Why 2022 is the year data transforms the insurance industry
From data management to IoT devices, these new ways of working will power insurers into the future.
The insurance industry is driven heavily by data. Even before the rise of widely available analytical tools, insurers relied on statistical analysis to assess risk and price policies accordingly. Now, with the exponentially increasing amount of data available, insurers are faced with a conundrum: More data means improved decision-making, but it also requires an investment in data integrity to ensure that this data is trusted.
As we look to 2022 and beyond, below are the key trends in data that will impact the insurance industry:
Data management is tackled head on
With the continued growth of big data and cloud analytics, data management is a paramount concern for the insurance industry given the challenges associated with data-intensive processes.
Many of these challenges are the result of poor data quality and minimal data governance. Further, the existence of data silos makes data integration a major hurdle and slows data flow, all while contributing to a lack of context around the data.
To overcome these data management roadblocks in 2022, insurance companies will invest in data integrity to assist with:
- Integrating disparate data sources and making them available where and when they are needed.
- Proactively managing data quality to ensure accuracy, consistency and completeness.
- Adding context through data enrichment and location intelligence.
- Providing an overarching governance framework.
Insurance companies will then find it easier to manage and trust their data for improved business decisions.
AI matures, leading to smarter, faster decision-making
Investment in artificial intelligence (AI) is on the rise among insurers, especially with regard to fraud detection, underwriting and optimizing claims management processes. AI initiatives are more impactful with accurate and trusted data, and data quality is the foundation. Faster access to information across a siloed enterprise is critical and enriching it with third-party data improves insights. AI systems must be able to accommodate change — risk profiles are rapidly changing and major world events, such as the COVID-19 pandemic and the increase in frequency and velocity of storms, can lead to changes in consumer behavior.
Insurers have already been leveraging the power of AI, but 2022 can be the year they realize its full potential. By investing in better data, AI systems will mature and lead to smarter, faster decision making.
The value of IoT is realized
Internet of Things (IoT) sensors provide an opportunity for insurers to better understand risk. For example, in auto insurance, IoT devices can determine how frequently a vehicle is actually used; vehicles with a greater idle time are presumably at a lower risk than those frequently on the road.
As IoT devices expand and new applications for mobile technology are developed, more insurers will use this technology to accurately price policies. The data collected from these devices will support both smarter AI and improved machine learning-driven insights and actions.
Location gets specific
Years ago, the insurance industry relied on coarse-grained information broken down by ZIP code or census block. Thanks to location intelligence, powered by specific location data and IoT sensors such as the ones detailed above, the precision in location data has improved drastically.
Hyper-accurate geocoding serves as an important first step in the process of identifying an entity’s location. Once that is achieved, the level of context that can be applied to datasets increases tremendously.
Consider a car owner whose house is located on a corner lot. On one side, there’s a busy road and on the other a quiet side street. The amount of risk associated with this location could come down to which direction the driveway faces and insurers can adjust accordingly to reflect that.
Trusted data with location context allows a carrier to price accordingly, mitigate risk exposure and improve reinsurance rates.
Increased regulatory compliance is no sweat
Regulatory pressures around data privacy, data sovereignty and data governance have increased in recent years — just look at the General Data Protection Regulation (GDPR) in Europe as an example. With that in mind, insurance regulators are eager to understand the risk models being applied by companies they oversee.
As the volume of data being used by insurers increases, regulatory scrutiny will continue to increase as well. However, companies that have an overall data integrity strategy can reduce their regulatory concerns.
Realizing the promise of big data insights, including IoT and location intelligence, is something that insurers have anticipated for years. In 2022, companies will continue to invest in their data and optimize returns. As detailed above, these investments build upon each other — achieving data integrity leads to more confident data-driven decisions; which improves accuracy in underwriting and risk mitigation.
Jean Sullivan is vice president of insurance at Precisely.
Opinions expressed here are the author’s own.
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