Data has impacted insurers' personal and commercial product lines, a point that was obvious at this year's Property/Casualty Insurance Joint Industry Forum. It's crucial for insurers to reach underinsured markets with new and innovative products in order to survive, warned Michael McGavick, CEO of reinsurer XL Group. Carriers are erring too much on the side of using data to avoid writing certain risks, rather than offering products customers can use.
"The products are getting stale," McGavick said. "We're carefully excluding and picking our way to the future," and commercial customers, in particular, "are saying they don't find us useful."
This issue isn't limited to commercial lines, says Chris Early, VP of customer strategy for P&C risk information provider ISO. Personal lines in- surers are using big data's insights to refine their pricing practices but aren't necessarily using those insights to identify new market opportunities.
"Some people say, for example, that telematics is a new insurance product, but in my view it's really just a different way of pricing auto insurance," Early says. "The perils covered are still pretty much the same."
But in personal lines, big data-driven pricing optimization and the perception that a product is "new" while geared toward a certain demographic group can go a long way toward improving insurers' bottom lines. The phenomenon mirrors the adoption of credit-based insurance scores in the early 1990s, Early says. Like telematics today, early adopters of credit scores as a rating component for auto insurance had a better-performing book of business because they were able to select risks in a smarter way. That's the opportunity offered by usage-based insurance and other big data-driven insurance programs: It's not about simply offering new products but opening up the audience for existing products.
"If you want to provide opportunities to certain folks, there has to be the incentive to do it -- you have to be able to match your rate for risk to generate a reasonable level of profit," Early explains. "Big data is going to allow us to have more comprehensive historical data than we do today just by the nature of what data is available."
More historical data opens up opportunities for insurers that are challenged in their traditional markets, Early says. "If you're isolated to a particular region and you don't spread your risk very well, or if your traditional target is a married couple, it's hard to branch out to college-age people or people right out of high school if you don't have the data on your books to be able to do that," he says. "But there is data in the universe of data to help you do that. Big data allows you to access that data and broaden your risk spectrum."
Hartford Steam Boiler, a division of Munich Re ($6.5 billion in assets), is using data and analytics to develop and offer a new product. The Hartford, Conn., insurer formed a partnership with EnergySavvy, a company that helps homeowners manage their energy usage and costs, to offer HSB HomeWorks coverage for home equipment breakdowns.
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The program is structured like a reinsurance agreement: If a homeowner's insurance policy is held by an HSB partner company participating in the program, the homeowner can add breakdown coverage to the policy for appliances, HVAC systems and other home equipment. HSB assumes the financial risk. In addition to the home systems protection coverage, HomeWorks provides customers with myhomeworks.com, a proprietary website with a variety of tools to help homeowners reduce energy bills, says Rebecca Galovich, assistant VP of personal lines underwriting and product management for HSB.
The website takes advantage of customers' increasing interest in analyzing their own data, letting them self-report energy usage data to get a better picture of how their home equipment works. In return, the site provides tips that, theoretically, could extend the life of covered home equipment -- reducing the insurers' risk of loss. HSB also offers information on energy budgeting that can help the insured defray the additional cost of coverage through energy savings.
"It's designed to help the homeowners reduce their costs through energy efficiency so it performs optimally," Galovich says. "It's like a virtual home energy audit. We have several engineers focused on energy strategy here that provide a road map on how to maintain your equipment more effectively."
Auto insurers offering usage-based coverage are using big data in a similar way. Carriers ranging from telematics veteran Aviva UK to new entrant MetroMile offer data dashboards to usage-based insurance customers that tell them about their driving habits and offer suggestions for improving them. In both of these cases, more data and better data analysis are providing customers with new insurance products.
Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio