Experimenting with external data: What's the real motivation?
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Recently, we held a UK CIO Roundtable on the myths versus realities of ‘Big Data’. The roundtable was made up of a mix of insurers from both the P&C and Life industry. I guess that it will come as no surprise that finding new ways to extract insight from data is a hot topic. In a low interest rate environment, improving results from the core disciplines of sales, underwriting and expense management take on a greater level of importance within many firms, and data is at the heart of this. For many firms, the business drivers for investment in data and analytics have not really changed in recent years, i.e.
- Risk mitigation – Minimising the frequency and impact of losses, through fraud detection and loss scenarios.
- Growth / Maintaining market position – Identifying profitable segments and understanding the propensity to take a particular course of action.
- Improving service – Identifying ways to improve the quality of service through ensuring that the right data is in the right place at the right time to aid decision making.
- Competitive threat – Concern that a competitor or start-up could use data in a way that threatens their current position, rendering the way they underwrite and service customers obsolete. Telematics in auto-insurance and use of public health records & personal health tracker apps for enhanced annuities being two examples.
- Regulatory threat – Concern that local market regulators may extend anti-discrimination laws to prevent the use of existing rating factors used for pricing risk, such as age. The origins for this concern were triggered by the European Union’s decision to implement the Gender Directive that came into law at the end of last year. (For non-EU citizens, the Gender Directive prevents insurers from using gender for pricing within Europe. Since its implementation, there has been an increased interest in telematics across the region as insurers look to use the data generated to predict driving behaviour).