New Business Insurance newsletter explains how insurers use technologyReprints
While the insurance industry is widely perceived as lagging compared with other financial services when it comes to adopting new technologies, that perception belies some innovative uses of leading-edge technologies throughout the insurance ecosystem.
And the purpose of Business Insurance's new technology newsletter, “Tech Insights,” is to keep technology leaders abreast of the technologies insurers and brokers employ and how use of those technologies ultimately impacts the insurance business.
One area where insurers and intermediaries are making inroads is in the realm of data science. Alternately known as business intelligence and predictive analytics, the technology requires insurers to capture massive amounts of data from various sources, house it, structure it and feed it into mathematical models for analysis.
Insurers now are using analytics to improve a variety of vital business functions, from underwriting to marketing to fraud detection. Elsewhere, brokers are using the wealth of transactional data at their disposal to craft intelligent platforms for the placement process.
Nonetheless, significant challenges surrounding the use of analytics in insurance still exist. Insurers need to find the right people to create the algorithms and interpret the output from models. Concerns also abound around the quantity and quality of the data used for analysis.
“One of the big things insurers need to solve is whether they have enough data for their models to be statistically significant,” said Karlyn Carnahan, principal, for New York-based research and advisory services firm Novarica.
Indeed, while volume-intensive standardized lines of business, such as personal lines auto, yield enough data for analytics, a commercial lines insurer may have a tough time assembling enough for its models.
Others go further and question whether commercial lines insurers risk “paving the cow path” by applying sophisticated technologies atop legacy core processing systems and ossified business processes.
“The industry is just too embedded with too many old ways of doing things,” said Claudia Mandato, executive vp at Kansas City, Mo.-based Lockton Cos. L.L.C. “We have made strides, and brokers have done a better job because clients are asking them for certain things, but carriers have more baggage that is difficult to unwind themselves from.”
Another technological bone of contention is cloud computing. Much as consumers are flocking to the cloud to store music and files, insurance companies are investigating the cloud as a provider of cut-rate applications and infrastructure. The industry also is making inroads with other technologies that have migrated over from the consumer market—mobile applications and social media.
So what does this wave of technological investment mean for buyers of insurance? Taken as a whole, these technologies very well may remake the way the insurers conduct operations internally and how they interface with intermediaries and clients. For example, an insurer newly armed with more complete data regarding the risk your company presents may offer you a better deal come renewal time—or a worse one.
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