The insurance industry is only just beginning to deal with a host of emerging technologies, including Big Data, the Internet of Things (IoT), and a vast wealth of sensor data such as automotive telematics, smart watches, and fitness trackers. In 2015 it’s likely that the industry as a whole will take some small steps (and maybe a few big ones) towards capturing this plethora of data and applying it towards better underwriting decisions and risk management. But there’s more at stake than just incremental improvements to the existing business model.
There are three key questions that need to be answered in order to move towards fundamental change:
1. Will insurers be able to develop the technology (Big Data or otherwise) to capture and use this growing amount of customer data?
2. Even if insurers can build this technology, will customers be willing to share their growing streams of personal data with insurers?
3. How can insurers use this customer data to do more than just update their current process?
For the most part, the industry has been fixated on the first question. Insurers have been experimenting with Big Data technologies and looking into hiring Hadoop experts, and while there are a few examples of big impact projects, the majority of insurers haven’t made much headway. Doing more with traditional data technologies has been sufficient, partially because–despite all the hype–the bulk of the business is still dealing with “small data.” Everyone knows about how some auto insurers gather vehicle driving data from participating customers, but outside of personal auto examples are rare.
But what happens when all new vehicles in the marketplace capture driving data, not just those where customers have plugged in insurer-provided dongles? And what happens when a maturing IoT means that all customer homes are gathering data about safety and security? And what about when a significant percentage of people are wearing devices that monitor their health and well being?
This leads us to the second question: Will insurers even be able to get access to this data?
Right now many consumers seem to be willing to share personal data with a host of third party companies in return for convenience and cool features. But will consumers be as open to sharing this data with their insurance company? Many fear that their data will be used against them, resulting in higher rates or cancelled policies. That’s a hurdle the industry needs to overcome.
In terms of true goal alignment, the insurance industry is actually much better positioned than many tech companies that currently control so much of the current personal data flow. The main goal of these tech companies is to use personal data to monetize the consumer. Companies like Google and many other less-trustworthy third parties want access to the customer’s data in order to properly position advertisements. Companies like Apple and high tech device makers want access to the customer’s data in order to sell them ever more gadgets. But insurance companies want access to the customer’s data to manage a customer’s risk, not to advertise or continually sell more to them.
But how does an insurer convince a consumer that they will use their data to help them rather than to sell or advertise to them? With automotive telematics we’ve learned that the first step is monetary: provide discounts. But the second step is making use of that data for more than just underwriting and risk management.
This brings us to the third question: How can insurers use this customer data to do more than just update their current process?
As the amount of real-time customer data expands and an insurer’s ability to process and understand that data grows, insurers will find themselves able to make informed insights about a customer earlier in the process. Instead of responding to a burst pipe after a winter freeze, an insurer monitoring home sensors will be able to alert a customer before weather damage occurs, saving both the customer and the insurer time and money. Instead of paying claims after an auto accident, an insurer will be able to make recommendations to a customer about patterns that will help them avoid accidents altogether. A workers comp insurer tracking RFID badges will be able to help reduce worksite mishaps and liability.
Insurers will be in the unique position of looking out for the customer’s well being, helping to prevent accidents, theft, and loss. Unlike most industries, the insurer wants exactly what the consumer wants, and both are happier when claims never need to be filed.
While some insurance companies might lead this charge, it’s unlikely that all insurers will develop the technology to capture and analyze the full range of data. Instead, third party companies will probably emerge that serve as consumer data hubs and begin to monitor and make suggestions to their clients. Insurers who don’t build this technology themselves will have the opportunity to partner with these third party companies, offering discounts and possibly covering the cost of the services for their customers.
The new year is a good time for thinking about longer term change. As multiple technologies converge, insurers should be planning for their role to evolve, migrating from one of just risk mitigation to include risk prevention as well.
As always I welcome your feedback. To send me a note or set up a complimentary 1 hour consultation, contact me via email.
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