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Dr. Richard Harmon, Director, EMEA Financial Services, Cloudera

A perfect storm of rapid technological advances and changing customer behaviours has accelerated the rate of change and disruption in many industries.

Now these disruptive forces have started to hit the insurance sector, but how many providers are ready to face these new challenges?

Insurers have always been data savvy, but they will have to move faster than ever to keep pace with competitors and other industries in the modern environment. To make it in this new landscape, where opportunities and risks can evaporate just as quickly as they appeared, insurers need to be agile and be able to quickly adapt to whatever comes their way.

The key to this is gaining insight from the huge amounts of customer data being amassed. Only then can providers meet changing consumer needs, whilst balancing the perennial challenges of maximising profitability, combating fraud and meeting changing regulations.

It’s also important to bear in mind customer attitudes towards data have changed dramatically. It’s now accepted that we allow access to our data in return for better deals and more content from brands. This shift will be crucial going forwards as organisations realise the true value of data and increasingly look to mine more of it.

Telematics: what you need to know

A great example of changing expectations is good driving behaviour resulting in a better deal on car insurance. Real-time monitoring is already commonplace in auto insurance, with telematics devices being installed in return for better rates – with these devices actually being proven to change driver behaviour for the better. Organisations such as Octo Telematics have transformed how insurers assess risk, deliver crash and claim services, and manage customer relationships. With a sophisticated Internet of Things (IoT) strategy, Octo has the ability to analyse 11 billion data points daily from five million connected cars. And insurers are beginning to take note of the telematic revolution. One UK insurance company has reported a 30% reduction in the number of claims since introducing telematics. And another UK insurer worked with a large client to introduce telematics, which led to a 53% reduction in accident-causing risky driving manoeuvres.

How does it all come together? Insurers’ records show trends among drivers in various demographic groups, which serve as a good indicator of a driver’s likelihood of becoming a claimant based on age, gender, insured vehicle, and other factors. What’s not included in these records, unless documented by a history of claims or violations, is the actual driving habits of the insured party.

Telematics has opened up new business models like pay-as-you-drive and pay-how-you-drive. Whereas conventional vehicle insurance premiums are calculated based on age, gender and driving experience, behaviour-based insurance allows insurers to charge based on actual driving habits.

Telematics-based solutions are also helping insurers reduce fraud and manage risk effectively using big data technologies. A black box fitted to a customer’s car constantly records information, such as GPS location, driving speed, distance and time of drive, rapid/smooth acceleration or braking, and cornering habits.

Insurers can then analyse this data to create a personalised record of each customer’s driving habits. By focusing on their individual characteristics and tendencies, insurers can more accurately predict the odds and cost of the customer filing a claim, and adjust rates and deductibles accordingly. Using this insight, someone who drives less responsibly can be charged a higher premium than a driver who drives smoothly and with less calculated risk of claim propensity.

The potential benefits of these developments are clear. Insurers can limit the amount of “risky” customers they insure, while customers can be rewarded for good behaviour. For many years, people have felt that bad drivers ramp up the cost of insurance for everyone else, but these developments allow insurers to make this assertion a myth.

The benefits of telematics don’t end there. By combining this ‘black box’ data with external information such as weather reporting, insurers can start to create a clearer picture of when things are most likely to go wrong and even intervene, sending the driver a warning message that they are at high risk of an accident.

Looking ahead

One thing is certain, the insurance sector of the future will look very different to how it does today. And this major change isn’t in the distance or on the horizon, it’s already happening. Data is driving much of this change, and presents a solution for insurers to combat many of the challenges they will face.

Insurers are already embracing data in innovative ways to help save lives and reduce accidents. As the Internet of Things and the sensors connected to vehicles mature, data will play an increasingly important role in helping them unearth clear, actionable insights that benefit customers and in turn, helps the business flourish.

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