What Insurer Data Practices Mean for Risk Professionals

This post first appeared on Risk Management Magazine. Read the original article.

The
way insurers collect, analyze and use data is impacting every part of the commercial
insurance value chain, from businesses to brokers to insurers. Insurance
professionals are harnessing this exponential growth of data, using it to
provide meaningful insights to brokers and insured businesses. Most
importantly, this means insurers can provide the capabilities that are
in-demand in the modern business and risk management environment.

This
new data drives improved predictive modeling straight through underwriting,
claims payments, and forecasting when accidents may occur. They can provide a
more accurate profile of an organization’s risk—leading to premiums that
reflect a company’s actual cost of risk and, in the event of a claim, helping
companies better recover from a loss. Risk professionals can leverage and
inform these new practices as data continues to influence how their businesses
are insured.

The
Role of Data Today

Data
fuels how all organizations create and deliver solutions in today’s business
environment. Personalization, or tailoring solutions to specific segments or industries,
relies on data. The COVID-19 pandemic is providing a fascinating example of
data collection and its impact. State-run dashboards deliver data showing the
number of cases affecting each state, down to the county level. This allows
public health and government officials to track potential hot spots and take
necessary precautions with greater precision. On a community and individual
level, the potential of using contact tracing through mobile devices holds
promise for identifying those who have been in contact with COVID-19 patients
so they can self-quarantine, safeguarding towns and cities. In this way, data
creates both global and local solutions.

Data
also allows insurers and risk professionals to work together to personalize
insurance solutions, which is why businesses and insurers are partnering to tap
into data. One example is the field of telematics. Many of us wear Internet of
Things (IoT) devices that track our daily step count or monitor our resting and
active heartbeats. This kind of data can provide insights that allow risk professionals
to inform and influence potential health insurance discounts to employees. Access
to this type of telematics data also allows insurers to underwrite with greater
precision and offer bespoke policies and coverages for their insureds. On the
commercial side, there are many examples of organizations using wearables to
track and monitor safety or provide more tactile support to workers to prevent
injury. These newer technologies are also feeding data back to both the insurer
and the risk professionals on the efficacy of their safety and monitoring
programs.

Another
source of data many do not think about is satellite imagery. For businesses, claims
from catastrophic losses can often take a long time to settle. Insurance companies
are using satellite imagery to more precisely assess the damage done during
tornadoes, hurricanes and other catastrophic events. This allows insurers to settle
these claims faster and more accurately, meaning a faster claims payment and
shorter downtime for businesses. It also allows them to be more exacting with
loss ratios and reserves, cost-saving benefits that then get passed on to the
insured.

Many
risk professionals at the company level may have concerns about how this data
is used. With this new wealth of data, insurers are taking multiple steps to
protect all the data they collect. Best practices include using encryption and
two-factor authentication to ensure only authorized users have access, along
with following government regulations such as the Health Insurance Portability
and Accountability Act (HIPAA) and the European Union’s General Data Protection
Regulation (GDPR). And while data is creating more personalized solutions, most
practices include ensuring data masking in an aggregate fashion to prevent adverse
selection of insureds.

How
Data Shapes Risk Professionals’ Roles

When
used and analyzed properly, data helps produce the right fit for risk professionals
and their organizations. As insurers’ collection and analysis of data grows
more sophisticated, risk professionals should consider these three best
practices to find a partner that can leverage that data to benefit their
organizations:

1. Which insurers are best-in-class when it comes to data.In
March, A.M. Best formally adopted its new criteria for scoring and assessing
innovation. More than a vanity metric for insurers, this provides risk professionals
a helpful clue as to which insurers may handle data collection and analysis
best.

To
develop its “innovation score,” A.M. Best evaluated both innovation input
(assessing an insurer’s leadership, culture, resources, process and structure)
and innovation output (assessing an insurer’s results and level of
transformation). A.M. Best then divides those scores into five innovation
categories: leader, prominent, significant, moderate and minimal. In its
initial analytical review of innovation, fewer than 11% of A.M. Best’s rated
insurers scored in the top two tiers.

For
risk professionals, this can translate to more accurate pricing and ease of
doing business with insurers. Innovative actuarial approaches can make claims
reporting easier, claims payment and adjudication faster, and provides greater
claims visibility.

2. Which benefits your organization will receive from data-driven practices. Insurers that are best at data collection and analysis should articulate the results the insured can expect to receive through their partnership.

Given
the rise of data collection and analytics, it is imperative that risk professionals
understand how an insurer uses data to refine underwriting and reserve
practices, submit and complete claims, communicate about claims payments,
increase operational effectiveness for its partners, and create a better
customer experience for the insured.

For
example, self-driving vehicles can provide data related to driving performance
and habits, driving conditions, and when and where accidents occur. This data can
inform insurance solutions, improving underwriting while allowing trucking
companies to operate more efficiently and reduce risk exposure. Data can inform
loss control practices, predicting accidents more effectively through
partnership between insurers and risk professionals using telematics and data
streams to predict the next potential loss.

For risk
professionals, this illustrates how you can incorporate data into your business
and work better with the company underwriting you. An insurer that has
harnessed data can provide an additional perspective into an organization’s
risk profile, which can reduce cost of risk through loss control.

3.
Create a seamless flow of information among insureds, insurers and carriers.
No matter how tech-savvy an
organization is, its tools are only as good as the data it receives. When asking
an insurer to underwrite more effectively using data, organizations will need
to offer more data. By sharing data about the organization’s overall goals and
its potential exposures, an insurers’ more sophisticated risk management data
practices will provide more benefits.

Creating
this two-way street of data provides two benefits for risk managers:

  • More accurate underwriting. More precision in their underwriting can lead to better prices. Access to more comprehensive data can help underwriters better account for your risk management practices and how they lead to better outcomes. If you have built a quality risk management program, you benefit from sharing that with your insurer.
  • Getting claims processed and paid faster. The flow of information creates a more seamless relationship, reducing back-and-forth communications to gather and relay information on a claim.

Whether
working through brokers or directly with an insurer or captive, risk professionals
are often challenged to communicate more efficiently as applications are
processed, policies are endorsed, and claims are handled. Creating a direct
connection between a business and insurer (or between business, broker and insurer)
reduces friction in value chain to create operational efficiencies.

Future
Benefits of Insurer Data

As
insureds reap increased benefits from insurer data collection and analysis,
more data-driven solutions will be available to businesses on the insurance
market, and lines will blur between traditional “insurance” companies and data
companies.

We
are continuing to see an increasing adoption of telematics. One newer company
is rapidly evolving underwriting for property insurance through the use of
in-home sensors that collect data. Another insurtech is using GPS coordinates
gleaned from smartphones to trigger inquiries about purchasing personal
insurance for things like golf clubs or skis from the moment you digitally
check into a recreational facility.

Technologies
like AI and machine learning will continue to fuel advances in fraud detection
and cost trending. And traditional insurers will partner with or purchase data from
companies that will help them develop new practices to meet the demanding needs
of organizations and consumers.

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