UK regulator cautions insurers on big data


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The head of the Financial Conduct Authority (FCA) has reminded insurance providers of the need to be careful in their use of big data to ensure some customers are not unfairly penalised.

Speaking at the Association of British Insurers' annual conference, chief executive of the regulator Andrew Bailey noted the ability to capture and convert information into insight has led to a "revolution" in how businesses approach data. However, he cautioned that there need to be boundaries on how this is used to ensure that the technology serves everyone effectively.

The use of big data can allow insurers to determine premiums for consumers at a much more individual level, rather than pooling them into wider risk groups. This puts more emphasis on adjusting policies based on how an individual behaves. For example when it comes to car insurance, it can offer discounts to those who can be determined to be safe drivers.

"That strikes me as a good thing," Mr Bailey said. "It prices risk more accurately, and importantly, it should incentivise improved driving as a means to reduce the insurance premium."  

However, the use of this technology does pose risks, and could be used to penalise some customers – not only those determined to be at higher risk.

For example, Mr Bailey noted that big data may also identify and differentiate between customers who are more likely to shop around for the best price and those more likely to remain with the same insurer for years. He suggested this could be used as a justification to provide more 'inert' customers with higher quotes as they are less likely to switch providers.

These customers therefore pay more and end up subsidising cheaper quotes offered to customers who are more likely to shop around, and Mr Bailey suggested this is where the industry needs to draw the line on the use of big data.

“We are … asked to exercise judgment on whether as a society we should or should not allow this type of behaviour. To simplify, our view is that we should not,” he said.

There have already been questions raised recently about the use of big data in the insurance industry and how it affects customers' privacy. For instance, Admiral recently proposed a new service aimed at first-time drivers that would make decisions about their risk level based on what they posted on Facebook – with certain words and phrases being used as signifiers of personality traits that may translate to greater or lesser risk. 

However, this move was blocked by the social network giant as it would have violated the company's terms of service and privacy policies.

The FCA itself also recently completed a study into the use of big data in the sector, which concluded that despite these concerns, the technology is generally performing well, delivering "broadly positive consumer outcomes".

Mr Bailey noted that the full potential of big data in insurance has yet to be explored – particularly in areas such as life insurance, where the use of information such as genetic data could have "potentially profound" implications for the future of the industry.

It will therefore be up to both regulators and the government to determine how to approach issues such as this. He noted: "Understanding the effect and significance for insurance of big data and how it evolves requires a clear framework to disentangle the issues." 

How big data helps the hospitality sector


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The hospitality sector is a highly competitive part of the economy, with hotels in particular always under pressure to deliver the highest-quality experiences at the lowest cost possible. 

A key challenge for this industry is that in the age of constant connectivity, customers have higher expectations than ever before and will demand a personalised experience. If they do not get this, they will often not have to go far to find a competitor who will meet their needs.

Fortunately, there are steps hotels can take to deliver this service. Anil Kaul, chief executive of Absolutdata Analytics, wrote in a recent piece for Dataquest that big data analytics is a natural partner for the travel and hotel sector, due to the large amount of information that travellers generate.

"Hotel companies can use this data to personalise every experience they offer their guests, from suggesting local restaurants to finding an irresistible price point. They can also use this flood of data to fine-tune their own operations," he stated.

In the past, the hotel sector has not taken full advantage of this vast data source, as many companies did not know how to make the most of it. But as new developments such as mobile technology, powerful analytics solutions and more user-friendly dashboards become available, companies will be able to hugely expand their capabilities.

For example, Mr Kaul stated that on a person-to-person level, smartphone-enabled staff members can pull up instant information about their guests to alert them to needs or requests and help them respond accordingly.

On a wider level, big data can help hotels save money by cutting back on utilities when the location is not at full capacity. Local factors such as the weather or expected events can also be factored in, so room rates can be dynamically adjusted if a major conference is nearby, for example.

It can also help hotels determine which customers will offer the best lifetime value. For instance, Mr Kaul noted that while a guest on a special, once-in-a-lifetime holiday may spend a large amount in their visit, they are unlikely to offer repeat business. On the other hand, a frugal business traveller may seem like a less valuable customer, but if the hotel can make them happy, they could return on a regular basis for years to come.

By using big data analytics to study trends and identify what customers expect, hotels can better understand what they have to do to deliver a personal service and turn a one-time visitor into a repeat customer.

As well as improving the hotel's performance, a successful big data implementation will result in happier customers and an enhanced reputation for the hotel.

"Big data might still be in the adoption phase for the hotel industry, but it has a lot of benefits to offer," Mr Kaul said. "The data is there; it just needs to be put to work. Hotels that fully leverage it will gain a significant competitive edge."

Telcos turning to Hadoop to help counter fraud


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Many businesses in the telecommunications sector are turning to Hadoop-based big data analytics solutions in order to tackle fraud, a new survey has found.

Research by Cloudera and Argyle Data noted that fraudulent activities are one of the biggest challenges for the industry, with telcos in the US alone losing around $38 billion a year in revenue to this.

Therefore, any technologies that these enterprises can put in place to help identify suspicious activity and put a stop to it before it becomes a major issue will be hugely valuable, and increasingly, Hadoop is seen as the answer.

Nine out of ten telcos (90 per cent) attending a recent webinar organised by Cloudera and Argyle Data stated they intend to use Hadoop to assist in their fraud prevention strategies.

However, just a third (34 per cent) said they currently have a platform in place for this, which indicates there is still a long way to go for the sector as a whole as they try to identify the best use cases for the technology.

Vijay Raja, solutions marketing manager at Cloudera, noted: "Fraud prevention is a textbook use case for Hadoop-based analytics because the ROI is immediately visible.  Real-time machine learning relies on large amounts of data to detect sophisticated revenue threats."

Platforms that are able to combine real-time analytics, machine learning and graphical visibility tools are essential in countering telecoms fraud. These solutions enable analysts to spot fraud attempts as they happen, which traditional monitoring systems can struggle to achieve.

As today's sophisticated, high volume attacks can cost communication service providers millions of dollars in revenue in a matter of minutes, being able to detect fraud quickly will be essential.

Arshak Navruzyan, vice-president of product management at Argyle Data, said: "Unsupervised machine learning delivers everything telco fraud analysts need to be efficient at and deliver immediate ROI." 

How big data is transforming compliance


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For companies in many sensitive industries, managing their data in order to meet strict compliance rules can be a major headache. Often, regulators demand they keep large numbers of records on hand, which may be very hard to effectively comb through when needed.

It was noted by the Wall Street Journal that compliance applications vary widely, but often start with the company needing to identify what useful data it has available and then organising it into a useful format.

This is something that has proven difficult in the past, but the advent of big data analytics tools are changing this.

For instance, Lionel Wertz, director of corporate services at nuclear reactor company NuScale Power noted that until recently, his firm had operated a paper-based system, which keeps records for as long as 80 years beyond the lifetime of a reactor.

Now, however, it is moving to a data-driven system that will make it much easier to keep control of this information, which it is legally required to archive. This platform will enable it to  track and organise critical engineering information to be quickly searched and pared down.

“I’ll know how long I’ll keep my record for and when I can destroy it,” Mr Wertz said.

However, while some companies have found big data analytics is able to transform how they manage their compliance activities, many more are still struggling, largely because their systems are not equipped to deal with the large volumes of unstructured data that today’s tools generate.

Bob Rogers, chief data scientist for big data at Intel, told the Journal that while nearly every company is exploring how they can improve the use of data, only around half have the technology to pull in large amounts of unstructured data, and only a quarter can convert this into useful insight.

“Unstructured data by its very nature is an inference, it requires context as well as the data itself,” he said. “Determining what to measure and how to measure it has been a real struggle for compliance leaders.”

Among the most valuable information to these personnel will be consumer data and Internet of Things information, which can help improve their daily operations, as well as meeting compliance requirements.

For example, Bank of Tokyo-Mitsubishi UFJ turned to analytics to ensure it was meeting its obligations under Dodd Frank regulations for financial trading, which require all records and events surrounding a trade to be identified and collated.

However, the bank realised it could use this data to study its activities and look for common characteristics that indicate a good trade. It then used this insight to find out which sales practices were working and which weren’t, and reshaped its sales model accordingly.

In the past, this type of big data analysis would be out of reach of all but the largest companies, due to the amount of information to sift through and the computing power required to do this effectively. Nowadays, however, innovations such as cloud computing can give these capabilities to firms of any size, allowing compliance officers more opportunities than ever to not only improve their own activities, but assist the wider business.

Insurance sector ‘to increase focus’ on big data


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Insurance providers in the UK are expected to rely more heavily on big data analytics solutions this year in order to provide more personalised offers to customers.

Research conducted by Teradata revealed that more than four-fifths of companies with turnover of over £500 million (82 per cent) will be prioritising this technology in 2016. Meanwhile, smaller firms are still lagging behind in this area, with just 46 per cent of providers with under $500 million in turnover agreeing with this.

Despite the growing interest, there is still work to be done in some areas order for the UK insurance sector to catch up with those in other countries. It was noted that on average, 76 per cent of large firms in France and Germany are able to 'fully deploy' consumer data in order to make use of analytics, compared with just 63 per cent of British companies.

However, the UK was said to be ahead when it comes to incorporating technology such as the Internet of Things into their big data. This is an area that's set to be particularly important to the insurance sector, with tools such as telematics increasingly being used in motor insurance to provide quotes that reflect a person's driving habits.

Three-quarters of companies in the UK described themselves as "very well equipped" to exploit this.

As well as analysing customer behaviour and preferences in order to provide more personalised quotes and offers, nearly three-quarters of large insurers (73 per cent) stated that they will be using big data to help tackle underwriting fraud.

However, insurers have been warned they need to be cautious in their use of consumer data, in order to avoid falling foul of privacy regulations and to avoid alienating their customers.

Computer Weekly reports that at a discussion event in the city of London, chief executive of civil liberties pressure group Big Brother Watch Renate Samson noted that the trend towards personalisation will not be allowed under the terms of the European Union's forthcoming General Data Privacy Regulation, which will prohibit profiling or predicting on the basis of behaviour, attitudes or preferences.

She added: "People feel creeped out having their social media activity or web browsing watched. If an insurance or other financial services company comes to me offering a service and I realise they've been looking at my Facebook or Twitter, they will come a cropper."

Getting people engaged with the use of big data has also proved a challenge for insurance providers in the US, despite the potential savings that individuals stand to make as a result of allowing the use of technology such as telematics.

According to figures from US insurer Progressive, reported in a recent article in the Wall Street Journal, around 80 per cent of its customers would qualify for a discount on their premiums through the use of IoT solutions that monitor their driving behaviour. However, just a quarter of consumers have signed up for this, with a further 40 per cent stating they would never give their consent for this type of tracking.