Editor's note: This piece is excerpted with permission from the "Personalization, platforms, and data-designed offerings: The new generation of insurance" report from the IBM Institute for Business Value.
How is the increasing shift toward utilizing platforms influencing the industry, particularly product and service development? Prior IBM Institute for Business Value (IBV) research established that insurance executives are strong proponents of a “build once for shared benefit” philosophy. However, we wanted to dive deeper to uncover whether data and platforms are visibly changing portfolios, improving product and service development outcomes, and unlocking new possibilities. For answers, we surveyed nearly 600 insurance product development executives about platform participation, specifically its impact on development cost, speed, and effectiveness.
Disrupting the status quo with data
Across industries, data remains a rich commodity. Organizations are taking advantage of the increasing availability of data, leveraging exponential technologies to disrupt traditional industry models. As they do, new business models based on platforms and associated ecosystems are emerging. A 2020 report projects that data monetization will become a $6.1 billion market by 2025 and demand from financial services will grow by 20% compared with 2020.
Insurers are no strangers to data; it is the cornerstone of their age-old business model. However, they need to shift away from the legacy of purely using retrospective data and focus on utilizing real-time data to pursue new value forthemselves. They now have, and have access to, vast amounts of data teeming with valuable insights for those capable of uncovering and acting on them.
Furthermore, many insurers have a traditional, albeit risk-averse, data mindset as evidenced by their reliance on traditional data and avoidance of emerging data sources. By looking at data with a single purpose in mind, defining it only by the reasons it was created, or associating it with single items or events, insurers can easily overlook its commercial potential. Moving beyond this mindset requires becoming comfortable with not always owning or controlling data but still benefiting from using it in highly transparent and appropriately agreed-upon ways to help close trust and engagement gaps with customers.
Modernizing data use for products and services
Modern use of data can add value to insurance products for both insurers and their customers. By sharing vehicle data with insurers, customers can be rewarded with lower premiums as carriers use that data to price products more competitively and profitably. Similarly, customers sharing health data with insurers via wearable devices or medical sensors can be rewarded for favorable behavior and health outcomes. For example, John Hancock, a major life insurer in North America, rewards life policyholders with premium savings and healthy lifestyle discounts in return for sharing fitness and dietary data.
Although the majority of insurers do offer products and services designed around data, they are still in the process of establishing cohesive strategies for how and why to use data, which requires thinking about the types and sources of data they could, should, and would use for products and services. Many insurers seem uncomfortable using data they do not own or are not in control of, such as data provided by customers. This is understandable; using customer data is delicate territory.
To uncover whether data strategies help or hinder insurers, we classified data as “static” or “dynamic.” Static data is capable of informing products and services; however, it is dynamic data that can drive interpretation or actions.
Insurers rely on static data but make limited use of dynamic data with inherent context from emerging sources. At one end of a spectrum, 95% of insurers obtain data from third parties selling customer or risk data, whereas at the opposite end, only 45% of insurers use dynamic data from emerging sources such as telematics.
Our research revealed that some property and casualty providers are using dynamic data – and reaping rewards: Providers leveraging data from sensors or monitoring devices were able to launch new services into the market at least 14% faster and reach profitability at least 20% sooner than those not using dynamic data.
Data obtained from sensors and devices is among the many types of dynamic data that can help insurers and customers work together to prevent losses and reduce claims. Uncovering a deeper and wider range of data types from and about the subjects of insurance, such as people and objects, and coupling that information with contextual data is key to unlocking product potential. To radically modernize their use of data, insurers need to challenge their comfort in the safe havens of purchased data and embrace unstructured data.
