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How the global insurance market will keep pace with evolving risks, through data, analytics and technology

News article

Publication date:

21 April 2022

Last updated:

21 April 2022

Author(s):

John Beal

Forget a bird’s eye view, insurance providers the world over are now looking for an 80,000-metre high, near space view when analysing risk.

(John Beal, Senior Vice President, Analytics, Insurance, LexisNexis Risk Solutions)

The on-going and lasting effects of the pandemic, lifestyle changes, technological innovations and the dramatic changes created by global warming, demand an instant and constant picture of risks and exposures across an insurance provider’s entire portfolio. In an ever-changing, turbulent global economy, the insurance sector will need to increasingly harness data to meet the growing expectations and demands of increasingly digitally savvy consumers.

 

Dealing with climate catastrophe through data

Whether it is typhoons in the U.S., or storms and flooding in the UK and across Europe, climate change isn’t a regional catastrophe, but a global challenge. Extreme weather events in 2021 resulted in annual insured losses from natural catastrophes of an estimated US$105 billion (around £79.10 billion), according to a new report from the Swiss Re Institute. That’s the fourth-highest loss since 1970[i]. As weather related events rise in severity and frequency[ii], insurance professionals must understand the risk at all stages of the insurance continuum – application, quote, claim and each point in between.

This is where the evolution of geospatial data intelligence and data visualisation tools come into play. These, along with the emergence of increasingly sophisticated property and vehicle centric data, are helping to provide that total, top-down overview to help immediately understand risk at whatever point it is needed and whenever it is required in the customer journey.

Take the example of an approaching storm, critical geospatial data, including near real-time data on flood warning and river flows and the tools to predict and visualise at risk areas, are now being used in tandem with insurance provider’s own customer data to forewarn individual commercial property, homeowners and vehicle owners as events occur. In turn, policyholders can take preventative measures to minimise harm to themselves and their belongings.

This upfront knowledge via data streams allows insurance providers to mobilise emergency recovery teams as well as expediently begin the claims process which, with the number of claims from weather losses almost doubling in 2020,[iii] only look set to rise. Post-storm, the emergence of highly sophisticated risk assessment tools combining aerial imagery with claims insights to help make better new business and renewal decisions, will become more important than ever as our climate continues to change.

 

Keeping pace with changing driver behaviour

It’s not just the weather that is challenging insurance risk specialists. COVID-19 and consequential ‘stay at home’ orders across the globe led to changes in driving behaviour, with a reduction in traffic volume meaning fewer accidents and consequently low claims volumes[iv]. Nevertheless, vehicle centric data has highlighted that empty roads can be a temptation for speedsters with many more high speed, risky driving behaviours such as distracted driving; and claims, though lower in volume, were higher in severity during the UK’s first lockdown[v]. In fact, according to Willis Towers Watson, whilst lockdowns over the period Q2 2020 to Q1 2021 led to a drop in motor claim volumes, including unprecedented lows in some months, the cost of settling claims continued to increase during the pandemic[vi].

Insurance professionals can keep pace with changing driver behaviour and adjust risk profiling accordingly thanks to innovations in vehicle-centric data on how the car is equipped from a safety perspective. Comprehensive data now available on the presence and performance of Advanced Driver Assistance Systems (ADAS) at a VIN level, is evolving the way motor insurance risk is understood and could help insurance providers play a larger role in improving road safety.

 

Using the right data at the right time in the right place

The past two years have demonstrated how quickly things can change and how the insurance market has to supplement its historical assumptions and patterns of the past with today’s quickly changing conditions to forecast future claims outcomes more accurately. Insurance providers are entering a new era in insurance risk assessment.

Many traditional underwriting data points were disrupted, consumer shopping behaviour changed, and customers needed to be serviced in a more virtual way. Frictionless identity validation using email intelligence has therefore become a much higher priority for the market to offer customers a streamlined online application and quote experience while protecting itself from fraud. At the same time, the industry is embracing opportunities to share data through market-wide contributory databases. Whether that’s policy history, quoting activity or claims – market-wide data can help fill important gaps in knowledge about new customers to help ensure they are offered the right products at a price that reflects their individual risk.

With the insurance industry facing risks on so many levels the reliance on data has never been as great as it is now. It would be easy to be overwhelmed by data in this market. So, what is the secret to accurate data usage?

 

The ‘holy grail’ of the single customer view

We are seeing the single customer view emerge as the sector’s data ‘holy grail’.  This involves linking and matching technology to bring all to disparate data points about existing customers together to create one ‘golden’ record when can then form the foundation for every interaction going forward. 

It then comes down to using insurance specific data to enrich customer data. Data that has been viewed through the lens of the underwriter, pricing manager and claims professional. It needs to be injected at the right points in the customer journey, helping smooth the customer experience. Used insightfully it has the promise to make the customer application and onboarding process swift and alleviate considerable stress from a claim, winning over tomorrow’s consumers and making insurance something people really value and appreciate.

 

References:

[i] https://www.swissre.com/media/news-releases/nr-20211214-sigma-full-year-2021-preliminary-natcat-loss-estimates.html

[ii] https://www.eea.europa.eu/publications/europes-changing-climate-hazards-1

[iii] Association of British insurers, abi.org.uk/Insurance-and-savings/Industry-data

[iv] https://www.abi.org.uk/news/news-articles/2020/09/motor-claims-fell-significantly-in-q2/

[v] LexisNexis Internal analysis

[vi] https://www.willistowerswatson.com/en-GB/News/2021/12/higher-severity-claims-during-pandemic-drive-up-costs-for-uk-motor-insurers-in-2021

This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), Society of Claims Professionals or Chartered Insurance Institute, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the Society or Chartered Insurance Institute.