The car insurance industry isn’t something the average person immediately thinks about when considering big data, but there’s an inextricable relationship between the two “ and it’s only becoming more powerful and concrete.
4 Ways Big Data Can Improve Car Insurance
You would think that new technology has made driving safer, but we’ve actually seen a reversal of this trend in the past few years. From 2007 to 2016, the number of motor vehicle crashes has actually increased. This is due in large part to driver impairment, which AXA Insurance attributes to more than 90% of collisions.
While it’s up to drivers, car manufacturers, and public officials to make roadways safer, insurance companies also have a role to play in making sure car ownership is as cost-effective as possible. In response to this, the industry is changing “ and it’s using big data to get there.
Over the past few years, there’s been an increased emphasis on leveraging relevant, timely data to make more educated decisions that benefit both the insurance company and the policyholder. While those in the insurance industry see it on a daily basis “ and are primed to think about the impact big data will have in the coming months and years “ those of us on the outside peering in may miss it if we don’t know what we’re looking for.
When industry insiders like AXA say exciting times are ahead, here are some of the happenings that lead them to believe we’re pointed in such a positive direction:
1. Improved UX for Customers
Shopping for car insurance can be a pain. Not only are there multiple companies to get quotes from, but interacting with old, clunky platforms makes it slow and tedious. Some companies, such as ZhongAn, China’s first internet-only car insurance provider, are using machine learning and analytics to quickly analyze data and make the process smoother.
We have broken the online purchase process into 45 parts, and monitor and analyse data flows from each part. If we notice that users spend too much time in one part, then we know something may be wrong with it, or it has potential to be optimised, says Wang Yu, head of car insurance at ZhongAn.
2. Greater Fraud Detection
Did you know that fraud accounts for between 5-10 percent of claims costs for U.S. and Canadian insurers? Nearly one-third of all insurers say fraud accounts for as much as 20 percent of total claims costs. More than half of insurers (58 percent) believe auto insurance fraud will increase in the near future.
While it shocks many outside of the industry, fraud is a huge deal for insurance companies. Collectively, it costs them billions of dollars annually. Big data could prove monumental in curbing this alarming trend.
Using predictive modeling and strict data management, insurance companies can match variables in claims against profiles of past fraudulent activity to identify when there’s a high-risk case that needs further investigation. While it’s still possible for fraud to go undetected, the risk is much lower when big data is involved.
3. Real-Time Risk Analysis
While insurance companies and brokers once relied on historical data for actuarial calculations, they can now draw on data sources that update by the second, data expert Danny Bradbury writes. This enables them to be more responsive in an increasingly volatile risk environment.
As risk analysis becomes less reflective and predictive “ and happens more in real time “ smart drivers will be rewarded with better rates and opportunities, while insurance companies will be able to more accurately reconcile risk in a cost-effective manner that allows them to remain lean and agile.
4. More Accurate Payouts
In order to lower costs, insurers typically implement basic formulas and speedy processes that help settle claims quickly. The problem is that, in their haste, insurers often over- or under-estimate what they owe. This either hurts the insurance company or the insured policyholder.
Big data is making it possible for insurance companies to quickly analyze claims and claim histories to optimize payouts that more accurately reflect the true cost of the incident. Not only does this speed up claims processing, but it also leads to greater customer satisfaction and cost savings. In an industry where there’s more guessing than most would like customers to believe, big data is coming to the rescue.
The Future of Insurance
When most people think about big data and its various applications in the real world, industries and niches like investing, healthcare, professional sports, music, gaming, and entertainment come to mind. It may not be as sexy as some of these areas, but big data is poised to fundamentally change the insurance industry for the better in the coming years. And, in one way or another, it’s going to impact us all.
