Insurance clients face advantages and drawbacks from big data
A growing number of companies that use data mining to get the buying habits and searches of customers are already benefitting from it, the Financial Times reported.
According to a McKinsey Institute report, retailers that fully maximize their use of big data can possibly grow their operating margins by over 60%.
However, a contentious use for big data could be that of insurance firms to create profiles of their potential policyholders. This is especially a welcome development in the life insurance space where underwriting methods and risk computation, which are done manually, can be very costly and take a long time. According to British insurance firm Liverpool Victoria, the reason for this is because they have to research the potential policyholder's medical and family history. This includes looking into the history of specific diseases of their relatives. The cost is also due to the urine and blood tests that will have to be performed, the report said.
The report asks: Could using big data possibly result to an increase in premiums for policyholders because of their browsing history?
BigData-Startups Founder Mark van Rijmenam told FT that on one point, big data could allow insurance firms to integrate information that can be gleaned from public sources like their social media profiles or government data so they will have a deeper knowledge about their clients. He said, "Instead of creating six [generic customer profiles] that cater for millions of customers, they can make one [for each individual] through 360-degree customer profiling."
UK Life Head of Retail Protection Proposition Development Richard Sadler believes that this can be advantageous for both sides. Substantial discounts can be given to those who live healthy lifestyles based on whether they exercise at the gym or join sports, the report said.
Deloitte Insurance Analyst Partner Colin Forrest said this would allow insurance firms to remove the screening processes that are sometimes not necessary for low-risk applicants while giving them "significant gains in the pricing of risk," the report said.