Insurance analytics prepares for big changes

Insurance analytics prepares for revolutionary changes

Senior executives from some of the world’s largest insurance companies are preparing to land within a short walk from the historic Tower Bridge in London, UK. 

AIG, Aviva, Zurich, Allianz, and Hiscox are among the big names being touted on the Insurance Analytics Europe event website, and all of them will postulating on the “New Age of Insurance”, as the organisers have billed it.

The reason they have billed it thus is likely to be known by everyone in the insurance analytics sector, and probably beyond.

The internet of things is not just a fancy term for a technology most people are now beginning understand, it’s the technology that enables devices to communicate with each other and generate structured data which can then be used to make business decisions.

So, for example, the number of cars connected to the IoT is growing an accelerated rate, as can be seen from the bar chart below, which uses McKinsey data.

A connected car is not just one that provides WiFi to the driver and passengers, it’s also one in which there are telematics devices which can send detailed data on exactly what the car is doing, how it’s being driven, and what impact it’s having on the mechanics and body, as well as even things like whether it’s being stopped at a red light or driving straight through.

In short, car insurance will never be the same again.

The majority of cars on the road today are still coasting in the old non-IoT world, but it’s inevitable that the road to the connected world is not very long.

All of this means that car insurance premiums will be based on how an individual drives, rather than how his or her peers drive. No longer will a sensible twenty-something who drives safely have to pay higher premiums just because he or she belongs to the age group which traditionally pays higher premiums.

Connected, smart homes which have higher levels of security because they’re loaded with IoT sensors and alarms and whatnot may be levied lowered insurance premiums even if they’re located in high-crime neighbourhoods.

The same principles could, of course, be applied to enterprise — fleet vehicles and business premises.

And technology’s infiltration of the insurance sector doesn’t stop there: as well as IoT devices collecting and distributing data, the data itself is being analysed not by humans but by artificial intelligence systems.

While some may imagine that this inevitably means the loss of jobs in dusty, old actuarial offices, some insurance professionals are looking forward to even greater technological advances.

Commenting in a white paper in the run-up to the Insurance Analytics event, George Argesanu, Global Head of Advanced Analytics, Personal Insurance, AIG says: “The one thing I am the most excited about is the dynamic aspect.

“With telematics, machine learning will enable us to ‘see’ and hopefully prevent an accident before it happens by recognizing the patterns in the driving behaviour, traffic and road conditions. It is like Minority Report but with the precogs replaced by machine learning and AI and much sooner than 2054.”

Monika Schulze, Global Head of Marketing at Zurich Insurance, also sees the opportunity for machine learning to revolutionise the insurance industry.

Schulze says: “The old way of working can be modernised and be made more efficient, but it’s also possible to find new products and services. How do we get from paying out when something happens to helping customers predict when and how something might happen?”

Schulze adds that the old bugbears can also be tackled. “For the insurance business as a whole, one of the focal points is fraud mitigation,” she says.

“That’s where I see insurance applying machine learning to improve the P&L (profit and loss), then claims management which is also very important. It is a much faster process and it is easier to reduce errors by using machine learning to process large amounts of data.”