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." 

Insurers ‘missing out’ on big data advantages


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Many companies in the life and property/casualty (P&C) insurance sectors are failing to take full advantage of the potential of advanced big data analytics solutions, according to a new report.

Research conducted by Bain and Company revealed that despite some early successes, much of the industry has yet to scratch the surface of what big data technology is capable of. It found one in three life insurance providers and one in five P&C insurers do not apply big data tools to any business functions.

These businesses will therefore lack critical customer insight that can be used to gain a competitive advantage.

Many insurance firms are aware of this issue and have plans in place to increase their spending on big data over the next three to five years. On average life insurance providers expect this to rise by 24 per cent, while P&C providers foresee a 27 per cent increase.

But even among those businesses that are looking to boost their performance, many initiatives will be narrowly focused on two key functions: sales and marketing, and fraud detection. However, these activities are just a small part of what big data analytics can bring to a company.

"In our work with insurers around the world, discussions tend to centre on data management issues and technology investment decisions," said Henrik Naujoks, head of Bain's Financial Services Practice for Europe, the Middle East and Africa and co-author of the brief. 

He added: "Very few are focused on the more important question of how to derive real, valuable insights from the data in order to inform better, more strategic decisions about their business, their processes and, most importantly, their customers."

Bain highlighted three key areas where effective use of big data can help inform decision-making: customer experience, innovation and underwriting.

When it comes to customer experience, for instance, one life insurance producer used big data to develop an algorithm that could identify which prospects could be approved for coverage without the need for an expensive blood test that was previously a standard requirement. As a result, this meant around 30 per cent of applicants did not have to have the test.

Elsewhere, one P&C firm found that underwriting due diligence activities could take up to nine months. But by deploying big data to analyse its own client database, and compare to US federal data on safety violations in order to screen potential clients, it has been able to greatly cut down on the number of site inspections by its engineers, which are both expensive and time-consuming.

This use of big data can also help insurers avoid taking on a high-risk client that could lead to a big payout further down the line.

However, insurers, much like any other business, must recognise that simply investing in analytics solutions alone will not be enough to guarantee success. Instead, analytics must break out of the IT department and be viewed as a key part of the wider business.

Lori Sherer, co-author of the brief and leader of Bain's Advanced Analytics Practice, said: "The most successful insurers break out of the silo and involve business stakeholders across the organisation to inform the analytic development process. The result is insights that are more likely to be adopted by the front line, thereby giving them a competitive leg up in the industry."

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.

Can the insurance sector get consumers on board with data gathering?


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Over the last few years, many businesses have been tempted by the idea of using big data to gain a much more detailed picture of their customers, which they can in turn use to provide more personalised offers and even discounts.

But the catch with this is that in many cases, consumers will be wary of technology solutions that delve deep into their personal information. In some situations, they will need to give their express permission for a company to collect and use their data – and this can prove tricky to obtain, despite the benefits on offer.

This is a problem currently being experienced by the car insurance sector. It was noted by the Wall Street Journal that the advent of big data analytics, combined with Internet of Things technology, has provided great opportunities for the sector. 

Whereas in the past, insurers had to rely on broad categories such as age, occupation and car type to determine risk levels, by using sensors in their customers' vehicles, they can track behaviour much more accurately to deliver personalised quotes. 

For instance, among the metrics tracked by US insurer Allstate is hard braking – defined by the company as a speed reduction of more than eight miles per hour in less than one second. Analysis of this data reveals that drivers who do this more than eight times for every 500 miles driven are 73 per cent more likely to be involved in an accident in any given year.

However, despite the impact this may have on premiums – with large discounts on offer for the safest drivers – consumer trust in the technology remains low.

According to US insurer Progressive, almost 80 per cent of its customers would qualify for a discount through the use of driver trackers and big data analytics, with savings of up to 30 per cent available.

But just a quarter of the company's new customers use the technology, while a survey by the company found around 40 per cent of people stated they would never consent to the use of such sensors.

Chief executive of Progressive Glenn Renwick noted this is a challenge that's particularly prevalent in his industry. "Insurance is not something where people say, 'I trust you,'" he said.

Therefore, companies in the sector are having to create even more incentives in order to persuade people to use the technology. Allstate, for example, offers drivers the chance to earn points through safe-driving challenges, such as driving below 80 miles an hour and avoiding hard braking for three straight days, which can be redeemed for  deals on merchandise, gift cards and local offers.

In years to come however, some experts are predicting that resistance to the use of data-gathering for use in analytics-based businesses will fade. Paul Saffo, a Stanford University professor and specialist in technological change, told the Journal that  usage-based pricing will be inevitable for the insurance sector in the long term.

He added that in the US at least, consumers have already shown increasing willingness in recent decades to sacrifice privacy for convenience, and they will continue to do so – even as they complain about the technology.

Security to be key big data use for 2016


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A growing number of organisations in sectors such as banking and insurance are set to turn to big data analytics in 2016 in order to keep their critical information safe from hackers and other unauthorised users.

This is according to a new forecast for the year ahead from Oracle. It noted that 2016 will see big data become more integral to the day-to-day workings of many businesses.

Neil Mendelson, vice-president of big data and product management at Oracle, said: "2016 will be the year when big data becomes more mainstream and is adopted across various sectors to drive innovation and capture digitisation opportunities."

However it will be the technology's ability to identify unusual and potentially fraudulent activity that will be of particular interest to the financial services sector.

The company stated: "2016 will witness an increase in the proliferation of experiments [around] default risk, policy underwriting, and fraud detection as firms try to identify hotspots for algorithmic advantage faster than the competition."

Another key driver for big data security solutions will be increasing public awareness of the numerous ways their personally identifiable information can be collected, shared, stored and stolen. This will in turn lead to more calls for greater regulation to ensure this data is protected.

"The continuous threat of ever more sophisticated hackers will prompt companies to both tighten security, as well as audit access and use of data," Oracle continued.

Among its other predictions, the company forecast increased demand for data scientists from established enterprises, while the emergence of new management tools will allow more businesses to implement technologies such as machine learning, natural language processing and property graphs.

Simpler data discovery tools will also let business analysts identify the most useful datasets within enterprise Hadoop clusters, reshape them into new combinations and analyse them with exploratory machine learning techniques. This will improve both self-service access to big data and provide richer hypotheses and experiments that drive the next level of innovation.

FCA to investigate UK insurance market’s use of big data


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The UK's Financial Conduct Authority (FCA) has announced a review into the way general insurance firms in the country use big data analytics to improve their operations.

It has issued a call for input on the subject, with the regulator inviting both consumers and the industry to give their thoughts on how big data impacts on organisations' decision-making and the effects the technology has on customers.

The study will focus on three key questions. It will ask whether big data affects consumer outcomes, whether it fosters or constrains competition in the sector, and if the FCA's regulatory framework affects developments in the retail insurance big data market.

Christopher Woolard, director of strategy and competition at the FCA, said: "Big data is having an ever-growing social and commercial impact, and has the potential to transform practices and products across financial services. We are starting our work on big data by seeking to better understand how insurance firms are using data, and how this may evolve in the future."

He added that the review will influence the FCA's thinking when it comes to determining what steps need to be taken in future to regulate the sector.

It was noted by the Financial Times that big data has become particularly important to the insurance industry, which is able to use detailed information about their customers' behaviour to calculate more personalised premiums.

They can also take advantage of platforms like as social media to verify whether claims are fraudulent. They can, for instance, check whether two people in a seemingly random road accident are connected.

However, a 2013 study by the Association of British Insurers (ABI) suggested 71 per cent of consumers would be unhappy with insurers pricing their products based on information gathered from social media, so companies will have to tread carefully when utilising this type of data.

The ABI stated this week that insurers take care to treat personal data sensitively, adding: "Big data can make insurance work better for customers by improving the claims experience and creating personalised and innovative products."