Making the Business Case for Big Data in Insurance

Featured article by Rick DelGado, Independent Technology Author

If it feels like every industry is being greatly affected by the mainstream arrival of big data analytics, that’s probably because it’s truly happening. Few businesses have been left untouched by big data’s ever expanding hand. There’s good reason for this of course. Big data is a transformative technology that carries with it lots of potential, provided it’s used correctly. As with any industry, many insurance companies have looked at big data analytics as a way to benefit their organizations. It’s a bandwagon that many businesses within insurance will need to jump on. Big data is disruptive to an immense degree, and those companies that don’t wish to pursue it may soon find themselves left behind. For those insurance companies still hesitant about the idea, the following can be considered an argument for the business case of using big data within the insurance industry.

In certain ways, big data provides many of the same benefits to insurance companies as it does to any other business. By collecting enough data and have the right analytical tools (Hadoop vs Spark and the like) on hand, companies can discover new insights on what could make new products and services as well as finding any new markets that have been left untapped. Perhaps there’s a segment of the population that could use a coverage plan of some type that they are generally unaware of. That would represent big data allowing an insurance company to reach a new audience, thus increasing revenue. Big data analytics can also be used to change the current business models many insurance companies work under. It is genuinely a new way to look at insurance, one which lives up to the “disruptive” label many are putting on big data.

Though big data can change the insurance industry in various basic ways, it’s the effects more in tune with the industry itself that will be the most meaningful. As just one example, big data provides insurance companies with better analysis for risk, and since insurance is all about risk and future disasters, this marks a tremendous change in the industry. Data gathered from all sorts of objects like cars, homes, and offices can gather data which insurance companies can then analyze. This would in turn make insurance plans tailored more for individuals rather than large groups. The way policies are built now, general statistics are used to determine certain risk factors (i.e. smokers usually have higher healthcare premiums because they’re more likely to get health problems). But big data changes all that, narrowing down the focus to the individual and establishing rates based on the person’s behavior rather than the demographic they happen to be in.

This essentially changes the role of insurance in a profound way. As noted insurance expert Tom Warden said in an interview with Forbes, insurance goes from a passive role to an active role. The emphasis also switches from restoring things that are lost to preventing those losses from ever happening. One case of this might be a special sensor in a car that records a person’s driving behaviors. From the data collected and analyzed, it may show certain behaviors that increase the chances of getting involved in a car accident. The individual’s insurance rates may then reflect that, but the person would also be notified of this dangerous behavior. If the actions are corrected, not only does the individual become safer, but insurance rates could go down. In this way, insurance companies play a role in preventing accidents rather than just compensating customers after crashes occur.

As one can easily assume, this change in focus and strategy can spell big profits for insurance companies, but the revenue benefits can go even further. Performance improvements accompany the use of big data regularly, and big data also fosters a closer relationship with customers. If big data is embraced at the organizational level, workers can perform their jobs more efficiently. As long as insurance companies are able to adopt the required technology to use it, like hyperconvergence, they’ll be able to use those advantages in short order. More technologies will certainly contribute to the phenomenon, particularly the Internet of Things. With more data at the ready, the insurance industry will truly be able to transform its business practices.

by Rick DelGado, Independent Author

“I’ve been blessed to have a successful career and have recently taken a step back to pursue my passion of writing. I’ve started doing freelance writing and I love to write about new technologies and how it can help us and our planet.” – Rick DelGado