Data-Driven Approach: It Can Make a Difference in the Insurance Market

Signed by Sauro Mostarda, CEO of Lokky

The insurance market it is known for being one of the most traditional and conservative sectors in the use of innovative technologies. However, in recent years, more and more companies are adopting a data-driven approachbased on the collection, analysis and interpretation of data, to improve their operations and provide customers with an increasingly personalized service. According to the recent report published by the Capgemini Research Institute, 40% of insurance companies currently use data to access new markets, while 43% have modernized and enhanced their risk management algorithms.

If we look, however, at the latest survey conducted by IVASS on the use of algorithms Machine learning by insurance companies in their relationships with insureds, it emerges that in reality companies are still in an initial phase of knowledge and adoption of these innovative tools. Machine Learning algorithms are, in fact, mainly used for the optimization of internal processes, and only in limited cases for relationships with customers: only 27% of companies use at least one Machine Learning algorithm in processes that imply direct effects on customers. Among the main areas of use of the algorithms we find fraud prevention, claims management, mainly in the motor insurance sector, and the identification of customers’ abandonment intentions, also for pricing purposes upon policy renewal. Other technologies used in conjunction with AI models include blockchain (1%), cloud computing (37%), IoT (16%) and Big Data (27%). Furthermore, in the insurance sector, the frequencies of collection and updating of internal data are very rare, therefore data-enrichment processes assume great importance with respect to internal data and «external» sources, which can be integrated and updated in real time.

Swell, therefore, many companies in the sector are increasingly investing in data-driven technologies, such as artificial intelligence (AI) and machine learning (ML)in order to improve their ability to analyze large amounts of data and use this information to make more informed and timely decisions, there are still many challenges to facelike the lack of technical skills and the difficulty in integrating data from different sources. In fact, to date only 18% of companies have the technical capabilities, culture and practices capable of supporting data-driven programs that allow them to make the most of the growing volume of data, with inevitable consequences in terms of efficiency, quality of services and customer satisfaction. This data reveals how much still needs to be done to define an effective operating model and create a corporate culture based on data, which also involves open innovation ecosystems and the exchange of information and know-how between players in the sector.

What are theyso, in detail the aspects ofthe data-driven approach that make it a source of competitiveness capable of making a real difference in the insurance sector?

Better understanding of risks

One of the main advantages of the data-driven approach in the insurance market is the possibility of better understanding the different risk protections associated with insurance policies. Data analytics can provide insights into the risks associated with specific businesses, customer behaviors, market trends and weather conditions that can impact the likelihood of a loss. This information can help brokers and insurance companies create “tailor-made” policies for their clients, which cover exactly the risks they are exposed to, avoiding overcharging or underreporting of certain situations, which can affect the company’s profitability.

Cost reduction

Another advantage of the data-driven approach is the possibility of reducing the operating costs of insurance companies. Data analytics can help identify areas where expense items can be reduced, such as claims management and optimizing marketing activities. This cost reduction can translate into cheaper rates for customers, improving the companies’ competitiveness on the market.

Fraud prevention

As we said before, another advantage of the data-driven approach in the insurance market is the possibility of preventing fraud. Data analysis can in fact help companies identify suspicious behavior and anomalies in compensation claims, identifying cases of fraud, reducing any losses resulting from damages and taking preventive measures to prevent them from occurring in the future.

Improved claims management

The data-driven approach can also improve claims management in the insurance market. Data analytics can help insurance companies identify problems in their claims management processes and take preventative measures to prevent them from occurring in the future.

Competitive advantage

Finally, the use of data can provide insurance players with a competitive advantage over other players in the sector. For example, companies that use the data-driven approach can identify new markets or offer innovative products, based on the data collected, and optimize business processes, using data to make informed decisions and achieve their business objectives.