Internal data can include information collected when writing policies, historical claim and payout statistics, and actuarial tables built over time. External data can include everything from traffic patterns to demographic profiles to inflation and other macroeconomic variables. (Credit: Freedomz/Shutterstock)

Data has become the world's most valuable resource. And the hunt is on.

Companies across all industries compete for information in order to gain an edge in the way they conduct business. Five of the most valuable companies in the world — Apple, Alphabet, Microsoft, Amazon, and Facebook — are largely entrenched in the data industry.

This influx of data across sectors has led to firms seeking new ways of receiving information to gain an advantage. On Wall Street, this is highlighted by the phenomenon of alternative data.

Hedge funds, investment banks, and asset managers have always sought an information edge to better their investment strategies. The difference is that they are now scouring nonfinancial data in order to do so. And while sophisticated quantitative hedge funds originally led the pack, alternative data has made its way to the mainstream. Experts now predict that alternative data will be a $7 billion industry by next year, with over $1 billion expected to be spent on data this year alone.

Ironically, Wall Street and other industries are only now catching up to what the insurance industry has known and practiced for decades.

Related: Data was king at CES2019… But how will that affect insurance?

Flipping data use on its head

Insurance companies have always used a mix of internal and external data sources to make underwriting decisions. Internal data can include information collected when writing policies, historical claim and payout statistics, and actuarial tables built over time. External data can include everything from traffic patterns to demographic profiles to inflation and other macroeconomic variables.

But by flipping data use on its head, insurance companies can now add directly to their own bottom-line revenue by monetizing their own data assets. After all, more and more Wall Street investors are waiting in line to pay for exactly that type of anonymized data.

Here's a prime example of how this works. Investors and analysts focused on the auto sector normally have to wait for a company's earnings call to find out how the previous quarter went. But now, investors are building auto company revenue from the bottom-up by tracking real-time sales, as estimated through insurance policies. That's because when a consumer buys a car, they must also buy the corresponding insurance policy. That "leftover" data from the insurance companies — once aggregated and anonymized — is actually gold to the investor.

At its core, this is innovative research for the investor and bottom-line revenue generation for the insurer. Insurance agencies do not disclose sensitive information regarding who is actually buying the cars. What is most valuable is the simple number of policies per model and manufacturer.

This is just one way that insurance companies can add to their bottom lines by monetizing existing data.

The housing market is another key indicator for investors and analysts. Like car purchases, insurers have knowledge of activity in the housing market because every house that is bought is eventually insured. And that information can indicate economic growth and population trends in any given area.