Why big data demands a big shift in perspective

The Future of Risk: In the insurance sector, the potential and pitfalls of relying on 'big data' are amplified.

It’s an exciting — and revolutionary — time for the insurance industry. (Photo: Shutterstock)

The numbers are almost unbelievable. More than 2.5 quintillion bytes of data are created every day. By 2020, 1.7 megabytes of data will be created every second for each person on Earth. This exponential explosion in the amount of data comes from a tremendous increase in data sources. Everything from our cars to our microwaves now collects large amounts of information — not to mention the phones we all carry in our pockets. They also create a steady stream of data on where we are, what we’re doing, and how we’re communicating.

Every industry is grappling with the business implications of new data. But in the risk and insurance sector, the potential and pitfalls are amplified. Insurance is the original big data industry, and leaders have always sought to mitigate risk and achieve better outcomes through data. It’s a fundamental part of the insurance industry mindset.

But to maximize the impact of today’s data, we need to update that mindset. It’s an exciting — and revolutionary — time for the insurance industry.

Big data: collect it, store it, leverage it.

Emerging technologies are reshaping how we interact with data and derive insights and innovative new approaches from it. That effect is concentrated on three fronts:

These new and exciting big data tools have near limitless potential for the industry and our approach to risk. But for organizations and individuals looking to create actionable outcomes based on these evolving approaches to capturing, storing and analyzing data, it’s worth taking a closer look at a few ways mindsets need to evolve.

We no longer need to start with a hypothesis.

Here’s one example of how insurance and risk professionals need to reorient their perspective in today’s world of big data. In the past, successful data analysis was based on a smart hypothesis. Young people are more likely to file auto claims. Smokers have more health complications. Insurance experts developed the hypothesis, then confirmed it by looking at the data and running the numbers.

That’s still how much of the industry operates in practice today, though the amount of data and its sources are constantly expanding. But with emerging AI tools, that initial hypothesis is becoming less and less important. Analytical tools are combing data sets and identifying powerful sources of causation and correlation, which in turn provide direction that is already supported. These tools present a tremendous opportunity to develop new products or services we may never have discovered when starting with a hypothesis — because we now have the right perspective.

We must go where the data takes us.

The idea that AI tools could reveal new opportunities to better serve customers is an exciting one. But our industry must be prepared to accept and follow through on bold changes to how we meet customer demands. That will likely mean close coordination with other industries.

The largest market cap companies in the world, from Amazon to Alphabet, have built their business on data. Four out of five c-suite executives say they’re concerned about data-driven competitors disrupting their business. The insurance sector has a considerable role to play in opportunities to mitigate risk lurking in data from all sources, but that expertise will face challenges. The future of our industry will be decided in how those with risk-management expertise work with those who own the data.

Our approach must be strategic, not episodic.

Our industry is well-positioned for this data-driven reality. We recognize the power of using data to create a competitive advantage. But organizations must view big data opportunities strategically, not episodically. Successful firms, from the largest global corporation to the newest InsurTech startup, will look at individual technology needs as part of a larger industry evolution, not a solution to a specific short-term problem or new customer demand. For all the hype, technology remains a means to an end, not the end itself.

Success in this new reality will come from this strategic perspective. Increasingly, a competitive edge will be defined by who can grasp insights in the data and convert it to greater value or a better experience for customers. In a changing industry, the focus on improving the lives of our customers through mitigated risk remains a constant.

That strategic implementation at individual organizations and industry-wide will require some shared best practices and productive collaboration. It demands a focus on innovation and conversations on big ideas on the future of our industry.

This piece pulls information from discussions presented at this year’s Future of Risk conference in April, hosted by The Institutes. The Institutes gathered the leading voices from the world of insurance, and beyond to have smart, strategic discussions around the role data will play in the future of risk. It will be hosted again next year and is an exciting opportunity to connect to the big ideas and players shaping the future of our industry.

Peter L. Miller, CPCU, (miller@theinstitutes.org) is president and chief executive officer of The Institutes. These opinions are his own.

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