PwC Report on insurance issues: data analytics is crucial

The emergence of “big data” poses both an opportunity and a challenge for the property and casualty insurance industry, according to a recent report from PricewaterhouseCoopers LLP.

It defines big data as a combination of (a) sophisticated technologies and devices, all of which are communicating seamlessly with each other in real-time; and (b) the use of unstructured multi-media (e.g. auto, video) data.

Exploiting this data “requires ‘smart’ predictive and simulative analytics that analyze real-time dynamic data to project the future,” notes the report The Insurance Industry in 2012: Top Issues.

The use of smart analytics to interpret big data can improve rate accuracy, increase the outreach of marketing campaigns and create more effective loss prevention capabilities for insurers.

“Because big data enables the consumption, storage and analysis of vast amounts of information very quickly and with a high degree of precision, there is a real opportunity for claims to leverage unstructured data (pictures, etc.) to improve claims performance, turnaround time and customer satisfaction,” PwC states.

For personal lines insurers, the report predicts insurers will draw on data analytics mainly for usage-based insurance. “However, in the medium term, they will be able to use telematics to proactively control losses and manage risk, which should substantially enhance operating profitability.”

While commercial insurers have always focused on loss control and risk management, the use of big data could transform the commercial business model, PwC observes. “Carriers may no longer need to compete on price — they instead may be able to assess the risk of individual customers based on their actual behaviors,” the report states. “This could enable the industry to return to policyholder-specific pricing because customers will no longer be able to game the market for better entry-point prices.”

The full report is available at:

http://www.pwc.com/en_US/us/insurance/publications/assets/pwc-top-insurance-industry-issues-2012.pdf