Increased competition within the industry will mean firms have to invest in big data, with one expert believing it could have the biggest impact on business since the birth of the internet.
A new green paper, published by The Actuaries Institute in Australia, lays out the impact that big data could have on both insurance and society as many consumers will benefit from lower premiums as insurers come to grips with big data.
David Bell, Actuaries Institute CEO, said that the impact of big data on the insurance industry will be wide-reaching as firms that ignore investment in the practice will be left behind by competitors.
“It feels like in five to 10 years’ time there are going to be substantial changes in the way that premiums are priced and delivered,” Bell told Insurance Business.
“If they [insurers] don’t get on the boat then their competitors will and they will miss out.
“Competition will ensure that there will be a greater use of big data which means that there will be more individualisation on pricing of premiums.”
Bell stressed that the implications of the use of big data on all strands of business, including in the insurance industry, could have unimagined impacts.
“To me, the advent of big data is going to have the single biggest impact on business since the internet,” Bell continued.
“It is extraordinary what is happening with big data.”
Bell noted that while the insurance industry has historically relied on data, the advent of big data will help drive the industry. Big data and analytics will allow firms to analyze strands of data and increase individualisation in terms of premium pricing for a host of customers.
Lindsay Smartt, the president of the Actuaries Institute, believes big data will allow for the industry to get closer to clients and help boost mitigation from a personal and commercial perspective.
“It will lead to a more interactive and potentially positive relationship between insurers and their customers,” she said.
“More information will be transferred from the insured to insurer and more relevant communication and education will come from the insurer to the insured on how changing behaviour (i.e. healthier lifestyles, driving habits, etc.) can lead to a lower risk profile and cheaper insurance.”
Bell said that big data will not only have an impact on how the industry works but will raise questions about the role insurance plays in wider society.
“There are some fairly fundamental questions to be asked about insurance as a result of this big data,” she explained.
“Is the objective of the insurance industry to provide the majority of society a fair way of being able to afford insurance or should we be going down the path of rewarding positive individual behaviour through individual premiums?
“I suspect the answer is somewhere in the middle.”
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