In a competitive market, validation is key to making data leaner and more reliable — but can it level the playing field for brokers, as well as insurers?
Despite the massive changes that the personal lines market has been through in terms of the way policies are rated, quoted and sold online, there has not been any significant change to the questions policyholders are asked.
However, with the market getting more competitive every day, insurers are now focusing on giving the data they receive from policyholders an intensive workout and making it altogether leaner and more reliable.
The real-time, online environment is fantastic as far as customers are concerned and they now expect providers to be able to operate within extremely short timeframes.
Despite the pressure that this creates for carriers, the IT-driven environment has also generated major advantages for insurers, as Nick Turner, managing director for intermediary and partnerships at Axa Personal Lines, is keen to point out.
He says: "The key benefits include: reducing overheads; rapid identification and correction of pricing errors; improved speed of delivery; increased frequency of change; the ability to flex market conditions; the ability to bring new products to market much faster; and greater control of the underwriting footprint."
However, on the downside, it has been incredibly difficult to put an effective check on quote manipulation, as customers massage their online responses to misrepresent their risk and lower the premium. It has also been difficult to accurately validate customers' identities in the online space.
In addition, the intermediated market has been at a disadvantage because the insurer rates it works from are not generated in real time and can be weeks, if not months, old. However, change is afoot, and significant steps that will address these issues are already being taken.
The key that will unlock the door to many of these challenges is linking in to third-party data providers and validating customer information before a quote is produced. Not only can validating the data help to stamp out fraud and risk manipulation, but it will enable insurers to enrich the information they have and give them greater detail for underwriting purposes.
Richard Crocker, divisional director for distribution at SSP, says: "It is all about using the data that is captured to validate the risk.”
Whether it is the electoral roll, postcode information, the Claims Underwriting Exchange, vehicle registration data or credit checking, Crocker says using these third-party sources to cross reference the information provided by customers allows an application to be properly verified.
This then enables insurers to rate risks at the right price and more effectively match the risk profile of their book of business to the premiums they are charging.
In the direct market, insurers are already creating external links to these third parties, to allow the data to be checked and queried before a quote is produced. Direct writers are also much better placed to alter the rates they charge and respond to changes in the market. In recent years, this has given them a significant advantage over brokers, often making them considerably more competitive.
In the intermediated sector, where rates tend to be generated by quote engines hosted in brokers' own offices and updated by hard media, it has not been so easy to create links to these third-party data providers and validate data before quotes are generated. Nor has it been possible for insurers to provide updated rates to brokers with the same frequency as direct writers can launch new rates into the market.
However, advances in IT mean it is no longer necessary for brokers to host their own rating engines or rely on hard media updates. Instead it is now possible for brokers to link into quote engines hosted by their IT partner.
In turn, these hosted engines are linked into third parties, so as soon as a broker enters a client's information and requests a quotation, the data on the application is sent off to the third parties for validation before it is rated and returned to the broker. This has enabled brokers to benefit from real-time pricing and also enjoy all of the benefits that data validation and enrichment by third parties brings.
Debbie Baker, sales and marketing director at RDT, comments: "Validation is now happening and the coupling of brokers, insurers and third parties is much better than it was."
It may not be the way things are done in every broker's office across the country, but the fact that this model is now gaining traction and addresses many of the issues brokers have previously had to wrestle with, means the playing field is no longer sloping as much as it was in favour of the direct writers.
Tom Cooper, co-founder of online broker Igo4, says: "Brokers are more than able to hold their own as long as they get access to the right IT. Validation is the next step and it is all about quick access to data."
Brokers also have an important role to play in helping insurers weed out customers who try to manipulate their premium by altering the personal information they provide online. Although it is possible for IT systems to flag up when a quotation has been submitted with altered information on numerous occasions, it is difficult for direct writers to intervene in a meaningful way.
They can post messages online warning customers that the data they give must be accurate, and third-party sources will do a lot to validate anything that is questionable, however, little is better than an experienced broker discussing the application with a client.
As such brokers can offer an important line of defence to insurers and insist that questionable customers are spoken to before a policy is sold. Those who choose to go elsewhere may be no real loss to the broker or insurer, while with others there is the opportunity of a conversation through which to add value and promote the service and product suite they can offer.
Will Price, director of product development at BGL Group, comments: "Checking appropriate data sources can help validate many elements of the risk proposed, but that will not necessarily stop proposers 'testing' the impact that underwriting factors such as annual mileage have.
"It is possible, though, to identify proposers that are making several changes to their quote data, and then take an appropriate course of action; whether requiring them to call, adding a premium load or declining to quote altogether."
The real-time environment creates challenges for both brokers and insurers, but as IT evolves and it becomes easier to link into third-party data providers, validate information effectively, and offer prices in real time, many of these challenges are being overcome.
However, there is still a long way to go. In the US, motor quotes can be produced from only three or four pieces of information, which gives an idea of just how hard data can be worked, and just how much cross-referencing and validation can take place when the appropriate connections are in place.
At the moment the UK insurance market is working hard to set up those connections and this can only help rather than hinder brokers in the future.
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