselves able to offer a personalised service in-house.
In a recent feedback statement, the Financial Conduct Authority has said that while Big Data could bring about a lot of positives, it could also have negative outcomes for consumers.
The regulator has raised concerns that Big Data has the potential to enable insurers to charge certain customers more for their policies. But the FCA has labelled it as a positive innovation and one that could change the industry.
“There is potential for Big Data to transform practices across general insurance markets, and some consumers are already seeing benefits but there are also some risks to consumer outcomes,” said Christopher Woolard, director of strategy and competition at the FCA.
“While we have decided not to launch a full market study, we are undertaking further work in this area and with the Information Commissioner’s Office to ensure our rules and policies keep pace with developments in the market, but also do not prevent positive innovations.”
So, what threat does this so-called Big Data pose for brokers, and how can brokers still make themselves relevant in this digital world?
At a recent Big Data conference hosted by NGIN, Anna Vigden, outsourced claims management at XL Catlin, suggested while Big Data could pose more of a benefit than a hindrance, brokers could struggle to compete with it.
“Artificial intelligence features widely in visions of the future, and mostly in a positive fashion, replacing and improving the more mundane administrative of the industry,” said Vigden.
“Where AI could pose a problem however, is within the broking community. Everything will be based around Big Data and underwriters, brokers won’t be as needed, things will be more automated, more online where you don’t actually have to speak to anybody to get cover.”
Something to be embraced
However, the general consensus in the industry seems to be that Big Data is something to be embraced – not feared – by all in the value chain and is something even brokers can capitalise on.
Nigel Phillips, commercial director at CDL Solutions, said: “The insurance industry is the most automated in the world, and generates vast amounts of data, particularly through aggregator and telematics services.
“This information represents a huge opportunity to gain insights into consumer behavior in much the same way as tech giants such as Amazon and Google have done.
“The ability to process, analyse, make decisions on and learn from this data has been relatively limited, but the recent growth in technology means that affordable, high-speed solutions capable of processing Big Data in real-time are now readily available.
“Brokers can derive a range of benefits from these tools. Autonet’s recent deployment of a data intelligence solution to inform pricing is an example of brokers turning to technology to explore new and intelligent ways to utilise their own data. The solution is able to comb through near-infinite amounts of data from multiple sources in a split-second, and then analyse and enrich results in real-time.”
Phillips also believed Big Data will not phase out brokers, or in fact any roles in the industry, but will instead enhance them. There is also the issue of customers feeling more at ease with human interaction which means that brokers will be needed.
“Rather than fearing replacement by automation, the focus should be shifted to how Big Data and related technologies can augment the work that brokers do,” said Phillips.
“Based on results of a recent survey conducted on our behalf by Censuswide, while the perception may be that millennials demand a fully automated process, the reality is actually quite different.
“The survey suggests 28% of 16 to 24-year-olds prefer a face-to-face insurance shopping experience, which reflects the existing demand for human interaction, as well as service through other channels, such as webchat or telephony. This is particularly true when insurance is a more complex or expensive purchase, and people’s circumstances vary from standard requirements.”
Similarly, Ola Jacob, senior broker at Arthur J Gallagher, said artificial intelligence isn’t enough to replace the role of a broker but it will help to make things easier, especially within SME businesses.
“After coming across AI in university the human brain is far too complex to re-create with technology,” said Jacob.
“This is important because the role a broker plays isn’t just about intelligence and knowledge but equally about flexibility, agility and communication.
“AI powered by Big Data could create more efficiencies similar to the personal line space with simple SME business – that really isn’t worth a broker’s time. The role AI will play is facilitating the broker to understand the risk and communicate that to the client and insurers.”
Glen Clarke, head of transformational propositions at Allianz, supports the thinking that brokers are far too ingrained in the industry to be threatened. Big Data is a tool, suggests Clarke, and its one which brokers are already utilising an effort to bring the industry even further up to date with modern technology and become customer-centric.
“Big Data is already being used within the industry and there are brokers out there that have been using data analytic techniques for a long period of time, via customer data and performance models, so to some extent that is the much of the same and will evolve,” said Clarke.
Yet even though brokers are using it, they need to evolve with the data that is on offer; in the same way that telematics can used to a company’s advantage, so can Big Data, said Clarke.
“Where it will become more challenging is when that volume data and the need to develop the customer relationship, post-sale. That does require some significant infrastructure.
“There will need to be a level of expertise and possibly many companies will struggle with that, purely from a financial perspective. But, as we’ve seen with telematics, that doesn’t preclude a broker from taking part. They can get involved with it by using Big Data as a service or by changing the nature of their collaboration with big insurance partners and work with them to figure out how it can be used to benefit themselves, the insurer and the customer.”
No overnight revolution
The revolution of Big Data won’t happen overnight as there will be a need for new operation models, said Clarke: “Big Data will have a huge impact and will help the industry evolve. But all members in the value chain will adapt and that will lead to new consolidation in new operation models but it won’t be over night that we see large swathes of brokers being pushed out.”
Andrew Thornley, corporate affairs manager at the British Insurance Brokers’ Association, said underwriters may face the most problems due to Big Data.
“Underwriters will probably face a set of challenges and the reason for that is the information that goes into these systems is only as good as the source it comes from,” said Thornley.
“For example, policyholders may not be aware of the risk that they have flammable goods in a building. That is only something that a broker could find out and disclose to an underwriter. Once the underwriter has all of that information then it can come up with a rating, but anything that can be automated is probably more at risk of being replaced by AI.
“Although all roles within the industry are at risk from AI at some point in the future, the underwriters need to be looking over their shoulder a little bit more.”
Julia Graham, technical director at the Association of Insurance and Risk Managers, also believed brokers are safe from being replaced – but added they need to act quickly and grow in the same direction as Big Data is pulling the industry.
“The future is all about collaborating with each other to find out how the industry can work together,” said Graham.
The industry is experiencing a shift with the use of telematics and technology; Big Data, said Graham, is just another tool that the whole industry can use to its advantage but it needs to act quickly.
“Brokers already collaborate, the use of Big Data is just an extension of what brokers already do. There’s no question as to whether it’s a good or a bad thing, it’s going to happen and it’s happening now. Everyone in the industry needs to be agile.
“The Internet of Things is fuelling the use of Big Data and if you look into the future it’s going to change all of our lives. Insurers, reinsurers and brokers all need to understand what this technology can do for us. We all need to work together in order to maximise the opportunity that these things bring.”
Potential for growth
Big Data brings with it the potential for industry growth and is not an ominous threat to brokers – if they develop their understanding of it and use it to their advantage, concluded Graham.
“The complexity and change of pace of what is going on around us means that we are merely transforming what is happening,” she said.
“In the world of insurance, it’s a factor that’s going through a period of transformation. If you’re up to it and can convert the opportunities, you will come out of it well.”
Selim Cavanagh, vice president of telematics at Wunelli, sees big data as having the potential to equip brokers with the information they need to better understand their market.
As customers begin to demand more tailored services and products, big data offers an opportunities for firms to revolutionise their product offering.
"Big data should bring insights to brokers and insurers about their customers and prospective customers that will enable them to understand the market and define their propositions in a much more sophisticated way than we have ever seen previously," said Cavanagh.
"We should see Big Data and AI as an opportunity not a threat. If we think about the increasing sources of data analytics that are now available to the insurance sector, you can see how it's possible to build a more rounded picture of your customers and with that understanding of their risks, you should know the best way to engage with them and develop targeted propositions that deliver on the bottom line."
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