The increasingly volatile insurance market is under pressure – a pressure exacerbated by the climate crisis, global economic shocks and technological advances in areas such as autonomous vehicles. A push that has brought insurers’ attention to the use of data to properly understand, price and manage risk.
Today, 40% of insurers are using data to enter new markets, while 43% have modernized and upgraded their risk algorithms. This is evident from the recently published study ‘The Data-powered insurer: Unlocking the data premium at speed and scale’ by the Capgemini Research Institute.
For the study, Capgemini surveyed 510 executives from 204 insurance organizations. Each organization surveyed was required to have a data specialist and a business executive for each business line. In addition, ten interviews with insurance managers were conducted to collect their views and expertise on these insurance organizations.
Insurance Data Masters
Capgemini researchers explain that with non-traditional, real-time data sources – such as telematics, wearables and social media data – insurers will be able to meet rising customer expectations for convenience, tailored advice and dynamic pricing. As a result, such insurers can compete with InsurTech companies that have access to personalized insights.
Only 18% of insurance organizations have mastered this. Such organizations are called ‘Insurance Data Masters’. More than 90% of them report higher premiums, an improved combined ratio and stronger net promoter scores compared to only half of their peers.
The report shows that these organizations have three key differences compared to the rest: 92% have centralized governance; 62% have partnerships with InsurTechs and 97% have created open APIs (application programming interfaces) to allow third parties to access their data.
According to Seth Rachlin (Global Insurance Industry Leader at Capgemini), it has become increasingly difficult for traditional insurers to compete with InsurTech companies. “These organizations can only compete by embracing a data-driven approach to gain market share, improve key ratios and generate superior risk intelligence.”
Important role for APIs
The research also shows that insurance companies use data to develop new solutions, create value-added services for the purpose of customer loyalty and enable unique insights into risk and its pricing.
In addition, 40% of insurers – driven by data – are entering new markets or shifting the focus from protection to prevention and revising actuarial assumptions, while about a third of insurers use data to model new risks.
The report also shows that many insurers are making targeted investments in data technologies. For example, 43% of insurers have modernized and upgraded their risk algorithms in the past two years. As a result, some 39% of insurers could describe their risk selection and pricing as fact-based and data-driven.
In addition, 61% of large insurers have gained mainstream adoption or have reaped transformational benefits from their data initiatives, compared to just 16% of small insurers. A major reason for this difference, Capgemini said, could be that smaller companies are underinvesting in technology modernization, with smaller insurers more likely than large insurers to deal with outdated legacy systems and monolithic architecture.
Compared to their industry peers, Data Masters stand out in a few key areas. For example, 97% of them have created APIs to give external properties access to their proprietary data, compared to just 36% of their industry peers. Nearly 90% of these Data Masters can also easily link resources to their platforms to establish a mutually beneficial exchange. As a result, 39% of these organizations arrive at faster and more accurate claims settlements.
The report also found that only 41% of insurers ensure their data executives align the organization’s data/analytics strategy with the overall business strategy. To become data-driven, insurance companies need to focus and invest in four key areas, according to Capgemini’s researchers.
First, insurers need to build an infrastructure for rapid implementation of data-driven insights. “A modern technology platform is needed to streamline disparate and disparate systems, generate a unified view of risk, and deliver the required data in a timely manner.”
Next, the organizations must set up a suitable business model to scale data-driven insurance applications. Step three involves fostering a strong data culture in the organization. Capgemini recommends an agile way of working for this. “Give employees at all levels the tools and skills to apply data. In an agile culture, business teams can collaborate with data experts to develop and test new ideas.
Organizing an open data ecosystem is the fourth and final step. “Participating in data ecosystems, partnering with InsurTechs and adopting a data-driven approach incorporates a sustainable way of working.