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The big data rush: how data analytics can yield underwriting gold

Industry report reveals that new ways of working need to be adopted to maintain the competitive edge. 

A study has revealed that the insurance industry needs to adopt new ways of working in order to make sense of Big Data and remain competitive in future years to come.

The research, conducted by Marketforce, the Chartered Insurance Institute (CII) and the Chartered Institute of Loss Adjusters in conjunction with Ordnance Survey, found that 82% of those questioned believed that insurers that do not capture the potential of Big Data will become uncompetitive.

The survey of members of the CII’s Underwriting Faculty also revealed that 9 out of 10 underwriters think that access to real-time claims data would help price risk more accurately, with motor (88%), household (76%) and health (60%) being cited as the insurance lines, where pricing accuracy could be ‘transformed’ by Big Data-enabled pricing models.

Whilst there is a hunger for better insight, the research showed that too many insurers believe they are ill-equipped to capture the potential of Big Data. Ninety-five per cent agreed that many underwriting departments lack the necessary tools, whilst 81% agreed that many underwriting departments lack the specialist skills. Despite these shortcomings, underwriters admitted that they don’t expect to see any investment in Big Data in the next two years, and even 10 years on, the anticipated spend might be minimal to modest.

Commenting on the findings, Ant Gould, Director of Faculties at the Chartered Insurance Institute, said: 'This report provides food for thought for underwriting teams preparing for advances in analytics and real-time pricing, helping them to identify the necessary skills sets that will be critical in enabling underwriters of the future to survive and thrive to the ultimate benefit of their customers'.

Whilst on paper tackling Big Data can sound overwhelming, it doesn’t have to involve a multi-year project that soaks up capital resources and management time. There are numerous high performance analytic methods that can be implemented in months rather than years, including predictive modelling and data clustering. These can give underwriters the power to highlight easy deliverables to keep pace with the fast-moving digital world. 

Sarah Adams, Financial Services Sector Manager at Ordnance Survey, warned: 'Those insurers that fail to address concerns highlighted in this study, risk finding themselves on the wrong side of the Big Data revolution.'

It’s not just high performance analytics that aren’t being tapped into – loss adjusters’ ability to feed underwriters data from the site of the claim as it unfolds could prove valuable for insurers looking to make underwriting and pricing decisions in real time. Tellingly, 84% of loss adjusters agreed that insurance companies currently underutilise the information gathered by loss adjusters, and 87% believe that breakthroughs in predictive analytics mean that insurers will demand more detailed and frequently updated data.

Location intelligence that is third party assured, fixed and verified can ground disparate streams of data to allow underwriters to make sense of the data rush. Encouragingly, telematics and M2M devices, along with GPS-enabled devices and social media postings, are already being deployed by insurers and customers are proving willing to share information in return for rewards. Pitching this offer right could deliver a key competitive edge in risk visibility and pricing accuracy.

Sarah Adams, Financial Services Sector Manager at Ordnance Survey, explained 'Data is more powerful when it’s linked with other datasets, allowing underwriters to not only validate existing data, but also identify previously unseen patterns and risks. Big Data has the potential to transform underwriting by improving risk analysis and pricing accuracy, and there is a clear need for insurers to correlate premiums to risks more effectively. An ability to assess risk in granular detail will contribute to better correlation of pricing to risk, building a more resilient organisation and boosting insurers’ bottom lines. By applying human experience, creativity and wisdom – to the data – underwriters can turn Big Data into gold'.

The findings come after Ordnance Survey and the Chartered Institute of Insurers surveyed 242 members of the CII’s Underwriting Faculty in March 2013. At the same time, 220 members of the Chartered Institute of Loss Adjusters were asked about the data they collect and how underwriters could better exploit this data.

Download the report here

For more information from Ordnance Survey, please contact:

Jo Gray – Senior Press Officer on 023 8005 5589 or jo.gray@ordnancesurvey.co.uk

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