Risk pooling is as old as insurance itself. But how will the emergence of personalised premiums, based on individual analysis, gained from data-driven solutions, impact on it?
Kelly Preston, data analytics manager at SilverBridge, discusses the evolution happening in the market.
“A customised insurance premium, designed according to the risk of an individual, is much fairer to the policy-holder than being evaluated as part of a wider segment. The more a policy can be fine-tuned, the better not only for the person, from a cost saving perspective, but also for the insurer as it increases the likelihood of cross-selling and upselling products,” she says.
The reliance on data, and its increasing importance in the digital world, is seeing decision-makers becoming more aware of the benefits of effective analysis. Traditional methods of risk assessment are coming under pressure given the wealth of real-time information available today. The number of data sources have increased exponentially, resulting in insurers being able to gain insights more accurately than ever before.
Data on the move
Not only are insurers able to capitalise on data captured through social networks but the Internet of Things (IoT) is also starting to play a significant role. Having multiple devices connect and share information means that data becomes much richer than was previously possible.
“Consider how telemetry, wearables, and even smartphone apps are being used by consumers and insurers alike to create a more gamified experience. For example, if you hit your workout goals you get rewarded with points that you can use to get discounts from partners. Alternatively, the safer you drive, the better chance you have of reducing your insurance premium. It is a give-and-take situation where people have, for the most part, become comfortable in sharing data to get rewarded.”
Now, couple the data with solutions that are continually evolving to offer businesses better insights and you have an environment that is conducive for the development of highly personalised premiums. Data science is fast becoming a competitive advantage that will help insurers differentiate their offerings by tailoring solutions to specific customer needs.
Growing (data) relations
More importantly, by integrating the data from multiple sources, insurers will be able to build insights through the relationships that exist between these [data] sets.
“In this environment, risk pooling seems to be quite an antiquated concept. The time is approaching when the days of grouping people according to their demographics will be gone. We are entering the digital age where it is all about granular information and the data science behind it. The key is to understand customers on an individual level and not only as part of a demographic. Insurers must embrace this and learn from it before they start losing more ground to the fintechs that are already doing this,” she concludes.