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Big data analytics in the insurance industry

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Inefficiencies in the insurance industry are costing consumers millions each year, while the industry continues to grow. The needs of consumers don’t always seem to be a top priority, which is a deep concern during the current global economic climate. Bradley Smith, specialist consultant at digital agency Platinum Seed discusses how technology can help achieve the best outcomes for both the industry and consumers.
South Africa’s insurance industry operates under an archaic system where distribution is still largely broker-based. This often results in products being sold with perverse incentives – the term used in an environment where broker incentive structures encourage them to maximise commissions rather than meet consumers’ needs.
In December 2016, the National Treasury and the Financial Services Board (FSB) stepped in and published amendments to insurance regulations to improve market conduct in the insurance sector. These amendments aim to ensure that customers are treated fairly and that incentives for brokers are aligned to ensure that “less complex, good-value products” are offered to clients.
However, insurance marketing is still very industrial and takes a blanket approach, rather than a highly targeted and personalised one – which is not in keeping with current trends towards personalised communication, made possible through various social platforms and online tools.
Products are still very generic and not tailored to individual needs, and back-end administration systems are often archaic because they’ve been built in layers over time, and peeling through them to innovate at the core is a massively time consuming and risky venture.
Digital enablement in the industry is poor with only a handful of insurance companies offering functional websites or mobile apps for customers that their clients can use to administer their own policies.
What’s more, few insurers leverage big data to provide accurate pricing. The result? South Africans are overpaying for inappropriate insurance products.

The solution – big data analytics
Despite these problems, the smart use of big data analytics has the potential to significantly improve the quality that insurers provide.
Big data analytics is the process of using technology to examine large sets of data to uncover hidden patterns, unknown correlations, market trends, customer preferences and other critical business information.
When it comes to marketing, the technology can be used to identify which customers are likely to need certain types of products and target tailored marketing to them. It ensures the right customers are reached at the right time, with the right products, using the right channels, and reducing marketing costs.
In sales terms, digital distribution powered by data analytics is enabling knowledgeable customers to get tailored advice from so-called ‘robo advisors’ (financial advisers that provide financial advice online with minimal human intervention) which take the individual customer’s needs into account when recommending insurance coverage requirements.
This has the effect of bringing down the cost of providing insurance while providing a better service.
Insights from data analytics mean less wastage and a better design of insurance products, so they adapt over time and suit a customer’s changing needs.
Younger customers will also choose the insurance companies that ‘speak’ their language, preferring to interact digitally or vial social platforms.

The tools
Analytics is permeating all aspects of modern insurance companies and different tools are required for different tasks.
In terms of big data analytics there are several open-source tools available, but these require scare skills sets which can prove to be expensive.
Working with vendors and Software as a service based products may be preferable and provide additional benefits, such as rapid deployment time and bring total costs down.
The more tools are used, the harder it becomes to manage them and the interfaces between them. So, fewer is better, but they need to be the right tools for the business’ unique challenge.

The benefits to consumers
Adopting these tools will ensure that consumers receive less annoying direct advertising for products they don’t need (and are not interested in). It will bring down the cost of insurance and ensure that people have the correct cover.
Importantly, because many of the touch points with customers will be on public forums such as social media, the analysis of the engagement will help ensure that communication is given the attention it requires.

Benefits for the insurer
Data analytics projects can also positively impact the insurers’ top line revenue and their bottom line profit, while improving their risk mitigation.
They are able achieve more appropriate product recommendations, implement targeted marketing to get to the right customers, and improve customer retention through better customer servicing.
Risk mitigation improves as data analytics enables insurance companies to better understand the risks they are insuring and price them accordingly.

Changes to the industry
Adopting big data analytics will result in completely new modes of delivery, such as on-demand cover for motor insurance, enhanced customer experiences (such as fast-tracked claims pay-outs) and an increase in the use of social media in customer engagement.
Old insurance companies will struggle due to their legacy systems, but challengers will be nimble and able to leverage recent technological advances.