How can Big Data benefit Insurance?

Humans are surrounded by uncertainties which cannot be foreseen.

However, they can take certain precautions to mitigate the impact and consequences once the event has occurred.

The event can vary from running into a car accident to protecting yourself from any property fraud. It is no doubt that more and more people are looking for ways to be safe from financial loss in any aspect of their lives.

Thus, they look up to insurance companies. 

How does insurance work?

Insurance is an agreement between ordinary citizen/business and company that is responsible to take care of financial consequences in case of any incurred incident. The insurance company requires small amount of premium over a certain period of time to pay for losses caused by the incident. 

Insurance companies have been helpful to people in minimising risk in their day to day life at a reasonable premium fee. With new technology being introduced in the insurance sector, it has been easier than ever for insurance companies to offer better customer service and make the process feasible for their clients. 

This blogpost discusses how big data can be beneficial for the insurance sector in terms of efficiently priced premiums and self-insured corporations. 

Understanding the customer

Firstly, the premium fee is important for people to decide on the type of policy or package they want to go for. This can differ from company to company based on the coverage they provide for the potential damages or losses in the future.

For example, motor insurance is a competitive market where vehicle owners compare prices, which is why it becomes important for the insurers to offer reasonable yet profit-making premiums to their clients.

Now, insurers offer telemetry-based packages where a personalized profile is being created of each vehicle owner by capturing actual driving information. This helps the insurer to work out an assessment of a certain driver’s likelihood, say of being involved in an accident or of their car to being stolen, through analyzing the behavioural data with thousands of other drivers.

Thus, insurers can provide personalized premium fees considering the possible risks depending on the case which is possible through big data. 

Similarly, health insurance can also benefit from big data with the advent of new wearable technology such as Apple Watch and Fitbit activity trackers. This helps to assess one’s lifestyle and track ongoing life activities, which can help in the reduction of the premium fee by showing improvement on their unhealthy behaviours. 

Serving corporate customers

Secondly, big data can become a useful tool for self-insured big corporations. These corporations can save money by customizing effective healthcare packages that meet the needs of their employees.

With the access of personal information of their employees, corporations can offer multiple options to their employees considering the activities they are involved with in their day to day lives.

For example, if a company promotes wellness programs depending on their employees’ needs, they can reduce the number of annual claims. 

Data protection

It’s important to consider the flip side of the coin where insurance customers might be hesitant to provide their data to insurance companies.

It is common that people hack into systems and steal data that can become a huge threat for others. Also, some people are also hesitant because they usually don’t know how the companies are using their data.

I personally feel that, if companies can be transparent in terms of informing their customers on the usage of data, and if they can improve their security systems, then people are more likely to trust companies. 

Big data can be beneficial for the insurance sector in terms of efficiently priced premiums and self-insured big corporations. This can not only save money but can also provide several feasible options for the companies to offer to their employees. If both insurance companies and employers are able to protect their data better, there is good evidence to show that big data can be useful for the insurance sector.

Further reading:

• How big data is changing the insurance industry by Cristopher Henry (Medium)
• Five ways insurtech companies are using big data in the insurance process by Peter Littlejohns (NS Insurance)
• The Impact of Big Data and Artificial Intelligence (AI) in the Insurance Sector by OECD (report)