Insurance companies are already big users of big data. They are, I suspect, far more sophisticated in their use of predictive analytics than most other industries. After all, insurance is about predicting probabilities — and there’s money on the line.
So how will networked sensors and the so-called Internet of Things (IoT) give insurers an edge they don’t already have with predictive analytics? Because they’re going to have access to even more data — and potentially better data.
Take self-driving cars, for instance. Google’s prototype has no steering wheel or pedals — instead, it’s made up of a combination of sensors and software, with radar, lasers and cameras to monitor everything around it.
Maybe we won’t all be driving a self-driving car (or, rather, letting the car drive us?) in the next few years, but Maciej Kranz, vice-president of Cisco’s Corporate Technology Group, told an audience during Cisco Live last month that in three years every new car will be connected.
The connected home is already a reality, where homeowners can change the temperature or view security cameras remotely, all from the convenience of their smartphone. As this matures, it will change the dynamics of homeowners’ relationships with property and casualty insurers.
Indeed, Donald Light, director of Celent’s Americas Property/Casualty Practice, said in a recent report that the IoT will provide first-order data on a number of hazards and risks.
“From an insurance perspective, what is new and different and critically important about this data is that it can provide a much more accurate picture of the exposures, hazards and risks of what is being insured,” he said in the report.
“These analytically-driven findings create the second critically important consequence of the IoT: insurers can create feedback and control processes to command or request things to change their loss-related behavior and performance.”
In some cases, the IoT could provide more accurate data about pricing factors that insurers are using, and in other cases it could provide new kinds of data that would directly impact how insurers price, the report says.
Sure, insurers already use analytics, but the IoT will provide even more granular data to work with. It could, for example, let insurers know how fast a vehicle was driving on a specific road with a given speed limit.
According to Light, claims operations will use new elements to understand causation and responsibility, such as videos of accidents. And this will help to mitigate fraud — and provide for more accurate pricing of products.
There is a downside: This does start to sound a bit Big Brother-ish. Some people won’t be happy about the fact their car is sending information to their insurer, detailing their every move.
Aside from being a bit creepy, there could also be implications from a privacy legislation perspective. On the other hand, it could benefit clients who have a legitimate claim and help to significantly reduce false claims.
Regardless, the IoT is already a reality, and it has the potential to dramatically change the insurance industry. To get ahead of the game, insurers need to make sure they have the ability to capture this data, store it (perhaps in the cloud) and use it effectively (such as by creating pricing algorithms). It has big potential to turn big data into something even bigger.
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