The way insurers collect, analyze and use data is impacting every part of the commercial insurance value chain, from businesses to brokers to insurers. Insurance professionals are harnessing this exponential growth of data, using it to provide meaningful insights to brokers and insured businesses. Most importantly, this means insurers can provide the capabilities that are in-demand in the modern business and risk management environment.
This new data drives improved predictive modeling straight through underwriting, claims payments, and forecasting when accidents may occur. They can provide a more accurate profile of an organization’s risk—leading to premiums that reflect a company’s actual cost of risk and, in the event of a claim, helping companies better recover from a loss. Risk professionals can leverage and inform these new practices as data continues to influence how their businesses are insured.
The Role of Data Today
Data fuels how all organizations create and deliver solutions in today’s business environment. Personalization, or tailoring solutions to specific segments or industries, relies on data. The COVID-19 pandemic is providing a fascinating example of data collection and its impact. State-run dashboards deliver data showing the number of cases affecting each state, down to the county level. This allows public health and government officials to track potential hot spots and take necessary precautions with greater precision. On a community and individual level, the potential of using contact tracing through mobile devices holds promise for identifying those who have been in contact with COVID-19 patients so they can self-quarantine, safeguarding towns and cities. In this way, data creates both global and local solutions.
Data also allows insurers and risk professionals to work together to personalize insurance solutions, which is why businesses and insurers are partnering to tap into data. One example is the field of telematics. Many of us wear Internet of Things (IoT) devices that track our daily step count or monitor our resting and active heartbeats. This kind of data can provide insights that allow risk professionals to inform and influence potential health insurance discounts to employees. Access to this type of telematics data also allows insurers to underwrite with greater precision and offer bespoke policies and coverages for their insureds. On the commercial side, there are many examples of organizations using wearables to track and monitor safety or provide more tactile support to workers to prevent injury. These newer technologies are also feeding data back to both the insurer and the risk professionals on the efficacy of their safety and monitoring programs.
Another source of data many do not think about is satellite imagery. For businesses, claims from catastrophic losses can often take a long time to settle. Insurance companies are using satellite imagery to more precisely assess the damage done during tornadoes, hurricanes and other catastrophic events. This allows insurers to settle these claims faster and more accurately, meaning a faster claims payment and shorter downtime for businesses. It also allows them to be more exacting with loss ratios and reserves, cost-saving benefits that then get passed on to the insured.
Many risk professionals at the company level may have concerns about how this data is used. With this new wealth of data, insurers are taking multiple steps to protect all the data they collect. Best practices include using encryption and two-factor authentication to ensure only authorized users have access, along with following government regulations such as the Health Insurance Portability and Accountability Act (HIPAA) and the European Union’s General Data Protection Regulation (GDPR). And while data is creating more personalized solutions, most practices include ensuring data masking in an aggregate fashion to prevent adverse selection of insureds.
How Data Shapes Risk Professionals’ Roles
When used and analyzed properly, data helps produce the right fit for risk professionals and their organizations. As insurers’ collection and analysis of data grows more sophisticated, risk professionals should consider these three best practices to find a partner that can leverage that data to benefit their organizations:
1. Which insurers are best-in-class when it comes to data.In March, A.M. Best formally adopted its new criteria for scoring and assessing innovation. More than a vanity metric for insurers, this provides risk professionals a helpful clue as to which insurers may handle data collection and analysis best.
To develop its “innovation score,” A.M. Best evaluated both innovation input (assessing an insurer’s leadership, culture, resources, process and structure) and innovation output (assessing an insurer’s results and level of transformation). A.M. Best then divides those scores into five innovation categories: leader, prominent, significant, moderate and minimal. In its initial analytical review of innovation, fewer than 11% of A.M. Best’s rated insurers scored in the top two tiers.
For risk professionals, this can translate to more accurate pricing and ease of doing business with insurers. Innovative actuarial approaches can make claims reporting easier, claims payment and adjudication faster, and provides greater claims visibility.
2. Which benefits your organization will receive from data-driven practices. Insurers that are best at data collection and analysis should articulate the results the insured can expect to receive through their partnership.
Given the rise of data collection and analytics, it is imperative that risk professionals understand how an insurer uses data to refine underwriting and reserve practices, submit and complete claims, communicate about claims payments, increase operational effectiveness for its partners, and create a better customer experience for the insured.
For example, self-driving vehicles can provide data related to driving performance and habits, driving conditions, and when and where accidents occur. This data can inform insurance solutions, improving underwriting while allowing trucking companies to operate more efficiently and reduce risk exposure. Data can inform loss control practices, predicting accidents more effectively through partnership between insurers and risk professionals using telematics and data streams to predict the next potential loss.
For risk professionals, this illustrates how you can incorporate data into your business and work better with the company underwriting you. An insurer that has harnessed data can provide an additional perspective into an organization’s risk profile, which can reduce cost of risk through loss control.
3. Create a seamless flow of information among insureds, insurers and carriers. No matter how tech-savvy an organization is, its tools are only as good as the data it receives. When asking an insurer to underwrite more effectively using data, organizations will need to offer more data. By sharing data about the organization’s overall goals and its potential exposures, an insurers’ more sophisticated risk management data practices will provide more benefits.
Creating this two-way street of data provides two benefits for risk managers:
- More accurate underwriting. More precision in their underwriting can lead to better prices. Access to more comprehensive data can help underwriters better account for your risk management practices and how they lead to better outcomes. If you have built a quality risk management program, you benefit from sharing that with your insurer.
- Getting claims processed and paid faster. The flow of information creates a more seamless relationship, reducing back-and-forth communications to gather and relay information on a claim.
Whether working through brokers or directly with an insurer or captive, risk professionals are often challenged to communicate more efficiently as applications are processed, policies are endorsed, and claims are handled. Creating a direct connection between a business and insurer (or between business, broker and insurer) reduces friction in value chain to create operational efficiencies.
Future Benefits of Insurer Data
As insureds reap increased benefits from insurer data collection and analysis, more data-driven solutions will be available to businesses on the insurance market, and lines will blur between traditional “insurance” companies and data companies.
We are continuing to see an increasing adoption of telematics. One newer company is rapidly evolving underwriting for property insurance through the use of in-home sensors that collect data. Another insurtech is using GPS coordinates gleaned from smartphones to trigger inquiries about purchasing personal insurance for things like golf clubs or skis from the moment you digitally check into a recreational facility.
Technologies like AI and machine learning will continue to fuel advances in fraud detection and cost trending. And traditional insurers will partner with or purchase data from companies that will help them develop new practices to meet the demanding needs of organizations and consumers.