Personalised Policies

16 April 2018

The insurance sector has always been known for being data-driven, in fact, some of the most early data analytics was with actuaries and insurance underwriters. The new challenges we face today is the sheer volume and variety of data which is increasing exponentially; a wealth of data is being generated by the increasing number of devices we interact with on a daily basis – from our mobile phones to the Internet of Things (IoT) - all of which provide high volume, mix-structured information on a real-time basis.

Applying emerging technologies to this “big data” has the collective ability to transform how policies are written, priced and fulfilled. In PwC’s ‘Global InsurTech Report’ 2017, customer engagement and the generation of better risk insights are identified as the most important innovation trends by 94% of respondents. This blog explores the growing trend of ‘personalised policies’ and the implications for privacy, the insurance market and society.

The average person buys insurance products ‘off-the-shelf’ with a standard coverage and fixed premium. Through technology, policies can be better personalised to the policyholder by providing more bespoke coverage and having specific pricing in accordance to the varying level of risk, based on data inputs from multiple sources. Exposure to risks could be continuously assessed by the insurer modelling available data throughout the lifetime of the policy. Using sensor data from your devices or analysing changing lifestyle habits from your online activity, insurers can better interpret components of risk. Improved risk management can be incentivised by providing rewards; lowering premiums for instance.

A common example today is telematics data being used for motor insurance. Policies involving the monitoring of a customers’ driving technique, whether through a fitted black box device or mobile phone, are becoming more widely accepted. By offering reduced premiums for safe driving, insurance policies can be used to encourage better societal behaviours. Technology is also enabling insurers to actively pre-empt risks. For example an American insurer is offering a connected fire detector for free and reducing premiums for the cost of fire coverage. The device can alert the home owners’ phone and, by detecting and reporting a fire early, will reduce the damage and ultimate cost. In the UK, a life insurer is offering a discounted Apple Watch with GPS in a bid to encourage their members to be active. The exchange of such sensitive data begs the question - are consumers comprising privacy to save money on premiums? Arguably, this has become accepted among millenials who are often happy to sign over their details for receipt of a good or service. Following recent news and increased data protection awareness, such as that enforced by the upcoming General Data Protection Regulation (“GDPR”), innovation over data utilisation may be restricted.

Many connected devices are becoming more commercially available and affordable. Last year saw the rollout of Amazon Key – a smart lock and camera system for the home. In February, Amazon bought the video doorbell firm Ring for over $1 billion. Whilst Amazon have not disclosed their sales, it’s quite possible to imagine smart locks and doorbells becoming mainstream and the data they generate becoming widely processed by insurers. As a result, premiums may vary depending on the analysis which could, in turn, encourage people to lock their doors and take greater preventative measures to risks such as burglary. Access to such data will enable insurers to better price, help prevent and respond to incidents themselves – whether that’s coordinating a response to a connected alarm system or providing insightful data and analysis to legal professionals.

Technology partnerships will certainly become a marketplace differentiator for firms and offers carriers opportunity to diversify into new services, monetising on data they hold. Reliance on data from external sources will pose multiple challenges such as: integration will need to be made to an array of data sources and fraudsters will identify new opportunities.

Through the better utilisation of data, we’re seeing ever increased personalisation of policies which will ultimately greater cover our individual needs, encourage better societal behaviours and drive entirely new product offerings. However, operationally the industry needs to prepare to tackle real time data processing and data protection needs to be at the heart of the service in order to build consumer trust. Contact Nick Bouch or Sam Jones to hear about how our diverse Data & Analytics practice is executing on today’s challenges.

Sam Jones, FS Technology | Insurance Data & Analytics

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