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Unlocking the potential of big data: Transforming the landscape of insurance and insurtech

Within the quickly developing insurance and insurtech industries, “big data” is becoming a widely used term. Professionals in the insurance sector examine how it is spurring innovation and its ramifications for risk assessments, policy pricing, and client relations.

Huge amounts of organized and unstructured data that are gathered from many sources and, upon analysis, can yield insightful information that helps inform business choices and boost operational effectiveness are referred to as “big data.” However, what does it signify for the sector and how is it changing the way that insurance is traditionally provided?

Insurance companies view big data as a treasure trove. It is derived from a variety of sources, including risk information, social media interaction, internet behavior, claim histories, and client demographics. Even real-time data from networked devices, such as automobile telematics and smart home systems, is included.

The ability of the sector to gather, handle, and analyze this data on a massive scale is radically changing how insurers evaluate risk, set policy prices, and communicate with clients.

According to industry reports, big data is rapidly changing the insurance sector by facilitating more precise risk assessment, enhancing customer experience, expediting the claims handling process, and improving underwriting and pricing.

Innovative domains

There are various applications for big data. Managing risks is one of the main applications.

Insurance companies can obtain a better knowledge of the risks connected to various coverage options by evaluating vast volumes of data from numerous sources. Insurance companies may be able to better manage the risk exposure in their portfolios and price insurance with greater accuracy thanks to this.

Unfortunately, conventional data processing methods are often unable to readily process and interpret these massive amounts of data because of their complexity and vastness. This data is being analyzed by insurance companies using sophisticated analytics technologies.

The examination of this data aids insurers in customizing their policies by providing a deeper understanding of the risks connected to various business kinds. Big data helps insurers to manage risks more efficiently, make data-driven choices, and improve customer service—especially in the context of cyber insurance. There will likely be more creative applications of big data in the insurance sector in the future as machine learning and data analytics advance.

Others concur that big data, which is being used in a variety of insurance-related sectors like pricing, underwriting, claims administration, risk reduction, and fraud detection, can assist insurers in making better decisions and streamlining their operations.

Big data is being used, for instance, in pricing and underwriting to more precisely assess risk and spot trends that can influence future claims. Underwriters are in a better position to assess various risks when they have access to more data.

Big data can be utilized in claims management in other contexts to detect fraudulent claims and enhance the effectiveness of claims processing. With the ability to handle claims more quickly and precisely, operational efficiency has increased, and customer satisfaction has increased.

AI unleashed: Is the genie out of the bottle?

As per the analysis of industry experts, the insurance sector must remain inventive and adaptable as client demands change. Among these is the effective use of big data.

Big data’s importance has grown in tandem with technological advancements. The importance of data in insurance, for instance, has been and will continue to be influenced by major technical developments such as distributed ledgers. Any additions or modifications made to a distributed ledger are instantly duplicated to all participants, as it is a database that is shared and synchronized across numerous sites, institutions, or geographical locations. The technology they employ is the same as blockchain technology.

A typically analog sector will also be shaped by immutable data ledgers. By ensuring that the data is accurate from the start, this will pave the way for more efficient risk transfer and improve the client experience.

The craze surrounding ChatGPT is a prime example of the industry’s recent surge in interest in and application of generative AI. Insurtechs have been reported to be able to power better client experiences already thanks to AI, especially in terms of expediting access and guaranteeing a more tailored experience for each customer.

In terms of generative AI utilization and implementation, the last quarter was undoubtedly a “genie in the bottle,” and as businesses and the industry grow accustomed to privacy and security, generative AI will probably find its way into a wide range of use cases.

Experts in the field of cyber insurance pointed out that, in the face of a sharp increase in cybercrime worldwide, technological advancements have played a critical role in the use of big data. The insurance industry as a whole is striving to adopt new technologies in order to control the cyber risks associated with its insureds, as both insurers and brokers are finding it difficult to keep up with the quickly growing cyber vulnerabilities.

Large volumes of data can be processed and analyzed rapidly and effectively by new technologies like machine learning and AI-powered tools. This gives insurers and brokers access to insights and the ability to spot trends that would be challenging and time-consuming to find using conventional approaches.

Next frontiers in the realm of big data

The insurance sector has found new prospects for growth and improvement thanks to the use of big data. Future decisions about risk underwriting and transfers are expected to be further solidified by it, according to industry sources.

In the realm of cyber insurance, insurers will be better equipped to assess and price risk thanks to big data risk analytics’ capacity to handle vast amounts of data and identify trends and patterns. This will create a more stable and long-lasting cyber insurance market by giving insurers quick access to actionable threat intelligence.

Regarding the use of big data in insurance going forward, many more encouraging opinions have been voiced. Large data has the promise of enhancing consumer experiences, streamlining processes, and enabling even more precise risk assessment. The insurance industry is expected to grow further as insurtechs search for fresh data sources and techniques for delivering it to insurers.

In terms of data, technology, and transparency, the insurance sector may lag the larger financial services sector, therefore innovation and digitization are highly anticipated in this space. That means there’s a great chance to improve the consumer experience by addressing inefficiencies and fostering growth.

As we move forward, many businesses would like to see more insurtechs and insurance companies work together so that the latter can take advantage of the latter’s vast industry knowledge and state-of-the-art, potent technologies.

Many believe that the insurance sector should make greater investments in data analytics and technology. More connectivity and collaborations across insurtechs would help alleviate the outdated systems that continue to hold back a lot of participants.

Ensuring a compelling digital workplace is vital for attracting the next generation of insurance professionals

About 70% of youthful workers said that if their expectations for the digital experience were not fulfilled, they would think about quitting the organization.

Policyholders are not the only ones who want the simplicity and ease of use that come with cutting-edge digital experiences and communication equipment. The next generation of insurance professionals will be drawn in large part by innovative digital experiences, according to a survey by Riverbed Technology LLC that surveyed 92% of executives in the financial services and insurance sectors.

A significant portion of CEOs (92%) surveyed stated that investment in digital experiences (DEX) will be a key priority over the next five years due to the expanding significance of this field.

If DEX expectations were not realized, about 70% of millennials and Gen Z employees said they would think about quitting their firm. The same proportion of respondents claimed that a company’s performance, reputation, and productivity may all suffer if these expectations weren’t met. In fact, according to Riverbed, a smooth DEX was valued higher than free coffee and snacks and monthly office happy hours as a workplace bonus.

The cloud and artificial intelligence, according to about half of survey participants, are the most significant technologies that will grow more and more “business-critical” during the next 18 months. App and network acceleration, DEX management solutions, and automation tools are other technologies that Riverbed claims are becoming more and more important.

These days, as more and more digital natives join the FSI workforce, it’s imperative that strong DEX solutions are in place. This is not just to maintain the productivity of Gen Z and millennial employees, but also to reduce risk, automate procedures, guarantee the efficiency of client financial transactions, and enable top talent to work with greater strategy.

Furthermore, it is observed that although delivering enhanced digital experiences is getting harder, it is good to see that most industry leaders understand the value of DEX and are investing to fix any flaws.

Regarding obstacles impeding DEX advancements, 36 percent of executives stated their organization has sufficient observability tools, while 34 percent cited financial limitations and 32 percent stated they had an excessive amount of data to analyze. Another 29% claimed they lacked the necessary SaaS apps or cloud services to provide a flawless DEX.

While businesses are trying to enhance DEX, 34% of CEOs reported that they are having trouble finding IT staff. Since 94% of survey participants stated that IT is now more accountable for business innovations than it was three years ago, this is impeding business modernization.

Additionally, 45% of decision-makers in the financial services and insurance industries stated that while they have IT personnel to make changes, they lack the requisite skill sets to put improved digital tools into practice. But according to 85% of study participants, they have set aside money for employee retraining.

The vital importance of personalization for P&C insurers

Personalized messaging, offers, and experiences at scale are becoming more than simply an unprecedented opportunity for P&C insurers due to mounting competition and rising customer expectations. Any carrier hoping to take a sizable lead over competitors may find it to be strategically necessary very soon.

Digital channels have witnessed a major transformation in recent years, affecting far more industries than only insurtech. The current environment has made users more in need of tender affection and care; thus, they are now demanding a high degree of personalization from all businesses, including P&C insurance.

They actually demand it, that is how much they value it. More than seven out of ten customers increasingly demand personalization as a given when interacting with businesses, and over seventy-six percent become irritated when they don’t, according to McKinsey. Personalization can have enormous benefits as well. Revenue improvements of 10% to 15% are possible for businesses that excel at customization; best-in-class performers can see rises as high as 25%.

Although this movement was started by industries other than P&C insurers, it is now the responsibility of the industry’s companies to keep up if they want to stay relevant in a very competitive market.

For many insurers, putting these solutions into practice—which send clients individualized messages including coverage options, policy recommendations, and all the related policy documentation—can be intimidating.

This is even more true when you take into account that this degree of personalization is available via text messages, emails, in-app offers, call centers, and more—across both digital and human channels—at every stage of the consumer experience.

Are these radical adjustments, though, worth it? Is it better for P&C insurers to take a risk? Why introduce such a system and what would be the benefit?

First, compared to the ongoing usage of mass, one-size-fits-all communications or discrete campaigns employing simple segmentation or personas, customization can help reduce client acquisition expenses by 50%.

Additionally, it can support insurers in maintaining and growing their portion of current industry earnings. According to McKinsey, for example, U.S. auto insurers might benefit an extra $5.5 billion if they use customization to hold onto just 10% of the $55 billion in direct written premiums that are transferred annually between carriers.

The true difficulty lies in perfecting personalization at scale throughout the insurance life cycle, but these evident cash flow benefits will undoubtedly have carriers on the lookout for change.

In order to do this, carriers with a contemporary, cloud-based insurance platform have an inherent advantage. In the absence of a bespoke system, you are forced to switch between fragmented systems, which prevents true scalability.

For instance, the Guidewire Cloud Platform provides omni-channel, tailored customer communications for the billing, claims, and policy processes.

For scalable, customized communications, Guidewire has partnered with Smart Communications, a market leader in conversation management platforms.

Everything is managed by a single, cloud-expandable platform, which means that there is no need to maintain different systems and that scalability is unlimited as needs for channels, storage, and other resources increase.

Incorporating a more customized strategy into their present systems can yield a swift return on investment for P&C insurers with the appropriate solutions in place. The personalization necessity isn’t limited to P&C insurance, as devices like Guidewire have already assisted carriers in launching personalized communications at scale in over 100 installations globally in a timely and economical manner. The time has come.

The dawn of electric vehicles: Transforming the landscape of auto insurance – Part 2

The growing popularity of EVs will have a significant effect on several sectors of the automobile industry. What implications does this sharp rise in EV sales have for vehicle insurance then? Let’s look at the rise of EVs and what its implications for customers and auto insurance in Part Two.

Comparing insurance expenses: Electric vehicles vs. Gas-powered vehicles

Annual premium estimates from Quadrant Information Services were gathered in order to obtain additional understanding of EV insurance rates and how they differ from gas-powered car costs. The calculations were made using a driver who was 35 years old, had a spotless driving record, and good credit. The figures show expected premiums for comprehensive, collision, and comprehensive coverage as well as minimum-liability insurance for full coverage auto insurance policies.

For instance, the 2022 Nissan Altima and 2022 Honda CR-V are gas-powered vehicles whose typical yearly insurance rates are $2,263 and $1,808, respectively. In contrast, the 2023 Tesla Model S and 2023 Nissan Leaf S are both electric cars that will cost a driver $4,762 and $2,374, respectively.

The average cost of insurance for electric automobiles is also typically higher, though this depends on the make, model, and year of the car. In 2023, the average annual cost of full-coverage auto insurance nationwide will be $2,024. The coverage costs of the electric cars on this list range from 10% to 135% more than the national average.

Strategies for electric vehicle owners to reduce car insurance expenses

EV drivers will save money on standard automobile ownership expenses by not having to pay for gas or oil changes, but they can also reduce the cost of insurance by utilizing local, state, and federal rebate programs.

For example, at the state level, low-income Californians may be eligible for more than $30,000 in incentives toward the purchase of a new EV, and Colorado offers up to $8,000 in rebates for people who buy or lease an electric car. Many states have utility providers that provide discounts and other incentives to customers who install specific EV charging stations in their homes.

Federal tax benefits are also offered to owners of specific EV brands and models. A tax credit of up to $7,500 is available under the 2022 Inflation Reduction Act to individuals who buy an eligible electric vehicle (EV) with a battery capacity of at least seven kilowatt hours. The expiration date of this credit is December 2032.

Using the discounts on auto insurance that are offered by an insurer is a terrific method to save money in addition to credits and rebates. Many large insurance providers provide discounts to responsible drivers, multi-vehicle policyholders, and customers who combine auto and other policies. Lower premiums can also result from choosing a greater deductible, but doing so increases the amount of money drivers must pay out of pocket for repairs.

It will be more crucial than ever to compare auto insurance quotes from several companies because we anticipate some volatility in the price of electric vehicle insurance in the years to come. This is among the greatest ways for drivers of electric vehicles to locate coverage that meets their needs and is both inexpensive and of high quality.

The implications of electric vehicle (EV) growth on the insurance industry

With the rapid growth of the electric vehicle market, car insurance firms are already changing and there will definitely be more changes in the future. Insurance firms would likely need to change their underwriting methods and risk assessments to take into consideration the unique characteristics of EVs. Charge infrastructure, battery range, and the availability of authorized repair facilities are just a few of the variables that may affect premiums.

Elevated expenses associated with collision insurance

The costlier collision coverage will likely be the most noticeable impact EVs have on insurance. This kind of insurance covers the cost of repairs to your car in the event that you cause an accident.

Compared to traditional gas-powered cars, electric vehicles (EVs) require more expensive replacement parts and repairs. As was already established, this problem is even worse if an accident damages an electric vehicle’s battery. Insurance companies will have to control this risk by charging more for EV crash coverage.

Do you need extra insurance for home charging?

Another consideration for insurance providers is using a home charger for an electric car. For EVs, home charging involves two primary stages:

Level 1: Charge your electric car using the provided charger. Any standard 120V outlet can be used with it. Despite its convenience and ease of setup, level 1 charging requires more time than other charging techniques.

Level 2: You need to purchase individual chargers for your electric vehicle in order to employ this technique. Large equipment like laundry dryers require 240V outlets, which are also needed for level 2 charging. When compared to Level 1 charging, this method charges batteries three to seven times faster.

There are no further home modifications needed for Level 1 charging, which is a straightforward charging technique. Although adding a new 240V outlet is usually required for a Level 2 home-charging system, insurers do not require EV owners to get extra homeowners’ insurance. However, some insurance companies could require proof of the proper installation of the home charging equipment.

Enhanced training and fresh policies

As EVs become more and more common, auto insurance companies will need to adjust the way they operate. This is particularly valid in the case of assertions.

Additionally, there’s a strong likelihood that new categories of auto insurance plans will emerge to meet the needs of developing EVs. Insurance firms may develop new plans or increase coverage options tailored exclusively for EV owners as the market for electric vehicles grows, keeping a watch on the always changing trends in the electric car sector.

The EV revolution: Final thoughts

It is too early to tell how EVs will impact the auto insurance market. We do know, however, that as EV market share increases in the United States, insurers will need to modify coverage options and provide agents with the necessary training to manage EV-related claims with ease. Average premiums will probably level out as the market adjusts to the growing number of electric vehicles on the road, even if consumers are presently paying higher-than-average premiums to safeguard their electric cars and should continue to expect high expenses soon.

The dawn of electric vehicles: Transforming the landscape of auto insurance – Part 1

The era of electric vehicles is now formally upon us (EV). By 2022, there will be more than 10 million electric vehicles sold worldwide. By 2030, the International Energy Agency (IEA) predicts that this number will almost triple. There are currently 3 million electric vehicles (EVs) on the road in the United States alone, and there are more than 130,000 public charging stations. These numbers are only expected to rise.

The growing popularity of EVs will have a significant effect on several sectors of the automobile industry. What implications does this sharp rise in EV sales have for vehicle insurance then? Let’s look at the rise of EVs and what its implications for customers and auto insurance in Part One.

The implications of electric vehicles’ ascendance for consumers

Beyond having reduced fuel expenses, electric vehicles (EVs) provide several other advantages to users, such as fewer moving components that can break down, no need for oil changes, and typically less wear and tear on brake systems than their gas-powered competitors. But EVs are also more expensive to insure than conventional combustion-engine cars because of their higher sticker prices.

What causes higher insurance costs for electric vehicles?

In addition to being more expensive than the majority of conventional cars, EVs also require more expensive maintenance and replacement parts. These are the two main causes of consumers’ increased EV auto insurance rates, according to Kelley Blue Book.

The average cost of a new electric vehicle was $58,940 in March 2023. This is over $10,000 more expensive than the $48,008 industry average for a new car at that time. Car insurance premiums are directly impacted by a vehicle’s MSRP; therefore, EV owners can expect to pay more for coverage.

Premiums for EV insurance are also significantly influenced by high repair expenses. An electric vehicle’s components are less likely to break down, but the ones that do cost a lot more to replace or repair. This is particularly true if the battery pack on an EV is harmed. According to Consumer Affairs, replacing an EV battery can cost anywhere from $4,500 to almost $18,000 on average.

Another issue facing EV owners is a lack of skilled repair facilities and experts. When it comes to repair alternatives, buyers will have fewer options and pay more because electric vehicle technicians need specific training. For EV drivers, the cost of insurance is increased by each of these considerations.

What should consumers anticipate regarding electric vehicle insurance expenses?

Repair prices and MSRPs will undoubtedly decline as electric vehicles proliferate and account for a growing portion of the automotive fleet; insurance costs will likewise inevitably decline in tandem. But EV insurance premiums will likely be more expensive in the near future than those for regular cars.

With over 14 years of experience dealing in personal lines insurance, registered insurance agent Nick Vitali discussed his thoughts on how a rise in EVs would impact consumers. While Vitali conceded that future insurance premiums will probably rise due to significant repair costs, he also highlighted several advantages for electric vehicle owners. He discussed how some insurance companies actually provide discounts or incentives for EV owners because electric vehicles (EVs) are more environmentally friendly and have less fire-related accidents.

Comparing repair expenses: Electric vehicles vs. conventional gas & hybrid cars

Here are some yearly repair cost estimates from RepairPal for more background. For instance, a gas-powered Toyota Corolla typically costs $362 to repair, whereas a hybrid Toyota Prius and a gas-powered Nissan Altima often cost $408 and $483, respectively.

In contrast, the average repair expenses of two electric vehicles, the Tesla Model S and the Nissan Leaf, are $1,047 and $748, respectively.

Stay tuned for Part 2 of the article, coming soon.

How a small group of firms is changing disaster insurance

As natural disasters like wildfires and storms become more severe, many insurance companies are limiting their coverage in certain areas or reducing what they’ll pay for repairs.

A lesser-known part of the financial industry, called reinsurance, is playing a crucial role in these changes. Reinsurance companies step in with large sums of money when disasters, like hurricanes or wildfires, cause widespread and expensive damage that regular insurance companies can’t handle on their own.

At the beginning of this year, almost all reinsurance companies raised their prices. This meant higher costs for insurance companies, including major national carriers like State Farm and Farmers, as well as smaller specialized firms. Negotiations between insurers and reinsurers, including companies like Swiss Re and Odyssey Re, have been tense.

Reinsurers have been losing money in recent years as they competed to offer the best deals to customers. However, last year, they decided that this kind of competition wasn’t worth the cost. The price increases in reinsurance have accelerated changes in an industry grappling with rising uncertainty due to global warming, more intense storms, increased costs of rebuilding after disasters, and higher global interest rates.

Insurance companies have paid out around $40 billion to U.S. customers this year, setting a record for yearly losses. This rising cost affects everyone, from the leaders of large companies to homeowners and small businesses.

Reinsurance prices increased by as much as 40% on January 1, leading insurers to make changes in their offerings. Some insurers stopped accepting new applications for certain policies, and reinsurers specialized in agriculture insurance pulled out of Iowa, where a severe windstorm caused significant damage three years ago.

As a result of higher reinsurance costs, insurers also increased prices where regulations allowed, especially for insuring new developments in places like Denver and Calgary, Alberta, where stick-frame housing is booming.

Severe thunderstorms in the United States have caused nearly 70% of the global losses from natural disasters this year. Experts predict that reinsurance prices will stay high for a significant period, and insurers might need to raise prices even where regulators resist such increases.

With reinsurers pulling back, some insurance companies are exploring alternatives to secure backup funds, such as catastrophe bonds, which let investors provide money for major-disaster losses in exchange for regular payments.

However, not all reinsurers are taking a step back. Recently, Berkshire Hathaway and Citizens Property Insurance Corporation, the state-run insurer in Florida, reached a $1 billion agreement. This is Citizens’ biggest coverage arrangement for traditional reinsurance with a single company to date.

Reinsurers may reenter the market in quest of profits, despite the opinion of some analysts that reinsurance rates could drop earlier than anticipated. This dynamic market means that insurance premiums and disaster coverage are continually changing.

Is reduced demand for upgrades in insurance inhibiting innovation?

The insurance industry has struggled to keep pace with innovation in other sectors

In comparison to other industries, the insurance sector has struggled to keep up due to low levels of innovation.

This is partially because consumers are less interested in insurance goods until an urgent need arises, and partly because providers must adhere to stringent risk and compliance regulations and use rigid legacy systems.

To make their product more relevant to clients, insurers have therefore had less need—and less ability—to innovate. As a result, many existing players have concentrated on solidifying their positions, making business expansion more challenging, expensive, and complex.

As a result, insurers are increasingly looking to collaborations with insurtech companies as the “magic solution” to quicken the insurance industry’s digital transition.

Customers may manage their insurance portfolio and submit a claim with the assistance of chatbots powered by AI, for instance.

When combined with behavioral data from smart watches or cars, the use of AI and machine learning technology can aid insurance carriers in the detection of fraud, support the development of new business models, and help customize plans and lower premiums.

The idea of “embedded insurance” is, nevertheless, possibly, the most significant trend and the strongest growth lever for insurance providers. This is not a brand-new business model; rather, it expands the reach of what we have come to refer to as “bancassurance” to new prospective retailers that sell goods or services to customers online.

When a consumer is making a transaction, embedded insurance allows suppliers to sell micro-insurance goods or services. A prime illustration of that is when you get travel insurance along with a ticket or vacation.

Because of this, integrated insurance must be digitalized, whether through online sales channels, e-commerce platforms, apps, standalone websites, or even at non-points of sale. And to accomplish this, most insurers must collaborate with insurtechs.

Legacy insurers can modernize by expediting innovation in the sector

There are many other ways for businesses to update their outdated platforms, and not all of them entail integrating with an insurtech’s platform.

There is no one technique that works for everyone, and the best course of action greatly depends on the current status of the organization’s strategic goals and the design of its systems.

Many businesses should start by prioritizing modernization and innovation and spending the necessary time and money to outline their strategies.

Implementing innovative working practices like Agile or DevOps, which will hasten innovation and the development and deployment of systems, is one such strategy.

Additionally, businesses may try to re-architect their systems using techniques like microservices, modularization, or containerization to increase agility while reducing complexity and interdependencies.

Companies may need to adopt an API-first strategy or migrate (or partially migrate) their old systems into the cloud if they wish to benefit from insurtech innovation. They might even decide to replace their legacy systems completely, which would be a huge move.

Companies may think about collaborating with an expert partner to assist them sort through the plan and determine the best course of action given the variety of possibilities, the potential cost, risk, and complexity involved.

Key factors to prioritize when modernizing legacy systems

When modernizing systems, there are several factors to consider. Among the crucial ones are:

Business impact: How does the current system affect the company’s present and long-term strategic goals? How well does the system satisfy customer needs, and what maintenance risks exist, such as downtime and security issues?

Cost-benefit evaluation: What are the costs associated with operating the current system, taking into account the cost of construction, upkeep, licenses, and the financial impact of unavailability? What are the expenses incurred by modernizing, as well as the financial gains in terms of spending, productivity, and client retention?

Technical debt and complexity: How much complexity has built up over the years, considering obsolete technologies, unsupported software, and intricate interdependencies? What effect do these have on technology integration, maintenance, and stability?

Interoperability and integration: How effectively does the current technology suit the needs for interoperability and integration with internal and external systems now and in the future? Can the system support contemporary APIs, data formats, and protocols? How well does it integrate with other technologies, such as cloud, mobile, and third-party systems?

Future scalability and innovation: To what extent is the system capable of supporting foreseeable expansion and innovation? Can it support cutting-edge technologies like artificial intelligence (AI) and machine learning, and can new features and functions be added quickly and easily thanks to the architecture’s support for modular upgrades and agile development?