How can insurers make better use of their customers’ data?

Data is critical to the insurance industry. It can be the difference between identifying risk and not; pricing policies correctly and not; retaining customers and not. Traditionally, legacy systems and siloed ways of working have prevented insurance organisations from making the most of the data they collect and store – but, to transform the industry meaningfully, insurtechs and incumbent insurers must get to grips with their data.

Are there holes in insurers’ data collection practices?

When it comes to making better use of data, the first thing insurers can do is reassess what data they already collect. Is every datapoint you collect necessary, and are there things you’re not collecting that you really ought to know? Data creates an all-encompassing picture about the customer and the nature of the risk you’re insuring, so collecting the right data is a critical first step in the lifecycle of a policy.

Chris Royles, EMEA Field CTO at Cloudera, says: “Data is vital to helping insurance companies understand their customers and assessing risk. Today, there are many data sources that simply weren’t available a decade ago. From ‘intelligent’ vehicles reporting accidents in the moment and IoT devices monitoring buildings through to the use of real-time weather data to model risk more accurately in shipping insurance.”

So what information could insurers collect, but don’t always, that would improve insurance decisioning or reduce risk for the underwriter? David Sexton, VP & Head of Insurance Practice UK&I for Cognizant, believes that insurers are slowly bringing connected devices into the data mix.

“Historically, insurers have relied on their vast quantities of historical data to advise pricing and customer engagement,” he says. “However, we’re now seeing these incumbents increasingly using unstructured data and new sources of external data such as IoT devices, which offer many more potential opportunities to collect data to inform decision making and risk performance.

“Collecting and storing this vast amount of data is pointless and expensive unless you can derive insights from it to understand both the risk and the customer better. Insurers will be competing with new entrants to the sector such as hyperscalers, with the winner being the ones able to utilise their insights to price better and provide better service.”

Both Sexton and Royles believe that fitness trackers are a good example of the way that insurers have changed their approach to data, with health insurers now using the data shared through such devices to improve decisioning and encourage less risky behaviours from the customer. “This helps to create lower premiums and reduces the risk for the business – both parties win,” Sexton says.

Nevertheless, Cloudera’s Chris Royles still believes there is an area of opportunity that insurers are generally not exploiting: “One gap in the current approach is insurers failing to enable customers to engage with them when life and asset circumstances change. By bringing the customer into the loop – in a secure and trusted manner – insurers ensure a better customer experience.”

Are insurers making the most of the data they collect?

Once you guarantee that you’re collecting the right data, the second important step in any data strategy is to make the best use of it internally.

“Insurers are not making the most of data they already have access to,” Royles asserts. “In fact, recent research shows that up to 75% of data in-house is not being accessed and used by insurers.

“This is because a lot of data is still being stored in old legacy systems, which can make it  hard to unlock and access. Also, valuable data is often unstructured, such as underwriting and claims notes. As a result, insurers often don’t know the power of the data they actually have available to them. On top of this, not all insurers know exactly which business use cases can be optimised by which data. All of these issues make it very difficult for insurers to make the most out of the data they already have in their organisation.”

Royles emphasises that it’s important to put the customer at the heart of your data strategy, as it’s their data in the first place. “This means they can act as stakeholders in their own data management, and access and maintain their own data when needed. This will drive the customer experience and create more regular engagement.”

Both our experts believe that customers are on the lookout for hyper-personalised service.

“In today’s competitive market, insurers must be able to collect, process, store, and analyse all of their data,” Royles says. “Regardless of whether it is structured (age, location, asset value) or unstructured (images of burglaries or car accidents, voice recordings); whether it lives at the edge, in a data centre, public cloud, or a hybrid cloud, data can provide insight.”

He continues that insurers can then use that data to apply machine learning (ML), advanced analytics and artificial intelligence (AI) and identify patterns, detect anomalies and assess risk more accurately.

But Cognizant’s David Sexton argues that restrictive regulation is preventing insurers from embracing innovation fully when it comes to their customers’ data: “96% of insurance executives responding to Cognizant’s survey indicated that cloud computing was delivering strategic value to their business, whilst 84% shared the same belief about AI and ML,” he says.

“However, the use of consumer data is still heavily regulated, particularly when it comes to what is permissible when measuring and identifying an individual’s risk rating. The need to tackle and comply with these current and emerging regulations is putting significant pressure on incumbent insurers to ensure their data security, consumer protection, and sustainability solutions and initiatives meet regulatory expectations. In turn, this is reducing the speed at which insurers can transform their approach to using their data.”

Advice for insurers looking to make the most of their data

So insurers are being squeezed from practically every conceivable angle: regulatory burden is preventing their freedom to innovate, yet customers want hyper-personalised experiences and senior stakeholders want reduced risk, and the technology is there to deliver both. If not exploited to its fullest, however, opportunity becomes threat. What words of advice do our experts have for insurance organisations looking to get more out of their customers’ data?

Cognizant’s David Sexton says: “To stay relevant and optimise growth, insurers need to focus on business transformation, and digital strength will be a clear driver for doing so. Executives need to develop comprehensive data strategies that make use of all the information available to them through investment in technology. Investment in data and analytics is becoming critical to enable quicker, more insightful business decisions that identify return on innovation, reduce fraud, and improve risk assessment.

“For example, many insurers have already begun testing technologies such as conversational AI and natural language processing to interact with clients and try to meet their demands and expectations for faster, more efficient services.

“In turn, insurers are benefiting from higher customer retention rates and lower agent turnover. These advances are becoming crucial in setting insurers apart, with low prices no longer being enough to entice customers in.”

Cloudera’s Chris Royles adds: “In recent years, we’ve seen insurers collecting and analysing a huge variety of data sets, allowing them to customise their offerings and deliver a better service. The next opportunity is likely to be just around the corner; we just don’t know yet what this opportunity will look like.

“So, my advice is for insurers to make sure they’re prepared for the next wave of data – whatever that might be. Only when providers recognise what data is held, and the customer is seen as the primary stakeholder, can the data be managed with the focus and care it deserves.

“Insurers must also have a unified data platform that enables them to apply ML, AI, and advanced analytics to data, ensuring they can harness the power of new data sources as they become more varied and complex. This will allow them to gain better customer insights and provide more accurate policies.”