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techUK held an event looking at the role of Big Data in Insurance and Financial Inclusion and there were some interesting discussions

Recently, 4 May 2016, techUK’s Cloud, Big Data and Analytics and Financial Services and Payments programmes held a joint event on the role of Big Data in Insurance and Financial Inclusion.

Dr Christopher Royles, Systems Engineer at Cloudera, Matt Cullen, Assistant Director and Head of Strategy at the Association of British Insurers and Paul Brook, Head of EMEA Program Manager Big Data and Cloud Solutions at Dell, all spoke about how big data is increasingly informing the behaviour of insurers and to what extent big data is having an impact on the ability of individuals to get insurance cover.

The presentations highlighted how the ‘explosion’ in data creation is set to revolutionise the way insurance works and will change the relationship between the insurer and customer, with the majority of insurance organisations seeing implementing big data strategies as a key strategic priority. It was widely agreed that the insurance sector has been slower than others in embracing the big data revolution but with that set to change, various technical and ethical challenges will need to be addressed.

Through using big data tools and technologies, insurance companies are increasingly able to extract far more granular information about their customers given the varied data sources they are able to use in assessing an individual’s risk portfolio. Historically, a very crude model has been used to determine risk with only limited pieces of information being available. The availability of real-time data providing insights into customer’s behaviours is changing that.

These insights are likely to have a number of impacts on the insurance industry, with different, and possibly more flexible, product offerings based on a clearer understanding of the needs of a customer through analysis of their data. For example, as is already the case in California, we are likely to see the development of motor insurance ‘by the mile’ and a movement away from annual premium payments. Similarly, some UK start-ups are acting as insurance brokers in offering real-time insurance to consumers. It is envisaged that in time, big data technologies will enable customers to update their insurance information as their circumstances change, which is likely to have an impact on pricing models.

It was suggested that it will ultimately be competition that dictates this trend from pooled risk to a more individualistic approach as insurers chase optimal pricing. However, as discussed at the session, this raises the question of fairness, and inclusion, in the insurance market when a risk is highly differentiated throughout the population. It was also speculated that the market will become increasingly segmented by those who do, and do not, provide consent and access to their data, and this could impact the outlook for the application of big data technologies.

The use of big data is challenging the historical norm of pooled risk in favour of an individualistic approach some people paying a lower premium and those with a higher risk profile being charged higher premiums. It was felt by those attending the session that this is perhaps not just a technical issue, but a philosophical one.

Flooding insurance provided a useful case study to frame this discussion, where individual pricing was deemed not fair as it left those facing a high risk of floods with extortionate premiums which essentially left them excluded from the market.

The flooding example is set in a context whereby individuals do not have a huge amount of choice about whether they are regularly flooded. How will fairness inform insurance exclusion where there is a personal choice, such as how fast you drive or what lifestyle choices you may which might impact your health? These questions remain unanswered.

The lively discussion throughout the session confirmed that where the risk distribution is small, individualistic pricing will not have a severe impact on the number of ‘uninsurables’ and the benefits of using big data such as a more personalised and interactive service should outweigh concerns about inclusion.

If you would like to know more about techUK’s Cloud, Big Data and Analytics and Financial Services and Payments programmes please contact Jeremy Lilley and James Lee.

techUK's Cloud, Big Data and Analytics and Financial Services and Payments programmes will be holding another joint event on 23 May 2016 on 'Banking on Big Data'