BIG DATA, BIGGER
OPPORTUNITIES
TECHNOLOGY WILL IGNITE POST-FINANCIAL CRISIS
OPPORTUNITY AND GROWTH FOR THE INSURANCE INDUSTRY.
THE
GLOBAL
FINANCIAL CRISIS
OF 2008 CONTINUES TO HAVE FAR-REACHING IMPLICATIONS, FROM
THE HEALTH OF GLOBAL MARKETS TO SHIFTING CONSUMER FISCAL ATTITUDES. ALTHOUGH NOT AS DR ASTICALLY IMPACTED AS THE FINANCIAL INDUSTRY, MANY INSURER S FOUNDTHEMSELVES ON UNFAMILIAR GROUND—ANDON THE WRONG SIDE OF RISK MANAGEMENT.
A platform that integrates cloud services, machine to machine (M2M), data mining, and analytics will help companies:
• Gain a clearer view into risk. • Optimize insurance pools. • Deliver differentiated services.
• Connect with and better serve tech-savvy customers. • Expand into emerging markets.
It’s true that the challenges facing today’s insurance companies are considerable. But the opportunities enabled by emerging technologies are even greater. Though long an industry considered recession proof, large insurance companies are finding themselves at the center of a storm. But even those that maintained conservative, risk-adverse strategies are facing plenty of tough new challenges, including:
Despite recent miscues, the insurance industry tends to be conservative and risk adverse. It’s a mindset that often extends across the enterprise, so technology adoption tends to be slower than in other industries. And that needs to change.
Increased policy shopping. Consumers are shopping for discount insurance, making it increasingly difficult to acquire and keep low-risk customers.
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Fewer assets sold or insured. Decreased economic activity is leading to fewer high-premium policy sales. And fewer policies mean fewer funds available to pay claims.
2
Limited business resources. Rightsizing of employees and reduced investments in technology mean less focus on innovative solutions.
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TECHNOLOGY WILL BE CENTRAL
TO THE INDUSTRY’S ABILITY
TO RESPOND TO THESE AND
OTHER POST-FINANCIAL
CRISIS CHALLENGES,
AND
DEVELOP NEW,
MORE PROFITABLE
OPERATIONAL MODELS.
INFORMATION DRIVES
POOL OPTIMIZATION.
IN EVERY BRANCH OF INSURANCE, OPTIMIZING THE INSURANCE POOL IS
A CENTR AL CHALLENGE. PROFITABILITY IS DEPENDENT ON NOT ONLY
IDENTIFYING AND DRAWING IN LOW-RISK CUSTOMERS, BUT ALSO ACCURATELY
MATCHING PREMIUM RATES TO RISK LEVELS.
ANY INSURANCE POOL WILL CONTAIN BOTH
HIGH- AND LOW-RISK CUSTOMERS. BUT POOLS
CAN BECOME UNBALANCED—AND REVENUE LOST—IF THE COMPETITION LURES AWAY ALL OF THE LOW-RISK CUSTOMERS WITH MORE COMPETITIVE PREMIUM RATES.
And those customers, empowered by a wealth of online information, are shopping around, looking to be rewarded with the lowest possible premiums. A healthy,
35-year-old jogger isn’t going to settle for the same rates as his
50-year-old work buddy who has chronic smoker’s hack and a serious TV habit.
That 35-year-old may appear low risk at first glance, but he has high stress, his father had a heart attack at age 38, and he just bought a new sports car that he likes to open up on the way to work.
COMPANIES CAN ALSO
GET STUCK WITH AN
UNPROFITABLE POOL
IF RISK LEVELS ARE
MISCALCULATED.
{
ADOPT TECHNOLOGIES
To create and maintain better balanced and more profitable}
pools, insurance companies need to adopt technologies that can help them make more informed underwriting decisions. Because the financial risk of getting stuck with a poorly balanced pool far outweighs that of investing in new technology.
FIND A BALANCE BETWEEN HIGH- AND LOW-RISK POOLS.
!
INNOVATION
EMPOWERS
DIFFERENTIATION.
AS THE INSURANCE INDUSTRY BECOMES MORE TECHNOLOGY BASED,
CLOUD SOLUTIONS WILL PROVIDE THE FOUNDATION FOR NEW DATA-DRIVEN
UNDERWRITING MODELS AND POOL OPTIMIZATION.
USAGE-BASED INSURANCE
(UBI) SYSTEMS PROVIDE
NEAR REAL-TIME INSIGHT
INTO CUSTOMERS’ DRIVING
HABITS AND RISK LEVEL.
HEALTH INSURERS ARE ENVISIONING SIMILAR SCENARIOS, SUCH AS PROACTIVE HEALTHCARE MONITORING. DOWN THE ROAD, HEALTH INSURANCE CUSTOMERS MAY VOLUNTARILY MONITOR THEIR VITAL SIGNS TO HELP INSURERS WRITE TRULY PERSONALIZED POLICIES.
Cloud computing supports the aggregation and storage of the vast amounts of valuable data that can now be collected from mobile devices and M2M applications. That information can be enhanced, mapped, and combined with data from other sources—like actuarial models—to calculate risk and possibly even predict events.
UBI systems include a small device that contains a cellular radio, an accelerometer, a GPS unit, and a processor; this device is installed in the customer’s vehicle to provide the carrier with information on driving habits, based on how the vehicle performs. This information is augmented by additional proprietary information in a cloud environment and then analyzed to help insurers set rates tailored to the individual’s level of risk.
VS
IDENTITY THEFT POLICY PAYS COMPENSATION
LEGAL REPRESENTATION
REESTABLISH IDENTITY
SAFE SPENDING
REAL-TIME MONITORING UNIVERSAL IDENTITY MODELS
CONTEXTUAL IDENTITY PROOFING
REACT PROACTIVE
a
a
a
IDENTITY THEFT PREVENTIONALL OF THIS
DATA
IS OPENING THE DOOR
TO A UTILIZATION OF CLOUD-BASED ANALYTICS THAT WILL EMPOWER INSURERS TO DEVELOP NEW PREDICTIVE RISK MODELS. THAT DATA COULD LEAD TO A MORE PROACTIVE, LESS REACTIONARY APPROACH TO UNDERWRITING.
CURRENTLY:
WHOLLY REACTIONARY
The current model for identity-theft insurance is wholly reactionary. Once a person’s identity has been stolen, the policy pays compensation and provides legal representation to untangle the multitude of issues associated with reestablishing identity and reputation.
NEAR FUTURE:
PREDICTIVE ANALYTICS
Insurers could use real-time monitoring, universal identity models, and contextual identity proofing to model a customer’s identity, including how it interacts with retailers and service providers and other facets of life. By applying predictive analytics, the insurer could then develop anticipatory intelligence about when and where theft might occur, and take measures to prevent it.
THIS COULD BE A MAJOR SHIFT, ONE THAT LEADS TO A WHOLE NEW SPECTRUM OF
PERSONALIZED AND DIFFERENTIATED OFFERINGS THAT MOVE FAR BEYOND COST INCENTIVES.
GLOBALIZATION
PROPELS
EXPANSION.
ANOTHER NEW, TECHNOLOGY-ENABLED FRONTIER FOR INSURERS—AND
A MAJOR OPPORTUNITY—WILL BE IN EMERGING MARKETS.
THE POTENTIAL MARKET FOR INSURANCE IN DEVELOPING ECONOMIES IS ESTIMATED TO BE BETWEEN
As consumption in these countries increases, demand for insurance products will not only give rise to countless
start-up agencies, but propel many existing enterprises into the global market.
In a recent survey conducted by PricewaterhouseCoopers, 30 percent of respondents believe new emerging market insurers will move into the developed world to become global
insurers, and 28 percent foresee truly global markets.3
To serve customers in emerging markets, insurers will need to partner with a network provider that can deliver seamless, reliable, highly available access to people, systems, and data around the planet. With a truly global technology
infrastructure, insurers
can expand operations
and service offerings, and, at the same time,
become more agile and efficient.
IT’S ESTIMATED THAT THE EMERGING SIX
(E6) WILL CONTRIBUTE 47% OF GLOBAL
GDP GROWTH BETWEEN 2006 AND
2020,
WHILE THE GLOBAL SIX (G6) WILL
CONTRIBUTE LESS THAN 24 % DURING
THE SAME PERIOD.
11.5 AND 3 BILLION
POLICIES.2
COLLABORATION
ACCELERATES
SUCCESS.
FOR TODAY’S INSURANCE COMPANIES, THE REAL RISK IS IN DOING NOTHING.
BECAUSE THE COMPANIES THAT QUICKLY MOVE TO DEVELOP NEW TECHNOLOGY-ENABLED MODELS WILL BE THE ONES WITH THE MOST BALANCED POOLS AND UNIQUE, VARIED, AND INDIVIDUALIZED OFFERINGS. FORWARD-LOOKING INSURERS SHOULD BEGIN BUILDING THEIR PLATFORMS NOW.CRITICAL FOR THE NEXT THREE TO FIVE YEARS WILL BE:
THINK FORWARD.
To access additional content, provocative analysis, and collective insight from the minds of forward thinkers, explore our thought leadership site.
VERIZON.COM/ENTERPRISE/THOUGHTLEADERSHIP
Tomorrow’s underwriting—and operational—model will be radically different from today’s. It will require a whole new mindset, as well as new skillsets. But it will also attract a new generation of young, tech-savvy employees, who will bring their experience and insight into mobile, social, network, and data-driven technologies to reenergize the industry.
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Building technology platforms that securely integrate: Mobility M2M Cloud
Analytics Security
Developing a service-centric architecture that supports flexible, responsive, and agile business models and global capabilities.
Creating social platforms to drive business intelligence and create new customer channels, and the employees to support them.
Partner with trusted global technology provider(s).
ABOUT THE AUTHORS
Chandan Sharma is the Global Managing Director, Verizon Financial Services Practice.
Stephen Busateri is the Global Manager, Verizon Financial Services/Insurance Vertical; and Product Manager, Verizon Usage-Based Insurance Telematics Program.
