Data analytics and profiling
Read time: 10 minutes
Data analytics and profiling
From the claims perspective, data analytics serves multiple purposes. Loss statistics may well identify repetitive causes which can be solved and reduce the number of losses. This is particularly interesting for corporate risk managers and their insurance providers. For an international car rental company a first predictive risk model was created and tested based on limited data analytics into the occurrence of losses related to age, rented car model, insurance cover, period and geographic area. Despite the limited sample group and the relatively few factors taken into account the model proved correct in almost 70% of the cases. Greater sophistication – i.e. greater segmentation in the renters – would easily lead to an even greater successful prediction of loss. This data could be processed both in the rental price and insurance premiums offered to potential renters.
Analysing claims data to improve customer profiling
Claims data can enrich customer profiles, especially when combined to the policy information. The profile can be enhanced even further by means of sensors and external sources. All this information can result in marketing insights in terms of segmentation as well as risk and even fraud profiles.
Whereas the likes of Amazon have a wealth of information thanks to their customers’ purchasing history, claims and policy information too can tell us a lot about a customer’s lifestyle. Better yet, the combined claims and policy information could show that there is a connection between risk appetite (defined by the level of insurance taken out) and the actual risk posed (defined by the number and extent of losses). Data could be enriched further by information gathered from voluntary sharing of car telematics and sensors on home equipment connected to the Internet. And why not enhance the customers’ profiles with data from surveys: just ask them about their preferences!
Concerns over privacy
I should add a word of caution. While customers may be willing to share data with trusted suppliers if they see substantial benefits, sensitivity over privacy is crucial. In some countries it is perfectly acceptable to use social media to detect fraud, but in many others it is against the law. Mining data from social media for marketing segmentation purposes – if legally allowed – may still raise some eyebrows. And, finally, the protection of data gathered is critical. Which is why, depending on local acceptance and legislation, I would emphasise the use of data provided voluntarily by the customer.
Having compiled data from multiple sources to establish each customer’s profile, data analytics can be used for a variety of purposes.
These purposes range from creating risk profiles, enabling insurers to segment based on customer desirability to segmentation for the design of customised solutions. This allows insurers to focus their marketing efforts on target groups in the more desirable segments. Such solutions could embrace the development of assistance services and, of course, pricing schemes including usage based pricing. Finally, the identification of causes of losses can result in mitigation measures.
The insured’s risk manager
In personal lines for instance, the insurer could assume the role of the customer’s risk manager, offering advice to mitigate risk, the adoption of which could subsequently result in lower pricing. If, for instance, customers in flood risk areas were to take flood resistance and resilience measures (raised thresholds, not storing expensive equipment in basements, airbrick covers), this could result in lower premiums.
Auto insurance has paved the way for customised solutions with usage based premiums (pay-as-you-drive) and safe-driver schemes, making extensive use of the car’s gps and telematics. Usage-based insurance and safe-driving schemes facilitate pricing segmentation, while the accuracy of pricing improves dramatically as the driving behaviour – monitored through telematics – constitutes the basis for rates. Safe-driver schemes have the added benefit of reducing car accidents in general, thus improving road safety.
Strategic choices are to be made: will you compete on price, or are you looking at ways to add value in the service chain? Are you opting for product leadership or customer excellence? Would you, for instance, move into the direction of your customer’s risk manager, offering premium reductions for installing safety measures? According to PwC’s survey (2014) 67% of the consumers surveyed would be willing to have a sensor attached to their car or home, if it could result in a reduction in premiums. Such strategic choices have an immediate impact on market segmentation, product design and your distribution strategies. Competing on price requires utterly streamlined processes, automated to the hilt, particularly in the claims phase. However, offering ultimate customer service too can largely be captured by automated processes as I have just shown.
SaaS to overcome legacy issues
The critical success factors for insurers are customer centricity, streamlined processes for cost reduction and focus on expertise and customer contact in the claims process. While it is abundantly clear that digital is the way forward and provides solutions for all these factors, the question is, what is holding insurers back? Traditional insurers are often burdened with legacy systems and the prospect of massive investments needed to adapt these systems.
As a result of ever stricter regulations as to compliance and solvency, insurers may be hesitant to rely on SaaS solutions offered by external parties. And while SaaS solutions for the front-end of the business are readily available, the same cannot be said for the claims process as most IT developers are no experts in claims processes. And finally, the processes covered by such solutions must be able to withstand the scrutiny of regulatory authorities. To this end ISAE 3402 certification offers peace of mind. ISAE 3402 is an assurance standard that covers procedures, controls and information security.
Digital as the solution
As customers are increasingly willing to purchase insurance from retailers and technology providers, it is vital for insurers to meet customer expectations defined by parties outside the insurance industry. The digital solutions I have discussed in this series of blogs meet those expectations, while dramatically increasing the efficiency of your claims processing, reducing costs and facilitating compliance with domestic and international regulations.
Van Ameyde’s SaaS solutions support ISAE 3402 compliance. Data security is covered by ISO certification of Van Ameyde’s inhouse IT Services company (Zero)70.
Infographics by Marieke Buurman, Van Ameyde Waarderingen
PWC (2014). Insurance 2020: The digital prize – taking customer connection to a new level