How Big Data is Making Itself Essential to Insurance Companies

Insurance companies have been collecting data on their clients for years. Actuarial accountants use the information to help carriers set premium prices, rate the insured, and lessen risk. Most tech analysts suggest that these activities barely scratch the surface of the information they have collected.

That’s all about to change, as insurance agencies finally begin to embrace the concept of big data and how to use it properly.

Conservative Industry Embraces Big Data

The insurance industry is notorious for approaching trends with cautious conservatism. Analyzing claims and their frequency has been the driver of policy and coverage decisions for more than 50 years. But the era of big data has opened up new opportunities for carriers to combine traditional approaches with new data sources and more powerful analytical tools. Insurers have stopped consulting an actuarial table to calculate risk. Today, the big carriers are utilizing high-performance parallel computing in the cloud with vendors such as Bigstep, Hadoop, and Oracle

Big data is touching all facets of the insurance industry, including auto, health, life, commercial building, and workers compensation. Recognizing the value of data, insurers have invested $2.2 billion in high-tech start-ups. Commercial insurance companies are building sensor technology to connect to real-time health data. Workers comp carriers are analyzing social media to help reduce fraud.

Insurers have begun recognizing the power of data analytics to leverage actionable business decisions. Beyond claims data, carriers are now calculating the data found in prescription information, the frequency of preventative health care visits, social media activity, and customer purchasing information.

This couldn’t come at a better time as baby boomers reach retirement age. As this large population begins to increase their healthcare utilization, insurance companies will be forced to improve efficiencies in order to retain profit margins.

It’s Not The Data, But How You Use It

Jumping on the big data bandwagon means changing the way insurers use the information they’re collating. Big data projects can span operational and strategic planning, new product development, underwriting, and portfolio analysis.

A report by Strategy Meets Action highlighted the top big data projects for the major property and casualty insurers:

• Pricing models
• Profitability by product
• Underwriting
• New product development
• Risk analysis
• Catastrophe modeling
• Portfolio development
• Operations

These big data initiatives can provide actionable insight to help insurers:

• Acquire new customers by better understanding the needs of a demographic. Big data can help insurers understand what factors are affecting customer retention and renewals.
• Adjust risk assessment and planning to create more efficient actuarial models.
• Improve customer service such as billing and claims in order to increase policyholder loyalty.
• Streamline internal business functions including the insurance carrier’s own HR department, IT, and facilities management.

Life and annuity carriers have multi-faceted distribution channels focused on individual agencies. There is often considerable overlap in geographic territories. Data analytics is helping with market segmentation in order to improve the efficiency of agents

These are just some of the ways traditional insurance carriers are moving toward big data analytics. To see how your business can leverage actionable data, check out our live demo.