Firms in the insurance sector are expected to increasingly rely on big data analytics solutionsRead More
Insurance firms ‘starting to unlock big data potential’
Firms in the insurance sector are expected to increasingly rely on big data analytics solutions for their day-to-day operations and wider decision-making this year, according to a new report from Fitch.
The credit ratings agency stated the technology will have an important role to play in boosting insurers' profitability and competitiveness. The firm noted that this will in turn lead to a positive impact on their credit rating in the long term, therefore boosting their ability to do business.
Early adopters of big data will be able to enjoy several benefits as a result of the solutions, including reducing fraud, more accurate pricing and better distribution control, which will all help them gain a vital competitive edge. Firms that are slow to adapt, on the other hand, may find themselves losing earnings or market position.
"Some insurers use big data to assess their intermediaries by analysing, for example, the volume, value and persistency of the business they source," Fitch's report stated. "This enables them to optimise their distribution channels to maximise profitability, which may vary significantly by channel or individual intermediary."
By using real-time tracking, insurers can immediately identify sales spikes by product or intermediary that may indicate under-priced or mis-sold business, allowing fast remedial action.
Another common use of big data analytics for insurers is to tackle fraud. In the motor insurance sector, for instance, false or exaggerated claims for injuries such as whiplash can account for as much as half of fraud.
Big data analytics can help crack down on this by enabling the rapid identification of claims characteristics that flag potential fraud, which Fitch noted would previously have been much harder to uncover.
The motor insurance sector has already proved an enthusiastic early adopter of big data, with telematics technology widely used. This can track a customer's driving habits – such as mileage and how often they use the brake – to deliver more personalised quotes based on their individual level of risk.
Indeed, figures from Ptolemus Consulting Group suggest European insurers sold 4.6 million telematics-informed policies in 2014, a 240 per cent increase from 2012.