Big Data technology adoption will provide insurers with competitive advantages in analyzing and assessing risk, according to a report released Wednesday by Moody’s Investors Service.
This should benefit the insurance industry, in the short term, the report says, but over the long run, these trends will pose challenges to the industry, and raise issues of privacy and cybersecurity.
According to the report, the global insurance industry will initially benefit from the increasing use of devices that transmit data over the Internet, and that link with other devices. This increasing connectivity should help prevent losses, injuries, and property damage, the report says.
The adoption of Big Data technology will also allow insurers collect and analyze data to inform pricing and claims “on a greater scale, improving their customer retention and their margins,” the report adds.
“We’re approaching a tipping point in terms of big data,” says Pano Karambelas, Moody’s vice president. “The vast increases in the amount of data streamed remotely as well as the ability to access unstructured sources will soon supply enough information for insurers to go beyond current applications of predictive modeling, which are focused largely around risk segmentation, pricing and underwriting selection.”
At the same time, these trends will pose challenges for insurers. For one, insurers will have to make significant investments to integrate their computer systems with the systems used by connected device providers in order to consolidate and utilize disparate sources of data, the report says. In addition, insurers will need to staff data science teams.
Insurers will also have to partner with tech firms that sit at the heart of the rising data flood. “Technology providers will have both direct access to and real-time data about policyholders, potentially disrupting insurance distribution channels and enabling the technology companies to price and segment risk,” the Moody’s report says. “As a result, insurance companies will ultimately need to find ways to partner with technology firms and make up for potential reductions in revenues, by offering additional products and services.”
Moreover, the increase in data about policyholders that becomes available to insurance companies will raise privacy, regulatory and cybersecurity concerns, the Moody’s report says.
“While insurers will have a new trove of information on policyholders to help asses and price risk, they will also have to navigate a growing number of rules around how they use and protect the information,” adds Helena Kingsley-Tomkins, assistant vice president at Moody’s.
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