The availability of digital data is growing exponentially as the use of sensor networks and digital platforms becomes increasingly widespread. At the same time, the ongoing development of advanced analytics capabilities affords P&C insurers the means to unlock untapped potential across the insurance value chain, our latest sigma says. By processing structured and unstructured data sources, insurers will be able to price new markets and risk classes, and make existing processes more efficient.
Data analytics can support important insurance business needs in the following areas: (1) enable growth by providing insights for insurers to better target markets and also improve understanding of consumer preferences and behaviours; (2) improve in-house portfolio value accumulation and steering through multiple linkages with external datasets. Insurers are targeting 2-5% improvement in loss ratios under real trading conditions; and (3) improve operational efficiency by automating underwriting and claims processing functions.
Commercial lines continue to lag personal lines insurance in the implementation of advanced analytics techniques. This is because personal line insurers have had access to better data quality and higher transaction volumes. Now larger and more stable commercial lines such as property are also benefitting from the explosion in data. They are seeing early signs that incorporating new data sources can reduce the length of risk assessment and improve risk selection. Combining multiple data sources in new ways can fine-tune risk appetite and underwriting strategy.
The outlook is promising, but patience is crucial due to the inherent complexity of the insurance value chain. Challenges remain in the form of legacy systems, traditional mind sets and scarce talent at the intersection of data science, risk knowledge and technology. Nevertheless, we believe that as more insurers seek out differentiating capabilities, the ongoing development of industry-specific infrastructure, resources and knowledge will help unlock the full potential of analytics in P&C insurance.