Turning Big Data into Insurers' Competitive Weapon
Insurance companies are no strangers to the importance of data: It is, essentially, the asset that they manage. But consumerization and digitization have evolved the very nature of data, and an insurer’s understanding and use of data must evolve, as well.
Newer, larger and often unstructured data sets have emerged — including property sales, consumer spending and social media, not to mention those collected via the growing universe of connected devices (the Internet of Things, or IoT). Meanwhile, new applications for processing these large, external sources of data have sprung up, allowing for data analysis that is faster, deeper and increasingly non-linear.
For insurers, these factors, which are known collectively as big data, signal a major shift in not only how data can be leveraged, but where. Beyond simply improving how policies are underwritten, big data can now help insurance companies across the value chain, revolutionizing how they engage with their potential and existing customer base.
This will be critical in the new digital economy, where the business of insurance will be less about dictating an experience to customers, and more about providing them with an experience they choose for themselves. To accommodate this change, they’ll need to understand their customers on a deeper level and offer them highly personalized value-added services. These kinds of services — actionable intelligence to help customers lead safer or healthier lives, insights to help them improve everyday decision-making — will be fueled by big data.
In short, insurers would be well served to stop viewing data simply as an asset to manage and more as a competitive weapon to wield. New entrants to the insurance space have already embraced this concept, effectively harnessing data to transform key parts of the insurance value chain such as sales (e.g., insurance aggregators) and product and pricing (e.g., pay-as-you-drive auto insurance). So incumbents need to be just as innovative and effective at leveraging data.
This isn’t about insurers suddenly realizing the value of data or doing away with existing data warehousing capabilities. It’s about rethinking how insurers leverage data, then broadening and evolving the capabilities to use that data to provide continuous value throughout the customer relationship lifecycle.
GENERATING BUSINESS VALUE
This shift represents a big departure from the industry’s status quo. Traditionally, the best data available to insurers has been proxy in nature, where information about one thing (e.g., credit score, age, gender) theoretically provides insight into another (e.g., driving risk).
Big data, however, has turned that old paradigm on its ear. Much of the new data is behavioral in nature — for example, driving data provided by telematics devices or personal health data from wearables and biometrics — and gives insurers an entirely different point of view as they seek to understand their customers more deeply. Behavioral data can deliver value that proxy data on its own cannot, revealing new insights on an individualized basis.
Big data also offers tremendous benefits to call centers by providing a 360-degree view of the customers beneath a layer of predictive analytics. When a customer contacts an insurer’s call center, the representative can run a risk profile in the background and then offer more personalized service or a more relevant cross-sell offering. Using a Google-like internal search, the representative can also more quickly direct a caller to the answer they need, improving productivity for the representative and the customer.
Big data can also have a measurable impact on claims fraud. One of CSC’s insurance company clients processes more than 1 million claims a month. Even with 1,000 analysts, the company didn’t have enough resources to thoroughly check each claim for fraud and instead relied on random samples. This led to a proof-of-concept project to reduce the number of false positives referred for investigation. In just 2 weeks, by looking at data in new ways, the insurer achieved 88% accuracy in identifying claims that should be reviewed.
In this brave new world, big data can help insurers understand and relate to each customer and use their new-found knowledge to develop better products. Insurers can also reduce costs internally and expand more easily and cheaply into new markets.
EQUIPPED TO SUCCEED
Understanding the value of this new kind of data is one thing; finding ways to actually work with it is another. Critical to this knowledge-building process is understanding the various ways in which new data sources are available to the enterprise. Often, the terms “external data” and “big data” are conflated, but external sources paint only part of the picture. In reality, there are three sources of big data:
• Data you own, such as that found in systems of record and website metrics
• Data you acquire, from social media outlets or data services providers
• Data you earn, via telematics and customer-facing, value-added services
Looked at in aggregate, this data is often delivered in real time, in varied and unstructured form, and through a variety of different delivery mechanisms. It’s dramatically different from the data that insurers have worked with until now. To handle it, insurers must acquire an entirely new set of digital skills and next-generation technologies.
Rather than replacing the business intelligence and data warehousing tools that are already central to much of what insurers currently do, a broader ecosystem must be created — one that integrates existing systems and data with contemporary big data and analytics platforms.
Insurers can either implement a big data platform in house, or they can get up to speed quickly and expand as needed by consuming these platform capabilities and services from the cloud. As-a-service, cloud-based technologies not only enable fast development and deployment of big data infrastructure — with a limited investment barrier — but they also allow companies to more easily acquire and integrate other cloud data sources, including social, data aggregators, and IoT.
To harness unstructured data, a number of tools are available to parse rich media content and unstructured text. OCR technology can pull key words out of notes from the field, and cognitive and natural language processing platforms can ingest voice recordings as well as text-based notes, forms, policies and regulations to leverage data in deeper ways.
Data is available from all kinds of sources: You just need space to store it and crunch it. And with today’s big data platforms, storage costs just pennies per terabyte.
FOCUS ON VALUE — NOT ON TECHNOLOGY
Insurance companies have succeeded in harnessing the power of big data when they focus on solving an important business problem rather than looking for a use for some technology tools. For instance, claims represent a very large proportion of P&C insurers’ expenses: Big data can reduce those costs while improving customer experience. Focusing on value can increase straight-through processing, claim tracking and claim mitigation, which helps reduce costs for the insurer and hassles for the customer.
This focus on value will be even more important going forward. As insurance products evolve to accommodate modern consumers, insurers will be less able to differentiate on product and need to differentiate on personalized brand experience and value-added services. This is why data must become an insurer’s new competitive weapon — the old competitive weapons are blunted as consumers begin to view base insurance products as commodities.
The future competitive battleground will be the customer experience. In a 24x7 world of instant gratification, consumers want personalized experiences on the device of their choice at the time of their choice — to perform tasks, obtain information or review their accounts. The ability to fulfill these customer wants and needs requires a strong foundation of data and the next-generation applications and talent to provide answers. It also requires consumers themselves to be more willing to share personal information around their lifestyle and behavior — something they’ve proven willing to do in exchange for personalized and discounted offers and/or relevant, value-added services.
Whether it’s an agent or end customer, insurers will need to anticipate and fulfill needs that were not even on their radar a few years ago. In this new environment, it will become critical to gather information about a customer at every point of contact and then use analytics to offer useful, relevant content in exchange.
Gone are the days of insurers merely selling risk indemnification. Today, insurers have the opportunity to be in the business of risk management. They can use big data to form partnerships with consumers to help them live smarter, safer, healthier, more productive lives.