Big Data effect in the Insurance Industry

Imagine yourself in the year 2020 shopping around to change the auto insurance provider. You will come across Usage Based Insurance (UBI) quotes where a basic premium need to be paid every month for the liability coverage. The additional premium amount will be calculated based on the number of miles you drive, the location you drive, and how efficiently you drive. All this customer information is transferred automatically from your car to the insurance company and the final premium will be calculated based on your average risk profile value for the month. Are you seeing a similarity with the utility bill calculation that is based on the usage? Yes, Insurance industry will undergo a major transformation in the coming decade in its approach on assessing the risk profile. There will be more usage based offerings that fit the need of the modern customer. This will be made possible by the technological advancements and the efficient utilization of Big Data.

Big Data is not a technology, but rather a phenomenon resulting from the vast amount of raw information generated across society, and collected by commercial and government organizations (TechAmerica Foundation, 2013).  The four basic characteristics of Big Data are the volume (data at rest), velocity (data in motion), variety (data in many formats), and veracity (data quality). Volume refers to the large quantity of data that must be analyzed and managed to make decisions. Velocity is the speed at which data is produced, changed and processed. The Variety attribute refers to the structured, semi-structured, and unstructured data that comes from within and outside of the organization. The Veracity points to the quality of received data.

Insurance companies have been processing the structured data for many decades and it helps them to better serve the customers with innovative products and services. In the insurance industry, volume indicates the large amount of transactions that occurs every day from quotes, policy, claims, and payments. The velocity aspect provides the ability to calculate the risk profile of the insured person every hour or every day. The variety aspect of Big Data is also interesting. Organizations can gather unstructured data such as text, voice, and video from non-traditional data sources such as mobile, social media, videos, chat, and sensors. Analyzing the structured data with the data gathered from non-traditional sources enable an organization to make better and informed decisions and thus improve its competitive advantage.

The insurance industry faces many challenges in properly integrating the structured and unstructured data. Legacy IT systems, lack of skilled resources, credibility and reliability of big data, and privacy issues are the hurdles the industry has to overcome to harness the full potential of Big Data (Pozzi, 2014). Companies that can overcome these challenges and incorporate Big Data in their decision process will be able to add more value to their customers and other stakeholders.

 References

Pozzi, S. (2014). Big Data Big opportunities. Best’s Review, March 2014, p 60.

TechAmerica FOUNDATION. (2013). Retrieved July 31, 2014, from http://www.techamericafoundation.org/demystifying-big-data-industry-leaders-release-comprehensive-report-on-big-data-in-government

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