Data in the P&C space has been used for years to help insurers properly assess risk and set premiums. However, the way in which P&C companies are collecting data is changing. For example, Progressive now offers discounts for people that allow telematics to collect data on their driving habits. But what about the Life companies?
John Hancock recently announced a program utilizing the Fitbit to help policyholders earn credits for active lifestyle. While this is an appealing sales tool, it is unclear whether this data will be useful in predicting risk or longevity. Consider a person who walks 50,000 steps per day and someone who walks 10,000 steps a day. What if those 50,000 steps were associated with a steep hike up a mountain vs 10,000 steps around the block in a quiet neighborhood? This is just one scenario that might have insurers questioning how to use Smart Data. It’s too early to tell how significant it will be, but it is catching people’s attention.
Insurers are starting with trusted sources of data, but as more and more experience is gained, nontraditional data will start to be utilized, positioning it to be a game changer. Think of Amazon and how they use data to suggest other products based on your browsing and buying patterns. Perhaps buying patterns at grocery stores or restaurants will help insurers assess an individual’s risk level and premium amounts.
Even with all of this buzz around Smart Data, experts have begun to warn companies that they need to use caution when collecting data, and drawing conclusions based on it. Sticking with our grocery example, what if the prospective policy holder made those purchases for an elderly parent instead of themselves? Relying too heavily on lifestyle data such as this could create false conclusions, thus affecting the premium quoted to the policyholder. Incorrect assumptions could hamper sales, damage a company’s reputation, or even cause lawsuits.
There is a considerable hype around Smart Data, but companies need to know how to use it and be willing to experiment. Insurers should start asking themselves these questions and conducting the tests whether they are industry leaders or fast followers. Data is going to continue to play a very big part in the insurance game. The collection of the right data and its interpretation will be the key factor in determining success.
So, what does this mean for you? Your company will need a strategy to support the new wave of data technology, including:
Without this, your company will have a hard time unlocking the real power of burgeoning data types. Start thinking about how to handle future data categories now so you are ready to collect and use them effectively when they arrive.