Traditionally seen as a digital laggard, the insurance industry is undergoing something of a digital revolution due to Big Data and the Internet of Things (IoT).
Investment in insurance technology, or ‘insurtech’, companies has surged recently, with more than £16.5m invested in insurance start-ups so far in 2016 – triple the amount invested in the whole of 2015. And crucially, much of this investment has come from existing major insurers who are seeing the huge potential that technology has to bring to their businesses.
For insurers, one of the biggest areas of opportunity lies with harnessing Big Data – a commodity often referred to as “the next oil”. It’s difficult to comprehend how much more data will be in existence in just five years’ time, but to put things into perspective, the International Data Corporation (IDC) estimates that worldwide revenues for big data and business analytics (BDA) will grow from $130.1 billion in 2016 to more than $203 billion in 2020.
Until recently, only devices such as computers, tablets and phones were able to connect to the internet. But now there are approximately 8 billion ’network aware’ machines globally that are internet enabled and can communicate and interact with other machines, creating the IoT. And this figure could grow to over 50 billion connected devices in the next five years.
Used imaginatively, the data collected and analyzed through the IoT can facilitate a better understanding of a customer’s risk profile, smarter marketing, and more accurate pricing. This is already transforming the way insurers do business with their policyholders. And many companies are now using the data they collect to create personalised multi-media marketing campaigns, tailored products, bespoke pricing and a more efficient claims process.
Furthermore, the data is being used by insurers to predict undesirable outcomes, which has in turn reduced risk and premium costs for the policyholder as well as cementing a relationship based on mutual benefit.
One such example is the use of black boxes, or telematics, in cars to monitor how safely the user drives. This enables insurers to reward good driving with lower premiums or discounts. Many big name insurers, including Direct Line, Bell, Admiral, Tesco Bank and the RAC, are already offering the service.
Indeed, the British Insurance Brokers Association shows that the number of live telematics based motor insurance policies, including black box policies, increased by 40 percent in the 12 months to March 2016, some of which are offering savings of up to 25 percent.
Similarly, in home insurance, Zurich’s UK customers can now benefit from a reduction in their home insurance policies of up to 10 per cent by using a device created by smart tech company Cocoon in their home. This uses infrasound to detect an intruder and alerts the policyholder through their phone if anything unusual is detected.
However, as with the use of any valuable commodity, there are risks, and the use of data gathered from the IoT must be managed safely, securely and confidentially. Insurers have a huge burden of responsibility to ensure that, once they have gained the consent of their customers to use the huge bank of ‘big data’, it will be protected.
The industry took steps to build trust in this regard by publishing “How Data Makes Insurance Work Better for You” last year. Within it, the Association of British Insurers sets out the case for change, outlining some of the expected benefits customers will see in return for agreeing to use their data. Most importantly, it outlines the industry’s commitment to how that data will be used – ‘safely, securely and confidentially’.
CIOs and CISOs are clearly under a great deal of pressure not only from the demands for increased scalability as the sources of data presented by the rise of the IoT, but also building trust around growing security requirements. So how can insurers manage and analyse the huge amount of data the IoT generates, while exploiting the flexibility of on-demand services, without compromising security?
One of the answers is a specialized cloud solution that combines public, private and hybrid services into one single cloud that insurance companies can manage centrally. Such specialized cloud-of-cloud services for the insurance community provide a highly secure ecosystem that connects thousands of applications and services with users worldwide. This helps to build security into the entire cloud environment, permitting employees and customers to connect securely from any location and device to any service and enabling financial and insurance companies to fully capitalize on the benefits that the IoT has to offer.
This ‘cloud of clouds’ approach allows large organizations around the world to connect easily and securely to the data centers, applications and data they need, independently of where they are hosted. Employing it allows the CIO to have a consolidated view of all different clouds the organisation is using, and eliminates insecure services, or improves them by employing appropriate security measures.
Centralizing control with a ‘cloud of clouds’ strategy also helps build security into the entire cloud environment, permitting employees and customers to connect securely from any location and device to any service.
Big Data is here to stay and the IoT presents incalculable opportunities for the insurance sector. But its success depends on insurers working together to put the right mechanisms in place, starting with a consolidated cloud network, to mine this enormous resource in a secure and scalable way.
Alexandra Foster is head of insurance and strategy, global banking & financial markets, at BT.