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Insurance: the power of Data

Only 18% of insurance companies are able to obtain a competitive advantage from the use of data, 4% use them to access new markets and 42% have modernized and enhanced their risk management algorithms. These are some of the main evidences emerging from the research “The data-powered insurer: Unlocking the data premium at speed and scale” by Capgemini Research Institute.

The insurance market appears increasingly volatile, put to the test by the climate crisis, global economic shocks and a series of technological advances.. At the heart of the new challenges is the ability to use data to understand risks, manage them properly and make a correct assessment.

Among the main findings of the research is the fact that insurance companies that have non-traditional and real-time data sources, such as those from telematic devices, wearables and social media, have an extra card to be able to satisfy the growing expectations of customers in terms of practicality, personalized consultancy and dynamic rates, and this will allow them to undermine a field manned by Insurtech.

Those among the companies that have managed to obtain a good command of the data collected is defined "Insurance Data Master". This group in 9% of cases reported higher premiums, a better combined ratio and more high in terms of Net Promoter Score. To give these companies a reliable definition and characterize them from their competitors, it will be useful to underline that 92% have centralized governance or a facilitating body, 62% collaborate with Insurtech companies and 97% have created open APIs that allow third parties parties to access their data.

Insurance companies use data to develop new solutions, create value-added services for customers, and gain unique insights to understand risks and price them. Thanks to the data over 40% of companies are entering new markets, moving from risk protection to risk prevention, as well as transforming actuarial assumptions. 43% are also using real-time data to update actuarial models, while about a third use data to simulate new risks.

There are also targeted investments, such as those in risk algorithms capable of storing a wide range of data sources and displaying them quickly when a decision is needed. In general, according to the research, in the last two years about 43% of insurance companies have modernized and updated their risk algorithms and, consequently, almost 39% of them can affirm that their risk selection and pricing process is based on facts and data.

Narrowing the analysis down to the largest insurers, research shows that 61% have achieved mainstream adoption or transformative benefits from their data initiatives, compared to just 16% of smaller ones - this is likely because more small companies have not invested adequately in technological modernization, frequently facing challenges related to legacy systems and monolithic architecture.

Staying focused on 2data masters, 97% have developed APIs to allow external properties to access their proprietary data, and almost 90% can also easily connect external data sources with internal platforms.

According to the research, insurance companies can become "data powered", thus aligning data strategies with business ones, investing in four key areas: on building an infrastructure that allows rapid implementation of insights obtained from data, on a model operation to scale data-driven insurance use cases, fostering a strong data culture across the organization, and orchestrating an open data ecosystem to collaborate with InsurTechs and establish an approach based on data that incorporates sustainability.