Insurers’ data prowess will be the key inflection point for the industry in 2018, according to two recent papers from Deloitte. Carriers will be pressured to collect and operationalize as much data as possible – while, at the same time, be required to safeguard that data from a litany of bad actors. The company offers several pieces of advice for being effective stewards of data in its “2018 Insurance Regulatory Outlook: Navigating the Year Ahead” and its “2018 Insurance Outlook: Shifting strategies to compete in a cutting-edge future” reports. Following are some of the insights.
Get in compliance with the latest data security legislation
After high-profile breaches in several industries, New York State and the National Association of Insurance Commissioners have drafted regulations to help ensure that carriers are keeping data safe. As a clear vision of what regulation will look like emerges, “the good news for insurers is that, because there are enough functional similarities, compliance with the New York regulation is considered prima facie evidence of compliance with the NAIC model,” Deloitte writes. “One development that holds promise— especially for smaller companies that may not view data security as one of their core competencies—is the opportunity to outsource data tracking and maintenance to a qualified entity.”
Representative Kevin Brady, a Republican from Texas and chairman of the House Ways and Means Committee, top left, speaks during a markup hearing on the Tax Cut And Jobs Act in Washington, D.C., U.S., on Thursday, Nov. 9, 2017. Ways and Means Republicans were briefed Thursday morning on changes Brady plans on introducing later in the day, but the legislative text hasn't been finalized, according to a Republican on the the panel. Photographer: Andrew Harrer/Bloomberg
Be ready to make the business case to regulators
Security isn’t the only regulatory stumbling block around big data. There are also concerns that data models are sufficiently agnostic and give each customer a fair shake. “Regulators that were skittish about the use of credit reports in underwriting or dynamic pricing models might need to be convinced that the underlying data used in an insurer’s predictive analytics are accurate,” Deloitte says. “These challenges aren’t necessarily an argument for caution but for rigorous preparation and risk management, including external review of data sources and usage, clear lines of accountability, and transparency. Involving regulators from the beginning in efforts to use advanced analytics is a basic requirement.”
Traffic stands near the Lincoln Tunnel in this aerial photograph taken with a tilt-shift lens above Weehawken, New Jersey, U.S. Photographer: Craig Warga/Bloomberg
Auto insurers must add value with telematics
Ease of switching carriers coupled with rising repair costs related to more complex vehicles and increased miles driven are pressuring auto insurers’ bottom lines. A potential solution is using telematics and its associated data to add value to the product “The real-time data furnished by auto telematics offers a way for insurers to become an integral daily influence for connected policyholders through offers of frequent, mutually beneficial value-added services to establish brand stickiness,” Deloitte says. “This doesn’t seem to be a pipe dream, as price satisfaction scores are higher among customers who participate in auto telematics programs, even when they have experienced premium rate increases. As rising loss costs pressure carriers to keep raising rates, insurers that deliver more value for the premiums charged can position themselves as market leaders and attract higher-quality risks.”
Homes stand in this aerial photograph taken above Toronto, Ontario, Canada, on Monday, Oct. 2, 2017. Toronto housing prices fell for a fourth month in September as sales remained sluggish, particularly in the detached-home segment that has borne the brunt of the correction in Canada's biggest city. Photographer: James MacDonald/Bloomberg
Home insurers can do the same with the Internet of Things
A proliferation in connected- or smart-home devices can boost the home insurance sector in a similar fashion to the auto industry, Deloitte says: “Providing loss-prevention capabilities as well as after-the-fact reimbursement will likely also enhance client perception of an insurer’s tangible value, which can strengthen retention. Real-time connectivity could also fuel a surge in customer touchpoints to reinforce relationships, an opportunity long elusive to insurers.”
Allianz AG agent Cihat Polat, left, explains details regarding car insurance at their offices in Frankfurt, Germany, Friday, November 14, 2003. Allianz AG, Europe's biggest insurer by premiums, reported its second straight quarterly profit as earnings in the main property and casualty division advanced. Photographer: Axel Seidemann/Bloomberg News
Life insurers can focus on customer experience
Data is cutting the time the life insurance application process takes down rapidly, positioning the industry to bridge coverage gaps. “Several insurers are experimenting with connectivity and advanced analytics to narrow the life application-to-closing process from weeks to minutes, lowering onboarding costs, and minimizing the consumer dropout rate,” Deloitte writes. “Accelerated underwriting metrics, based on digitally available medical data, drug prescription information, and potentially even facial analytics technology can be used to estimate an applicant’s life expectancy and eliminate traditional medical tests.”
An attendee tries out an application on a SoftBank Group Corp. Pepper humanoid robot at the SoftBank Robot World 2017 in Tokyo, Japan, on Tuesday, Nov. 21, 2017. SoftBank Chief Executive Officer Masayoshi Son has put money into robots, artificial intelligence, microchips and satellites, sketching a vision of the future where a trillion devices are connected to the internet and technology is integrated into humans. Photographer: Kiyoshi Ota/Bloomberg
Expect AI to be a competitive point
Insurer spending on artificial intelligence technologies is expected reach $1.4 billion by 2021, Deloitte notes. This includes robotic process automation and its more sophisticated cousin, cognitive intelligence technologies. Insurers are wise to get on board now in order to stay ahead of the race. “RPA gives carriers the ability to automate mundane, box-checking-type tasks in underwriting, policy administration, and claims, potentially freeing up thousands of people hours,” Deloitte says. “CI goes one step further by providing insurers with tools to automate non-routine tasks requiring soft skills, such as intuition, creativity, and problem-solving. This is primarily driven by the refinement in several key CI technologies, such as handwriting recognition; image, audio, and video analytics; and natural language processing."
The Tesla Inc. Model 3 vehicle is displayed during AutoMobility LA ahead of the Los Angeles Auto Show in Los Angeles, California, U.S., on Wednesday, Nov. 29, 2017. AutoMobility LA brings automakers, tech companies, designers, developers, startups, investors, dealers, government officials and analysts together to unveil the future of transportation with over 50 vehicle debuts. Photographer: Patrick T. Fallon/Bloomberg
Don’t forget that new competitors have access to these tools as well
“Insurers should also pay close attention to the emergence of entirely new competitors,” Deloitte writes. “More auto makers producing ‘smart’ cars may decide to include insurance in the price of their vehicles, following the example of Tesla, which has been selling auto coverage with its cars in Asia and may one day include insurance in the final sticker price worldwide.”
Look to buy and partner with insurtechs…
A quick way to get data excellence into an insurance organization is to look at the insurtech sector for potential partnership and acquisition targets, Deloitte suggests. “One potential M&A growth area is being spurred by digitalization, with insurers seeking to enhance distribution, customer experience, data collection, advanced analytics, and operational efficiency by homing in on InsurTech investment and acquisition targets,” the company writes. “Although outright purchases of InsurTechs are still relatively few to date, such acquisitions through the first nine months of 2017 are already nearly twice that of the high point in 2014, with a full quarter remaining.”
Employees read a ransomware demand for the payment of $300 worth of bitcoin on company computers infected by the 'Petya' software virus inside a retail store in Kiev, Ukraine, on Wednesday, June 28, 2017. The cyberattack similar to WannaCry began in Ukraine Tuesday, infecting computer networks and demanding $300 in cryptocurrency to unlock their systems before spreading to different parts of the world. Photographer: Vincent Mundy/Bloomberg
…rather than fear them
Insurtechs are shaking up the industry with new ideas and advanced technologies, especially around effective use of data and analytics. However, they lack the regulatory prowess or capital scale of legacy companies. “Insurers still have a lot to offer in terms of capital, market reach, brand recognition, product design, and infrastructure,” Deloitte writes. “As the industry goes forward into this brave new world, insurers that make digital transformation not just a priority, but a continuous improvement process, are most likely to reenergize their cultures as well as grow their top and bottom lines.”