Creating Strategic Value through Financial Technology by Jay D. Wilson Jr

Author:Jay D. Wilson, Jr.
Language: eng
Format: epub, pdf
ISBN: 9781119243861
Publisher: Wiley
Published: 2017-04-24T00:00:00+00:00

Data Analytics Will Increasingly Impact Insurance

Information is more readily available than ever before and will increasingly impact the ability of traditional insurers and new, emerging insurers to assess and price risk. Connected devices that constitute the Internet of Things (IoT) are empowering innovative carriers to leverage detailed customer knowledge to create personalized policies. According to the International Data Corporation, worldwide spending on the IoT is expected to double to $1.3 trillion by 2019.8 No longer enjoying exclusive access to data, insurers need to move first to attempt to monetize the abundance of data using predictive modeling and sophisticated underwriting techniques.

The data revolution is first striking the auto insurance industry. In addition to the potential for self‐driving cars to radically change the auto and auto insurance industries, telematics technology that tracks things like average rate of speed and number of sharp breaks is affording carriers the ability to differentiate between high‐ and low‐risk drivers and personalize their coverage accordingly. IoT connectivity is growing so rapidly that it will not be long before similar behavior‐tracking technologies reach other arenas of insurance, like property and health insurance. “Smart” homes and wearable fitness devices will soon transmit information that will allow for personalized policy issuance. InsurTech startups and even other types of technology firms are primed to exploit these innovations by implementing risk‐transfer elements into their IoT platforms.

From a long‐term perspective, insurance companies cannot afford to engage in price battles over commoditized products. As the IoT‐driven data revolution progresses, the emphasis will shift from risk transfer to risk management. Insurers' stances will evolve from defensive to offensive as they aim to help policyholders prevent losses before they happen, resulting in decreased loss ratios and lower volumes of claims. Besides minimizing risk losses, IoT applications can help carriers resolve the traditional customer relationship dilemma by presenting their policyholders with additional points of contact and tangible benefit opportunities.

These prospects for vast improvement do not come without challenges. First, carriers may be challenged to entice skilled professionals to join their efforts in putting new technologically geared strategies into play. Beyond acquiring talent, insurance companies will need to foster a command of a host of analytic technologies as they enter the sphere, namely artificial intelligence (AI), drone machinery, big data, and application programming interfaces (APIs). Artificial intelligence platforms can perform advanced underwriting mechanics without the expenditure of human capital. Similarly, drones use embedded sensors and image analytics to analyze risk without requiring human supervision. Big data analytics play a key role in obtaining all‐encompassing insights about a customer. The utilization of API can assist insurance companies in the collection of general information that can be applied to functions such as policy viewing, coverage analysis and payment, and claims processing. As these data capabilities expand, insurers' ability to discern truly predictive data from noise will become crucial and may require either partnering with external IoT experts or overhauling of legacy systems and corporate culture. Privacy concerns will be another hurdle for insurers to overcome to unlock the full potential of the IoT.

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