Fitch Ratings believes insurers that are early adopters of big data will be able to reduce fraud, price more accurately and control distribution, and thereby may gain a vital competitive edge.
In its report, Insurers Begin to Unlock Power of Big Data, Fitch Ratings said it believes big data will be increasingly important to insurers’ profitability, competitiveness and – in the long term – credit ratings.
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The term "big data" describes extremely large data sets that may be analysed computationally to reveal patterns, trends and associations, particularly relating to human behaviour and interactions, according to Fitch Ratings.
Big data analytics is already widely used in motor insurance. For example, telematics devices that track drivers’ mileage and braking habits enable insurers to adjust each policyholder’s premium rate month by month to reflect the updated information on these risk factors.
Fitch Ratings noted that big data is also starting to feature in health insurance. Insurers can provide policyholders with products such as wristbands that monitor physical activity, providing data for pricing that more accurately reflects each customer’s individual risk profile.
Some insurers use big data to assess their intermediaries by analysing, for example, the volume, value and persistency of the business they source, said Fitch.
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By GlobalDataThe ratings agency said this enables them to optimise their distribution channels to maximise profitability, which may vary significantly by channel or individual intermediary.
It added that using real-time tracking, insurers can immediately identify sales spikes by product or intermediary that may indicate under-priced or mis-sold business, allowing fast remedial action.
