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The Digital Age of Insurance: Big Data Gets Bigger

When you hear the word ‘tech’, it is unlikely your first thought would be ‘insurance.’ Yet over the last 12 months, the insurance industry has adopted the term ‘insurtech’ with gusto, bringing with it a new sense of potential, and perhaps even more importantly, an upsurge in funding. Investment in insurtech companies has sky-rocketed, with £218 million invested into UK  insurance start-ups in the first six months of 2017 compared with just £7.8 million in the same period of the previous year.


Admittedly, a single company accounts for a big part of that jump.  Gryphon Insurance’s £180 million fundraising is cited as the biggest of its kind by an insurtech startup.  Even when putting this remarkable fundraising aside, UK insurtech investment activity is said to have risen by 422% in the first half of 2017.  Significantly, it is often the major incumbents which are recognising the enormous value that innovative technologies can bring to their businesses.


For insurers, one of the biggest areas of opportunity for incumbents and start-ups alike lies with harnessing Big Data – a commodity often referred to as “the next oil”. It’s difficult to comprehend how much more data will be in existence in just five years' time, but to put things into perspective, the International Data Corporation (IDC) estimates that worldwide revenues for big data and business analytics (BDA) will grow from $150.8 billion  in 2017  to more than $ 210 billion in 2020.


Until recently, only devices such as computers, tablets and phones were able to connect to the internet. But now there are 8.4 billion internet-enabled smart devices that can communicate and interact with other machines, forming the Internet of Things (IoT). And this figure is likely to grow to over 20 billion connected devices by 2020. 


Used imaginatively, the data collected and analysed through IoT can facilitate a better understanding of a customer’s risk profile, smarter marketing, and more accurate pricing. This is already transforming the way insurers do business with their policyholders.  And many companies are now using the data they collect to create personalised multi-media marketing campaigns, tailored products, bespoke pricing and a more efficient claims process.


Furthermore, the data is being used by insurers to predict undesirable outcomes, which has in turn reduced risk and premium costs for the policyholder as well as cementing a relationship based on mutual benefit. One such example is the use of black boxes, or telematics, in cars that monitor how safely the user drives. This enables insurers to reward good driving with lower premiums or discounts. Many big name UK insurers, including Direct Line, Bell, Admiral, Tesco Bank and the RAC, are already offering the service. Indeed, according to Ptolemus, there are currently 850,000 telematics-based motor insurance policies used in the UK – a number that is growing by 6-8% a quarter.


Data collected by drones can further help decrease losses and obtain compensation in the wake of natural disasters. For example, losses from Hurricane Irma have been predicted to reach $20- to $40 billion.  But digital images collected by drones, which otherwise would have taken immense manpower and resources to obtain, could facilitate faster loss assessments and claim processing. This data can also play a part in predicting the areas that would be most heavily impacted, so reducing risk in the industry.


However, as with the use of any valuable commodity, some risks remain, and the use of data gathered from the IoT must be managed safely, securely and confidentially. Insurers have a huge burden of responsibility to ensure that, once they have gained the consent of their customers to use the huge bank of ‘big data’, it will be protected.


The industry took steps to build trust in this regard by recently publishing a customer guide “How Data Makes Insurance Work Better for You. Within it, the Association of British Insurers sets out the case for change, outlining some of the expected benefits customers will see in return for agreeing to use their data. Most importantly, it outlines the industry’s commitment to how that data will be used – ‘safely, securely and confidentially’.


CIOs and CISOs are clearly under a great deal of pressure not only from the demands for increased scalability as the sources of data presented by the rise of the IoT, but also building trust around growing security requirements. So how can insurers manage and analyse the huge amount of data the IoT generates, while exploiting the flexibility of on-demand services, without compromising security?


One of the answers is a specialised cloud solution that combines public, private and hybrid services into one single cloud that insurance companies can manage centrally. This can provide the insurance community with a highly secure ecosystem that connects thousands of applications and services with users worldwide. This helps to build security into the entire cloud environment, permitting employees and customers to connect securely from any location and device to any service and enabling financial and insurance companies to fully capitalise on the benefits that the IoT has to offer.


This approach allows large organisations around the world to connect easily and securely to the data centres, applications and data they need, independently of where they are hosted.  Employing it allows the CIO to have a consolidated view of all different clouds the organisation is using, and eliminates insecure services, or improves them by employing appropriate security measures. Centralising control also helps build security into the entire cloud environment, permitting employees and customers to connect securely from any location and device to any service.


The immense level of growth that the industry has experienced in the past year demonstrates that we are on the cusp of a truly digital age for insurance. Together, Big Data and IoT create innumerable opportunities for the insurance sector; however, there are still barriers that must be overcome in order for the industry to realise insurtech’s full potential. As such, its success depends on collaboration to manage this enormous resource in a secure and scalable way.  



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This post is from a series of posts in the group:

Innovation in Financial Services

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