Cloudera: Data is putting insurers in the driving seat

Dr. Richard Harmon, Director, EMEA Financial Services, Cloudera, sheds light on the opportunity and risk that IoT data poses for the insurance industry.

A perfect storm of rapid technological advances and changing customer behaviors has accelerated the rate of disruption in many industries. Now these forces have started to hit the insurance sector, but how many providers are ready to face up to them?

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 adaptable to whatever comes their way.

Until recently, the Internet of Things (IoT) was a strategic focus for only the most progressive insurers. It was viewed as a future-gazing technology for which most insurers adopted a “wait and see” attitude. Such a stance is no longer viable. Those who took a gamble have demonstrated its advantages, highlighting how data from automotive sensors, wearables, and telematic devices can improve risk assessment, reduce fraud and ultimately grow a business.

UK-based general insurer Markerstudy is among those early adopters reaping the rewards. With its big data analytics platform, the company says it has reduced claim costs by £5 million through real-time fraud detection and increased policy count by 120 percent in 18 months. Key to Markerstudy’s success was its use of a big data analytics platform which allowed the company to provide better service at the point of quote, and inform pricing and product development decisions with greater ease and speed.

In the context of car insurance, as the IoT and the sensors connected to vehicles mature, data will play an increasingly important role in helping insurers unearth clear, actionable insights that benefit customers and help the insurance business flourish. Connected car technology has quickly raced to front of the IoT hype cycle, with Gartner predicting that there will be 250 million internet connected vehicles on the road worldwide by 2020. As these vehicles become laden with a growing number of sensors and tracking tools, businesses face a dilemma over how to manage, secure and understand the barrage of data they amass. The provider of today needs the ability to turn these data into valuable insights while balancing the perennial challenges of maximizing profitability and combating cyber crime.

More data, more threats

As we’ve seen in recent years, with a number of high profile attacks and data leaks, no industry is safe from the threat of cyber attacks or hacking. The risk for insurers is real. More data means more complexity, and this can open the door to cybersecurity threats.

Cyberattacks were recently reported as an imminent concern for insurers interviewed as part of the 2017 Insurance Banana Skins Report. While this is hardly surprising, the message is clear: security is paramount when it comes to the IoT. The future fight against IoT cybercrime will be fought on many fronts, but one tool insurers have in their arsenal is data.

Big data can play a critical role in protecting the insurance industry from IoT-related cyber threats. Having a cybersecurity platform that can scale to trillions of events is key to ensuring comprehensive monitoring of all the IoT devices connecting to and accessing a network. Applying machine learning for anomaly detection will allow insurers to continue to detect suspicious endpoint behaviors without sifting through countless false positives. Cybersecurity should be a topic on all insurers’ agenda, especially with the looming implementation of the EU General Data Protection Regulation (GDPR), which will see organizations fined up to €20 million or 4 percent of annual global turnover – whichever is higher – for lax data practices.

Quid pro quo

As well as an evolving threatscape, however, insurers must also bear in mind that consumer attitudes towards data have changed dramatically. It’s now accepted that consumers allow access to their data in return for better deals and more content from brands. It’s a quid pro quo; consumers are happy to give up their personal data in exchange for benefits, but the nature and amount of data shared depends on the perceived value of the benefit. Understanding this mindset will be crucial going forwards as insurers realize the true value of data and increasingly look to mine more of it.

Case in point: selected insurance providers have long been fitting a clever device into drivers’ cars to measure driving behavior. 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. The benefit now is that insurers can analyze this data to create a personalized 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.

Driving the future

One thing is certain, the insurance sector of the future will look very different to how it does today. This major change isn’t in the distance or on the horizon, it’s already happening. The IoT and the data it generates is driving much of this change. This presents an opportunity for insurers, but it also creates challenges. Insurers are already embracing data in innovative ways to help save lives, reduce accidents and protect against cyber threats. But, as IoT strategies mature, this data will be invaluable in helping insurers unearth insights about their customers, which adds business value and is cost-effective.