Big Data Insurance – Who Are Your Real Customers?
Author:CSC Town Hall
It's no longer good enough to simply look within your own company's data. It's critical that your customer retention/acquisition strategy include casting a wider net, pulling in unstructured public data and social media data in order to get a broader picture of who your customers are and what services they need.
- Alex Black, Senior Partner, Big Data and Analytics Practice, CSC
- Ellen Carney, Principal Analyst, eBusiness & Channel Strategy, Forrester Research
- Michael G. Cook, Partner and Industry Strategist, General Insurance and Reinsurance, CSC
- Jeff Caruso, Senior Managing Editor, CSC
Big Data Reveals Who Your Insurance Customers Really Are
Big data is bringing new insights to many different industries and the insurance industry stands to benefit in particular. Insurance companies hold great quantities of data that could be analyzed to help them get to know their customers better and reach new customers.
This CSC Town Hall explored how the insurance industry is changing and the role that big data and analytics will play in that transition.
Ellen Carney, principal analyst for e-business and channel strategy at Forrester Research, described a number of forces effecting change in the industry. "The best word to describe what's happening is 'disruption' - and it's coming from several camps," Carney said. "Economic growth, such as growing car sales, is creating demand for policies. Climate change is driving greater risk. There are demographic shifts. And technologies like mobile and analytics are giving us better abilities to predict and understand risk and customer behavior."
Insurance companies are making investments related to data, and that is notable, Carney said. "Capital chases return. A study last year revealed that 81% of North American insurers rated data strategies as a high priority or critical for the coming year."
Big Data Benefits
Michael Cook, a partner and industry strategist in general insurance and reinsurance at CSC, says that big data investments can help companies realize their critical objective: profitable underwriting. "Insurance company profitability is threatened because the old business model is broken," he said. "Insurers once relied on investment returns to make up for unprofitable underwriting, but high claims and low investment returns have rendered that model obsolete."
Now, Cook says, insights from big data can help companies better understand risks and develop products that are profitable. "Marketing departments are good at getting new customers, but not so good at getting the customers you want. They can use insights from big data to develop new products, to expand easily and cheaply into new markets, and to exit certain markets," Cook said.
There are many other ways big data and the use of analytics will help insurance companies respond to change.
In recent years, insurance companies have turned to the "customer experience" as an area of differentiation. Alex Black, senior partner in CSC's big data and analytics practice, explained this is due to the influence of digital media and mobility. "These factors have influenced how customers research, buy and interact at the moment of purchase. It has increased price transparency," Black said. "The focus is, or should be, on gathering information about a customer at every point of contact and using analytics to offer useful, relevant content back in exchange."
Carney said data-driven strategies make new business models possible. New startups are using technologies to deliver innovative services focused on the customer. "Virtual insurers like MetroMile or Climate Corporation or Oscar are offering totally new types of products and models like pay-as-you-go insurance. These companies are data-driven, and when you look at who they're hiring, they're hiring data scientists," Carney said.
Claims fraud is another area where big data will have a measurable impact. "Analytics will help insurers understand interconnecting pieces that will help them spot fraud at the beginning, when they're writing a policy, not after the fact," Cook said.
Big data will help firms respond to price pressures, Cook added. "If you don't live in a high-risk area, you provide basic information about your property and the risks aren't well defined. Big data will make it feasible to consider factors such as what items are in your house, how many bathrooms you have, where they're located, how much water you use, the temperature in the area you live and thus, your risk of flooding from burst pipes. That will allow insurers to become more competitive and develop new products."
The ability to inexpensively analyze risk will also open up products to traditionally underserved markets. "An insurer can only develop products and sell them cheaply when they can deliver them cheaply. As more data is collected from some of these markets -- emerging markets like Africa, parts of South America -- insurers will be able to devise further products and deliver them cheaply using technology in those types of markets," Cook said.
Adopting Big Data
Carney said companies need to think about a few things as they put together their big data strategy.
"You have to understand what big data is, versus just a data strategy. The definition of big data is kind of like obscenity -- you may not be able to define it but you know it when you see it. Business leaders who own the big data strategy have to understand what big data can do for them," Carney said. "Big data is an IT-enabled strategy, but it doesn't reside there. It requires a team that owns it with data scientists in a leadership role. You also have to develop the right use cases to make the data actionable for the business."
Black said insurers should ask a few important questions as they begin formulating a plan. "You have to ask: What am I trying to find out? You can probe your own knowledge of the market or you can mine data. But you really need to focus on what can I get out of that? What should I be looking for?
"We like to focus on value. Who are my most valuable customers? What do they look like? What attributes do they share with my acquisition target? How can I gain more of my best customers? And 'best' is a rolling definition. It takes a lot of experimentation with modeling and analysis with advanced analytical techniques to understand what is driving that best customer," Black said.
"Secondly, you need new tools and technologies. Current relational databases, latency-heavy data warehouse structures are not going to help you. There are a number of tools that will parse video content, voice content. Companies really need to start experimenting with them to see how they're going to develop."
The Next Battleground in the Insurance Industry
Does big data represent the next significant domain of competition between carriers? Carney said that a successful big data strategy is essential to meeting aggressive growth targets.
"Everyone wants to grow their business by double digits, but organic growth is in the low single digits. So that means insurers have to attract and retain the best customers," Carney said. "Insurers are awash in all things data. It's a very siloed business, and it's all going to boil down to turning to business intelligence and big data strategies to capture meaningful insights that can translate into business performance changes."
Carney also pointed out that while companies may wage a public battle to get customers, another, possibly more desperate struggle may happen behind the scenes.
"When you've got Wall Street looking to hire the same people you want, the bigger fight may be over attracting and getting the skills within an insurance carrier to make sense out of big data," Carney said.
"If you have kids contemplating math or science degrees, push them into big data. They'll take care of you in your retirement."