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Insurers have long battled two opposing data directives: a need to collect more data for better underwriting and risk assessment, and the need to collect less data in order to simplify processes for agents and insureds. In today’s market, data has emerged as a commodity available from many different third-parties, allowing insurers to solve both needs at once.
Carriers are leveraging external data sources for a range of services including analytics augmentation, predictive modeling, and the validation/cleansing of existing data. The space includes those who have been serving the industry for over a century as well as many new startups that have only been around for the last few years. Examples of data providers include established players such as Axciom, ISO, and LexisNexis Risk Solutions, as well as emerging players such as Carpe Data, Human API and TERRENE Labs.
Data is the new oil and insurers are harnessing third-party data to augment and improve front-end and back-end processes. Specifically, data is being used to build out AI systems, enhance customer experience, reduce costs, and navigate regulations. In the insurance industry, it is still early days for the implementation and utilization of third-party data, and carriers see themselves as relatively immature in their data capabilities. The limited use of third-party data in insurance means that there are opportunities for improvement across multiple domains. Specifically, AI training derived from large data sets and improved customer buying experience stand out as motivators for third-party data use.
Opportunities and Risks
Increased access to data creates both opportunities and risks, and insurers should be aware of possible data-related privacy concerns. It is important to address possible issues before they become problems and to embrace transparency throughout the process. New regulations such as the GDPR, and scandals such as Cambridge Analytica, have increased the demand for transparency regarding both what data is used and for which purposes. As core systems providers increasingly incorporate AI and analytical capabilities, the hunger for data will only increase. The good news is, this will lead to greater efficiency and improved consumer experience.
Third-party data is readily available to U.S. carriers today from the many vendors who exclusively focus on providing data to insurers, as well as many other vendors that offer cross-industry data services. Insurers should proactively try to match data provider offerings and the sources of those offerings with their needs, both for line of business and business process expertise, paying attention to the fit between their system functionality and the external data offerings they are planning to implement. Towards this end, carriers should test data within their business processes and conduct technical assessments of the data services to ensure availability and compatibility prior to large scale implementations. In addition, insurers should participate in comparison shopping to examine the differences in services offered by a range of data providers. Insurers should follow up with reference checks to better understand the experience that the carrier had in working with the data providers of interest. Finally, as insurers incorporate third-party data into their operations process, they should be cautious not to unintentionally introduce points of failure. Carriers should design processes with technical and business contingencies to allow business to continue even when the data service is unavailable.
Vendor Relationships Ever More Critical
As the importance of third-party data grows, vendors will become ever more critical to insurers’ operations. Core systems vendors are increasingly incorporating analytics functionality into their offerings, and many already enable web service calls. As insurers and vendors alike build support for APIs and true microservices into their architectures, it will be easier to integrate third-party data, thereby making progress toward true straight-through processing. Data is the new oil, and for the insurance industry these may very well prove to be the boom days.
Editor’s note: This article is adapted from the authors’ recent Novarica report, External Data in Insurance: Overview and Prominent Providers.