How big data eliminated segmentation
September 28, 2018
Chief Underwriting Officer Stuart MacIntyre talks to Insurance Post about how big data has removed the concept of niche insurance and how policyholders will benefit in the long run.
The digital age has brought with it a fundamental shift in the way that businesses, especially those in the insurance sector, operate. This is due, in part, to ‘big data’. While the hype around ‘big data’ may have subsided somewhat in recent years, the raft of information now available at our finger tips has certainly changed the way many aspects of the industry function.
One key impact that big data has had on our industry is the removal of ‘niche’ insurance deals. Around 15 years ago we saw several motor insurers segmenting their audiences and offering specialised packages based on basic rules. There were insurers who were known for underwriting for pensioners, others who would provide policies for under 25s, and of course the infamous Sheila’s Wheels, which offered insurance packages exclusively for women. All these companies flourished in the age of segmentation.
Today, however, there is far too much data available for segmentation to be carried out this way. Now it would be considered crude to assume all women drive the same, that all 17-year-old males are ‘boy racers’ and that those who have been driving for the longest are the most reliable. There are currently very few insurance companies in the market who have chosen to remain specialised towards specific demographic segments, due in part to the criticism around policies marketed and tailored in this way.
Customers not categories
The amount of data that is now available to insurers when it comes to underwriting policies provides a huge opportunity to set themselves apart in the minds of consumers. If data is handled in an intelligent and responsible manner, it can be harnessed to help insurers fully understand their customers as individuals, not just categories.
This is important now more than ever, with consumer trust in the sector considered low in comparison to other markets, according to a report by REaD Group. Not only that but the innovative newcomers entering and disrupting the market mean competition has never been fiercer. On top of this, customer expectations are on the rise as consumers become used to personalisation and tailored offers and deals.
Data and depersonalisation
While it is good that insurers are moving away from this type of audience profiling, it does come with its risks. With so much information now available, one challenge is that big data has resulted in the depersonalisation of customers, creating additional barriers between the customer and the insurance provider.
However, car insurers that equip themselves with sophisticated data platforms and tools can ensure that customers receive a package that is accurately calculated and tailored to their individual risk profile.
Personalise those policies
Thanks to data and technology, underwriters now have the appropriate platforms and tools to assess each risk independently and create an insurance policy tailored to an individual, and not just a general demographic. Insurers need to draw on the wide range of customer data that is available to them; even behavioural insights or lifestyle choices will help to make informed underwriting decisions.
Segmentation in its old form is laborious, inefficient and outdated. And while big data has removed the concept of ‘niche’ insurance, it has opened the door to more sophisticated, personalised premiums, which will benefit policyholders in the long run.