Approaching Critical Mass?

Insurance is an old industry, but has always been data-led, even when that data was in short supply. There has been much discussion lately in the insurance industry regarding the increasing role of data and the opportunities of fast, verified and, possibly, big data.

Imagine a world where insurers did not need to ask as many questions, but could source the answers from other data stores. What if the insurer could warn the insured before a car was going to fail, before the insured’s crops failed due to drought, before the insured walked into an area that had seen activity from pickpockets, or before the insured entered a country not covered by its travel insurance?

Modern technology promises that this data is available, and some customers are sharing enough information to make such interactions and risk management possible. Might consumers be ready for a different kind of product and a different kind of engagement?

Results of an online survey from Celent sought to understand perhaps the most important voice in the data question: consumers. Are consumers willing to share personal data with insurers? What incentives or conditions make this possible? How should insurers launch programs aimed at leveraging this data? How might consumers respond to messages that insurers might send them in the future using this data?

In all, 2,460 consumers split between the United States and the United Kingdom were asked about their views on use of data by financial services firms. Full survey results are available in two reports, Insights on Sharing: Financial Consumers and Their Data and Customers Don’t Want to Buy Insurance from Big Brother.

MORE DATA BEING COLLECTED THAN EXPECTED

When it comes to consumers and data-sharing, a world of possibility is emerging. Consumers are already collecting more data about themselves than was expected, and many are willing to share it.

This data collection may be just short of a useful, critical mass for banks and insurers to use in its current state. Banks and insurers may need to either induce consumers to collect new data for data-driven models to work across broad customer groups or wait for wider adoption.

Trust levels for various types of institutions vary, but banks and insurers are positioned relatively well. Customers expect a tangible quid pro quo if they are to willingly share data. The strongest quid pro quo would be reduced premiums, but banks and insurers may need to identify other benefit streams to make the economics of data-driven models work.

Many customers report thinking that insurers are using more data than they really are, with over a third of respondents believing insurers already use personal location data, for instance. One’s home address has been used in insurance for decades, and it is true that many insurers in the target countries now offer telematics-based propositions where one’s vehicle is tracked.

However, this figure, in particular, seemed at odds with reality. Perhaps, then, there is openness to insurers using more data than they currently do?

BENEFITS FOR CUSTOMERS

When customers were asked about possible benefits, lowering fees or offering discounts were the most common responses. Interestingly, the second most popular was more gregarious: “improving the way they [insurers] deliver services to customers generally.”

Findings indicate that wealthier households taking part in the survey were markedly more interested in any and all of the benefits compared to the rest of the population. It may be that these offerings will be seen first in high net worth and premium policies.

In some ways, however, this misses the point. Tying the sharing and use of data to discounts misses the huge opportunity for both consumers and the insurance industry. With real-time, better data and automation come the opportunity to intervene – to mitigate risk before a loss rather than responding to a claim request.

The research also sought to understand consumer response to messages that insurers are sending to customers not only now, but could send in the future with more data.

In many countries, insurers are already using telematics devices in cars to evaluate driving behaviour. Many of these insurers are providing feedback on driving as well as discounts and other offers for good behaviour.

What if insurers took this a step further and used other data to send messages to consumers?

Well, the results on this point were fairly conclusive; today, most people would hate receiving such messages, feeling them to be a gross invasion of privacy. What then is the advice to insurers? Offer such messages as an opt-in service, or not at all.

For each message included, however, there were respondents who would love to receive them. Once again, this is not yet near critical mass, but many of the fans were in the younger age group and were more trusting of insurers than their middle-aged parents.

Perhaps, this indicates a trend for the not-too-distant future.

Upon a closer look at those fans, it was found to be more about sharing behaviour than familiarity with technology. Thus, insurers should target social media users rather than smartphone owners and geeks.

Folks already collecting the data about themselves were more likely to respond positively, and, perhaps surprisingly, those who had signed up to grocery store loyalty schemes were more likely to respond positively too, having already traded privacy for benefits.

FOSTERING CUSTOMER, INSURER PARTNERSHIP

It is recommended that insurers looking at data and data-led products should start with a discovery process.

When big data is discussed with insurers and brokers, the response is often that one must sort out the little data first. Understanding what data an insurer has, what data is available to the insurance industry, and what data the customer can offer is a key first step on the journey.

Another crucial step is working out what the benefits are for consumers – what it is they will get for sharing their data and losing a little of their privacy. A discount is an obvious benefit, but there is an opportunity here to engage the customer differently and become a partner in the insured’s life rather than being the source of just another bill.

Finally, the disparity between what data the insurance industry uses and what customers thought the industry used was, in some cases, quite alarming.

In this age of hacking scandals and privacy concerns, it is imperative that the industry accurately communicates what data it holds and why it holds it. Greater transparency and understanding are better for the industry and the customers it serves.