Banking / Finance

Big data and the insurance sector: the latest trends

Actuarial scientists have made use of PCs ever since the first affordable microcomputers came on the market. This is one field where automation and AI are old news. What’s making headlines in the industry, though, is the fact that cloud-based infrastructure is now the norm for almost all insurance companies regardless of their size.

Companies that make the most efficient use of this information are often able to gain some leverage over the competition. Since they’re able to plan for the future much more easily. Data doesn’t have to be exclusively financial, however.

In fact, some of the more important applications of insurance information are more closely related to customer service records than investment portfolios. Use of big data in insurance continues to grow, so many companies are looking at more creative ways to revitalize their business operations. In turn, this is leading to the creation of an entire industry that develops technology solutions to help insurance companies keep track of information.

How much data does the insurance sector generate?

It’s hard to put hard numbers on how much data the insurance industry stores every single day. Some server farms have suggested that national insurers may generate several exabytes of information a week after you consider deduplication into the equation. Factor in backups and the number easily doubles.

Engineers have had to write new algorithms capable of dealing with this level of raw information. Predictably, risk management has seen the biggest use of this technology. Emerging threats have eaten into insurance companies’ profits. Which has reduced the chances that some firms can remain viable for long-term.

For instance, many companies only do business in North America or India. However, due to the wide-ranging reforms laid out under the General Data Protection Regulation (GDPR), these companies now have to worry about their customers’ data privacy. New technologies have been developed to automatically sort through huge databases and anonymize information to avoid falling afoul of these laws.

Document repositories usually have huge collections of worksheets. That aren’t ever touched by human hands. People fill them out when applying for an insurance policy. However, there’s only one purpose for storing them. And that’s for adhering to reporting regulations. Over time, these get lost in a sea of similar contracts. Even though they hold information that the GDPR or even domestic rules ban.

Algorithms can search the fields on these and find data that many technicians might not have even realized existed. When companies generate upwards of a petabyte of actual storage each day, this kind of technology is often what stands between profitably and problems.

Compliance isn’t the only field where big data algorithms are helping insurance companies rework their entire operations.

Big data predicts accidents

The most unpleasant aspect of the insurance industry is the requirement to figure out when someone is going to have to cash in on a policy. Underwriters have long debated different methods that can help calculate the odds of any single catastrophic event happening. These methods have been inexact at best for decades, which is why they’re in need of quite an overhaul.

Scientific data organized into tables may hold the secret to more accurate calculations. Sufficiently clean past data of any fields that easily identify a specific policyholder. Insurance companies can use it to build sophisticated databases full of accident statistics.

In the past, actuaries mostly looked at national data and used it to establish the odds of a particular accident happening anywhere. This system, however, considers information collected primarily from people who actually hold a company’s policies.

This focus on strategies that are individualized to each underwriter is slowly paving the way for a new type of insurance policy. One that’s based solely on the backgrounds of individual holders.

User-based insurance policies

User-based insurance (UBI) is a system that allows underwriters to personalize premium prices based on data collected from IoT devices. According to research, over a third of auto insurers will start to offer telematics-based packages by 2020. The health insurance industry has already taken to wearable fitness trackers.

Insurers are realizing that customer demands continue to outpace the plans that are provided to them. Empowered tech-savvy insurance consumers are spending more time shopping around for the best premium rates available. Offering individualized programs is a good way to retain customers. And ensure they’re not lost to progressive startup firms. Who are unafraid to try new things.

As a result, fitness wearables and dashboard cameras aren’t the only pieces of equipment that insurance companies are using to calculate premium rates these days. Fire insurance companies are expected to start using smart home automation devices to keep an eye on just how safe a property is. The same goes for those who insure against other types of property damage.

This kind of software will help to reduce the number of claims made by consumers. However, it’ll speed up the rate of processing existing claims.

Claims processing in a connected world

Analytics technology has helped insurance companies to predict the likelihood of a claim being made at any given time. As a result, most larger firms generally have enough on hand to cover claims when they happen. Predictive AI-based algorithms have also helped to sort out fraudulent claims, which in turn lead to faster processing times for consumers with legitimate problems.

This renewed focus on efficiency in the field of claims processing should help to drop premiums across the board. Especially for those who don’t normally file. If you’ve seen more companies offering accident forgiveness policies lately, then you’re already seeing the fruits of this kind of technology. Moving forward, it’s easy to believe that insurance will evolve into a self-service industry where consumers will no longer have to wait for sales representatives to help them out.

Right now it might look like big data has primarily benefited insurance underwriters. However, it’s really the consumer who will see the biggest positive changes.

1 Comment
  1. Joseph 1 month ago
    Reply

    Interesting article. Thanks for sharing.

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