3 ways data is fuelling digital change in the insurance sector

OPINION / 24th January 2018

Data is underpinning the digital revolution in the insurance sector, fuelling innovation and InsurTech startups. New business models have emerged that use data to their advantage, such as peer-to-peer insurance or pay-as-you-go, and new players in the market are changing how risk is evaluated as a result of it. Coupled with advances in computing power, insurers now have the ability to model ever larger and more complex datasets, in real time, which means they can derive nuanced insights into their customers’ behaviours, potentially being able to offer them variable and personalised insurance.

Data is also changing customer demands too. People, influenced by their day-to-day digital activities, expect the same level of simplicity, transparency and speed of transaction with their business to business relationships as they do with their interactions with Amazon, Deliveroo and Uber. This is where InsurTech startups have found a niche in the market. They have developed digital assets that focus solely on improving the customer experience, cutting out middlemen, repetitive tasks and focusing on the mobile/digital-first customer’s needs.  

The following data-enabled tech and trends are set to transform the insurance market forever:

1. Connected technology

The Internet of Things (IoT), sensors, smartphones, wearable tech, telematic devices are just some of the life-changing data-enabled technology emerging on the market that insurers can now tap into to evaluate risk and tailor policies. Telematic insurance has been on the rise in the consumer market since it was introduced more than five years ago.

Other forms of black-box insurance will soon follow suit. Hardware that can be installed in homes to protect the multitude of connected devices from cyber attacks, can also be used by insurers to keep tabs on the connected devices present in the house. This type of technology can also be used to monitor a property’s occupancy level – reducing premiums for homes that are more than 80% occupied.

In health insurance, wearable tech has been used to monitor and incentivise policyholders to live healthier lives for the last decade. We are now seeing insurers promoting the use of wristband-style devices, those who wear them and exercise frequently have lower premiums than those that don’t.

2. Personalisation

Personalised insurance policies are being rolled out thanks to big data. Data gathered from mobile phone signals or sensors on the streets will eventually be able to alert insurers to anomalies in their customer’s behaviour. In turn, they can react by sending their policyholder a warning message, or else automatically increase the person’s premium whilst they are in a high-risk situation.

A UK insurance company recently explored the possibility of using unstructured data from Facebook to gauge how dangerously a person would drive. Although Facebook pulled out of the experiment, industry experts say that other insurers are likely to try to use data to assess risk in a similar way.

Not only will policies become more personalised, the marketing websites that are bought on will become more tailored too. Navigating the world of insurance at the best of times is a minefield even for the most sophisticated of users. Websites that can get to know their users, based on the data trails they leave that can recommend relevant products and services to them, will be rewarded with greater retention and loyalty.

In the B2C world, the startup Brolly, is operating along these lines. Not only can users store all their insurances policies in a dedicated ‘locker’ on the site, algorithms can spot gaps in their insurance provision, and recommend products to them. Transfer this type of service to a B2B world, where business owners may need dozens of insurance products to cover their assets and liability, yet aren’t aware of what their gaps in provision are, this would be invaluable. These types of services are about using digital technology to show the user the most relevant content and products, rather than bamboozling them will the vast array typically on offer.

3. New business models

InsurTech companies are throwing away the traditional insurance rulebook and creating new models of business, forcing incumbent insurers to follow suit. New to the market insurers, like US-company Trov or UK-based Cuvva, are already doing away with the need for the annual insurance policy. Both companies offer coverage for specific items for limited periods of time. Customers can now buy insurance using a pay-as-you-go model, covering items like a camera for a day, for example. The same principle is being applied to car insurance, where drivers can pay for cover by the hour or day, say if they borrow a friend’s car, or rarely use their vehicle. A common complaint of policyholders is that, due to annual policies, they are paying to insure cars that spend most of their lives sitting in car parks or driveways.

Other companies are taking insurance back to its roots. Rather than using big data to price everybody’s risk individually, there is a school of thought that say small groups of people should get together to pool their risks in the form of peer-to-peer insurance. One of the main benefits of this style of insurance is expected to be a reduction of fraud — people are less likely to put in bogus claims if they think they are hurting their friends/those in the group.

Other insurers are putting digital-first traits at the forefront of their business. Many are now offering their users the opportunity to self-serve – allowing them to report faults using live video or photos taken at the scene of an accident or crime. In addition to this form of self-service, another way to cut costs, and drive efficiency is to create digital interfaces that speed up transactions and claims. Inserting technology into the customer journey can reduce the pressure elsewhere in the business, such as in call centres, and has the potential to drive significant operational efficiencies for the insurance company.

ORM view 

Transitioning to an “always-on” world, where everything from your car, your office, to your activity is connected, will change the way we think about and buy insurance. Millennial consumers will expect seamless experiences and new ways to buy insurance. As they become responsible for purchasing commercial/business insurance themselves, they will also want the same level of efficiency and ease they have in their everyday lives with retail brands with their B2B relationships too. They will expect different transaction models, and personalised and tailored insurance products, as opposed to the bog-standard traditional annual premiums currently on offer. The insurance industry must understand the customer journeys and look for opportunities where digital can enhance and improve the experience. To do this, they need to tap into their data to innovate their products and services to meet the needs of consumers in a digital age.