How data analytics will change the insurance sector as never before

While technology adoption has been crucial across industries, the insurance sector has been a late adopter of new inventions.

It took five years, from 2005 onwards, when some startups introduced web aggregators for online comparison and research of insurance policies, till 2010 when the insurance sector finally started selling policies online.

The insurance industry is — by definition and practice — generally averse to risk. It can’t afford to go out and play its cards wildly, say experts. They say that though they’ve been late adopters, they’ve done well.

Now, the insurance industry is rummaging into numbers. It is using data analytics to leverage benefits to both industry and the consumer.

Currently, the number of insurers leveraging such data is very low. But, it’s growing fast.

According to a report by BCG-Google, three out of four insurance policies would have been influenced by digital channels by 2020. It means that there will be a huge online, always available, ecosystem that will support and drive growth for insurers, who will be able to take advantage of this opportunity using both big and small data.

“In many ways, big data is already revolutionising the insurance sector – and not only in the customer acquisition space, but also in retention, servicing, and operations,” says Anurag Shah, Founder of Aureus Analytics, an insurance-focused data analytics company. The venture is funded by Rajan Anandan of Google India and Arun Venkatachalam of the Murugappa family.

The company has been with insurers such as SBI Life, Aegon Life, Bharti AXA and DHFL Pramerica. It also works with banks such as HDFC Bank, Axis Bank and Yes Bank.

He adds that one of the key challenges for insurers has been knowing their own customers well. The rapid data explosion makes it even more complex for insurers to know their customers well and to connect and engage with them in a meaningful manner. “We’re working with insurers and bank in the areas of improving customer engagement, customer persistency, and customer loyalty.”

Also Read: All you need to know about big data

For this analytical study, they will soon follow your Facebook postings to learn how many days in a year you party or how much you eat outside, especially junk food, at restaurants. They will use technology to know how much time your car spends on the road or how rashly you drive it. The aim is to create data points that would determine the premium you pay and so on.

Auto: A key sector

According to an IRDA report and TechSci Research, in the non-life insurance market, motor insurance accounted for 39.41 percent of gross direct premiums earned (up from 41 percent in FY06), at $1.01 billion till September 2015.

Experts say the analytic transformation in the automotive insurance market will transform the segment thoroughly.

“Traditionally, in India, car insurance companies would offer price policies based on two data points such as model of the car and availability of locking system. In the US, there are around 20 variables that go into these pricing calculations ‑ things like the age of the driver, gender, ZIP code, how many miles driven and driving record, among others,” says Sukhvinder Lamba, Founder of Waypals.

Waypals makes connected services accessible for consumers and it is as easy as plugging a device in a vehicle, and logging into a web portal/mobile app to start using it. It provides various features around car data analytics, social networking (find/follow friend) and location intelligent services.

The application of telematics in auto insurance will help insurers understand a driver’s behaviour.

“We implement a wide range of features and functions for both consumers and commercial vehicle owners, including advanced real-time predictive data analytics, integration with vehicle sensors and back-office software services,” says Sukhvinder.

He adds that in the future, insurers may apply these data more broadly across the industry, to issues of how price affects customer acquisition and how data can influence risk selection.

Consumer: The key beneficiary

According to an Indiaforensic study, Indian insurance companies have collectively lost a whopping Rs 30,401 crore due to various frauds which took place in the life and general insurance segments during the year 2011. The losses work out to about nine percent of the total estimated size of the insurance industry in that year.

Experts say that in case of such frauds, more than companies, consumers face the bigger loss in the long run.

“Using data analytics, insurers can marshal their data resources and create a multi-channel approach to fraud detection. They can take a close look at both traditional structured data (such as claims and policy data) and textual data (such as adjustor notes, police reports and social media),” says Rajeev Baphna, Founder and CEO, Analyttica.

These activities can help create new models to identify patterns of both normal and suspect behaviour that can be used to combat the increasingly sophisticated perpetration of insurance fraud.

Consider the case of auto insurance. It had been a loss-making business because of low pricing and very high-claim payouts, but in 2011, prices increased by 70‑150 percent to help minimise losses.

“Based on ratings classes, derived from data analytics, automotive insurers can also vary premium for policyholders,” says Sukhwinder.

Role of startups

The overall penetration of analytics in P&C insurance is still in a pioneer stage and penetration levels are in low single digits, implying significant untapped value creation potential.

According to a report by Genpact, the insurance sector constitutes only 10 percent of the market of Analytics Business Process Services. In the insurance segment, the revenue of analytics products from companies such as SAS, Oracle, SAP, and Microsoft was between $200 and $250 million in 2013, which is expected to rise to around $1,000 million in 2020.

According to Nasscom, the analytics market in India is expected to touch $2.3 billion by the end of 2017-18.

Experts say that in this growth, startups will play a crucial role. Startups focusing on the insurance industry have tremendous opportunity. While areas like customer acquisition and cross-sell have already been targeted, new areas like telematics, IoT and blockchain are those that new startups can consider while focusing on the insurance industry.

“Insurers are also opening up to the idea of working with startups as partners and trusted advisors as far as breakthrough technology or applications are concerned. While they will continue to engage with their existing partners for services, they will increasingly depend on young organisations to drive exponential growth via innovation. We are already seeing steady growth in accelerators, incubators, captive innovation centres, etc., that is focusing on insurance-related technologies. This is a clear indicator that we are approaching an inflection point in InsureTech,” says Anurag.

He, however, adds that the biggest impediment to their adoption by insurance companies has been the lack of ready solutions that are built specifically for this industry. He’s yet to see any company that offers ready-to-use products that can be used by business users to solve insurers’ specific pain points.