U.K. insurers, brokers challenged to act quickly on new data sources: survey

Insurers and brokers in the United Kingdom are facing an explosion in external data sources and are challenged to act quickly, suggest new survey results released jointly by Verisk Insurance Solutions and Earnix.

The survey of carriers and brokers in the U.K. – U.K. Modeling Data Acquisition and Usage Trends Survey – points to anticipated significant growth in the use of external data for modelling in personal lines insurance in the coming years.

Conducted by ISO and Earnix, survey responses were collected online from 55 insurance professionals from companies providing personal lines coverage in the U.K. Broken down, 69% of respondents represent insurance carriers and 31% represent insurance brokers. In all, 82% of respondents offer motor insurance and 75% write home insurance, while additional products offered include travel (33%), pet (27%) and other (15%). [click image below to enlarge]

The number of external data sources – defined as any data not acquired directly from the consumer – used is expected to grow two to five times over the next three years, notes a statement Wednesday from Verisk Insurance Solutions, a source of information about property and casualty insurance risk, and Earnix, a provider of integrated customer analytics solutions for financial services.

As many as half of respondents say they expect the number of external data sources used by their companies will grow three to five times over the next three years, while an additional 35% report they think the number will double.

Verisk and Earnix report that some of the most commonly used sources of external data include consumer credit reports, driver records and traffic violation history used in auto insurance, and catastrophe models for floods and windstorms used in property insurance.

“Catastrophe models are commonly used in home insurance, led by flood (77%) and windstorm (65%) models,” the report states. “While little growth is expected in the use of these models (7% to 9%), the use of prior property losses and replacement cost estimation data is expected to surpass the 80% mark over the next two years,” the survey shows.

Another area of significant growth is property market value data, which is anticipated to increase from 42% today to 75% in two years, the report adds.

“Some of the emerging data types expected to see high growth in use over the next three years include social media data, building permit data, third-party telematics data and shopping behaviour data,” David Cummings, senior vice president of Insurance Operations and Analytics at Verisk Insurance Solutions, notes in the statement. “Insurers will add these sources to gain even more value in their pricing, risk selection and fraud-detection models,” Cummings says.

The report notes that, in descending order, respondents ranked the following as areas in which data has delivered the greatest benefit to date: better pricing; better risk selection; better fraud detection; better product design; better claims handling; and better marketing return on investment.

“Third-part telematics data is a high growth area. While currently used by only 29% of the respondents, it is expected to more than double over the next two years and reach as many as 68% of the respondents,” the report states.

On average, insurance carriers use 10.1 sources of external data and brokers use 6.2.

There is substantial use of external data in underwriting, where 78% of respondents report using it now and another 5% say they plan to use it in the next one to three years. The most commonly used consumer data today is claim and loss data (81%), followed by consumer segmentation data (67%) and private credit reports (64%), the report states. [click image below to enlarge]

Another emerging data type noted by some respondents is mobile usage and location data, the report points out. “It is still in the early adoption stage, but given the explosive surge of mobile, we can expect the use of such data by insurers to grow rapidly over the next few years.”

Better pricing, risk selection and fraud detection are the greatest benefits insurers are realizing by using third-party data, Verisk and Earnix contend.

“To meet new competitive pressures over the next decade, insurers are called to use more data, efficiently generate insights from this data, and execute on it quickly,” says Aviv Cohen, vice president of Products and Marketing at Earnix.

Investment in data is expected to grow rapidly, with 75% of respondents planning to at least double their investment over the next three years, Cohen points out.

And in five years, 43% of the respondents expect their investment to grow three to 10 times or more, the report adds.

Despite the positives, incorporating new types of data into analytics models is not expected to be seamless. Respondents suggest that there are challenges to incorporating new data types into different models, and these will likely increase as additional data types are adopted.

“The majority of companies take more than three months to incorporate new data types into their models,” notes the joint statement, and as many as 48% of carriers “require more than six months to make use of new data types in their underwriting models.”

Beyond that, the report notes the Top 5 challenges to adopting new data types identified by respondents are as follows: integration into existing systems; cost of data; data quality; data preparation effort; and data warehouse limitations.

Other survey findings include the following:

• 65% of carriers regard the use of external data for modelling as a “must have” to keep up with the competition;

• use of social media data is expected to grow 182% over the next two years, vehicle telematics data to grow 137% and shopping behaviour data to grow 108%; and

• product design and marketing are two areas where significant growth in the use of external data sources is expected over the next three years.