Data is king in the new digital world for insurers
- Posted on June 19, 2015
This is a guest blog post written by Avanade alum, Nic Merriman.
Data for an insurer is arguably the most valuable asset they own; it’s a critical component for underwriting, risk management and pricing activities. And data is a commodity that insurers have been taking advantage of for many years to develop competitive products and pricing. However, the majority of products, particularly in general insurance, have become commoditised over time with little differentiation or personalization defined by a limited set of data such as customers’ age, location or previous claims history. This lack of personalisation has left many consumers focusing more on price than value. This has driven a switching economy within the insurance industry as demonstrated by the rise of aggregator sites in the UK.
To compete in this price sensitive market, insurers are increasingly looking to change the conversation with customers from less frequent conversations (once a year, once and done, or lowest price wins) to more regular value-added discussions that deliver services customers value enough to remain loyal.
Specifically, insurers are beginning to develop new models that drive additional and personalized services that their customers value, and that drive a more regular conversation with their providers. For example, the use of ‘pay as you drive’ or ‘pay how you drive’ is enabling insurers to engage on a daily basis whilst gathering the information to develop a deeper insight into driver behaviour. By analysing this data, it is possible for insurers to offer additional personalised services such as driving rewards, affinity products, or discounts on tyres, which are designed to drive loyalty through value. Extending this model into the home and the Internet of Things provides the insurer with even more opportunity to provide services that deliver value. Some examples include leak detection systems or personal trackers that can be used to inform customers of problems at home or with children’s safety.
These changes are increasing the value of insurance data. However, there is a threat. With car manufacturers installing black boxes, home automation companies installing sensors and fitness/software providers selling wearables, this mean that more data than ever before sits outside the realm of the established insurer. There is a real risk that new companies without insurance competencies could easily start to eat the insurers’ lunch through more detailed insights into customers.
So how does the successful insurer respond? Do they build their own capabilities or partner with these data-centric startups? Either way, ownership and access to the data is key in this new digital world. Failure to develop a strategy for new streams of consumer data could result in successful insurance companies disintermediated by new market entrants. The bottom line is digital insurers need to build out their data strategies based on new and evolving models to ensure they have the information they need at their fingertips to drive competitive advantage.