Many companies in the life and property/casualty (P&C) insurance sectors are failing to take fullRead More
Insurers ‘missing out’ on big data advantages
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."