Spotlight: Big data: Insurers must embrace the wider use of data

Traditionally, insurers have focused on using historical data to help them assess risk and predict likely behaviours and future trends. Looking back at past behaviours in order to predict claim propensity, potential for fraud and likelihood to renew is a basic premise in the underwriting and pricing of insurance products.

However, the way in which consumers now purchase insurance has changed significantly in recent years, largely thanks to the rise in price comparison sites, forcing insurers to continually look at how they can remain both competitive and profitable. Consumers now choose who to insure with based almost entirely on price rather than brand loyalty, and have no fear of switching insurer at renewal stage if a more competitive price can be found elsewhere.

With brand loyalty at an all-time low and new business acquisition costs remaining high, insurers are being forced to change strategies and look to gain more in-depth knowledge of their customer base and prospects, not only to get their pricing right but also to understand how else they can better retain profitable customers.

There is no doubt there is now an increasing need for insurers to use behavioural data that gives greater insight into how a risk looks today, and consequently to better predict risk and behaviour. Historical data will, of course, continue to play an important role, but the key to success here lies in the ability to effectively combine the old and the new.

Improving business process
Ever more sophisticated technology has a vital role to play in delivering this, of course. Technological advances have already been successful in making data available at all stages of the customer journey, which consequently improves business process from acquisition, through pricing and underwriting, to claims, anti-fraud, and renewal. The ability to integrate automated identity checks at point of quote, and full card or bank account validation at point of sale, are prime examples of this – but there is much more which can be achieved.

In order for progress to continue to be made, the advances in technology need to be matched by a more sophisticated and co-ordinated data strategy, incorporating traditional and new data sets, across all stages of the customer journey.

It is no longer sustainable to merely look at attracting new business solely on price, only to see those policyholders switch insurer at their first renewal date. What insurers need to better understand is the behaviour of their policyholders, and connect more effectively and regularly with them – thereby developing better relationships with profitable customers, formulating more effective strategies for retaining them and also selling other products to them.

This can be done using a combination of traditional and new data sources, coupled with the resource and expertise to work with an insurer in successfully integrating this with the insurer’s own data. Simply acquiring new data isn’t good enough – effectively combining internal and external data, new and old, takes knowledge, understanding, and ongoing development – insurers need to work with partners who can deliver this.

Providing the insurance sector with access to new data sets will help change the way the industry identifies profitable customers, prices for risk, and retains good customers for longer. With the industry now able to gather more current information on how customers behave today and should behave tomorrow, the opportunity is there for insurers to develop better relationships and improve customer satisfaction.

Those who choose not to embrace the wider use of data in a co-ordinated strategy throughout the customer journey will find themselves at a distinct disadvantage.

Graham Odiam, head of insurance, Callcredit Information Group

This article was published in the 19 March edition of Post magazine.