Insurers are hungry for data. As our recent survey of UK insurers shows, Big Data is the subject of today’s gold rush, and insurers are right in the midst of it.
Insurance carriers in the UK already use an average of over 10 different external data sources in their modelling today. Insurance brokers are a bit behind the curve, but they are quickly catching up.
And there is no letting down in the amount of new data. As many as half of the respondents anticipate the number of external data sources used by their companies to grow as much as 3-5 times over the next 3 years. Another 35% believe they will double the number of external data sources over this period.
Why the hunger for data?
With more data sources becoming available, business functions across the organization are realizing the value they can gain from a deeper understanding of the customer. This is clearly not an “IT-thing” or a top-down initiative. In 91% of the companies surveyed, each business function is responsible for data acquisition for its own models.
These business functions are reporting significant benefits from the use of external data. According to survey respondents, these benefits include (in order of significance) better pricing, risk selection, fraud detection, product design, claim handling, and marketing ROI.
Although pricing and underwriting lead the way in using external data today, other functions in the organizations – claims, product design, and marketing – are expected to jump on the data bandwagon in a big way over the coming years.
So what’s the problem?
While insurers clamour for more data, it doesn’t come without challenges. It’s like the bright shiny toy you are dying to play with, but comes with a 300-page manual you have to read first. Top challenges listed by insurers include data preparation efforts, integration into existing systems, and cost and quality of data.
Moreover, incorporating new data types into the different models is still a major undertaking. Across all areas, the majority of companies require more than three months to incorporate new data types into their models, and over a third of the carriers take more than six months to make use of new data types.
These challenges are only expected to grow as more data types are adopted. If insurers intend to triple the number of data sources used as the survey shows, they must get better at incorporating these new data types into their business or risk diminishing returns on their investment in data.