Big Data describes the large volume of data that businesses are exposed to on a day to-day basis.
It is the use of this data through analytics that allows businesses to make better strategic decisions as well as day to day decisions in their business operations.
Big Data allows insurers to learn more about their clients, which can increase an insurer's competitive advantage, as the insurer is able to tailor their customer experience and develop insurance products suitable to customer needs.
Access to data
Due to regulatory changes and requirements insurers are not willing to outsource functions to third parties where there is a risk that they cannot obtain data from the third party. And when they do obtain data, they don’t receive the necessary or good data that allows them to comply with legal requirements. It has also been recognised that data is important when it is "real-time" as it identifies risks quicker that historical data. From a regulatory perspective, this has been recognised by the regulator who only wants insurers to outsource functions and activities to third parties that can provide the insurer with instantaneous access to data.
Benefits of real-time data
In the United States, IBM conducted a study that found that 74% of insurance companies surveyed use Big Data and analytics, which is creating a competitive advantage for their organisations. This allows the right skills and tools in place to better understand their operations, customers and new markets.
Insurers in knowing and understanding their customers are able to develop "models". These can be models for underwriting, claims settlement or distribution. Of course, these models and the use of data must consider privacy requirements and ethical concerns. Models become more forward-looking as traditionally historical data was used to determine rates and behaviour. Real-time data will assist the insurer to identify an impending risk and look at ways of reducing its exposure.
Big Data also helps insurers to crack down on fraud. It assists the insurer by raising red flags in a claim and allows the insurer to spend more time on the exception claims and quickly assess and determine all other claims, therefore leading to a better customer experience at claims stage.
All forms of interaction with a customer allow the insurer to gather information on a customer. This means that where the insurer outsources functions to third parties, it needs to be able obtain the data to manage its risk, provide statutory information to the regulator and understand the consumer.
Understanding customers by analysing customer feedback or social media activity allows algorithms to be developed that help insurers sift through lots and lots of data. Eventually insurers can create tailored and personalised marketing strategies for target customers. In addition, this data allows insurers to tailor their contact platforms with customers so that they are relevant.
The perfect position to gather data
Big Data is also used to identify customers that are at risk of cancelling their policies. Insurer profitability is highly attributable to maintaining customers and not only to attracting new ones.
With the continued and increased use of technology in interacting with customers, insurers are in the perfect position to gather data to know their customers.
In addition, the insurance industry will create new opportunities and positions for data scientists. Insurers will require human interaction to marry their technology with industry expertise in order to use data for the purpose it is intended to be used.