Data may be the ‘new oil’ for many industries. But for the insurance sector, data has always been the cornerstone of its business model.

“The insurance industry has essentially developed on the basis of assimilating and analyzing data over long periods of time,” said Shailesh Yadav, Regional Head – DACH Insurance at Tata Consultancy Services (TCS), when he introduced an executive roundtable with Chief Data Officers (CDOs) from leading insurers and re-insurers. 

What’s imperative for the sector now is to retain this advantage when it comes to applying data insights to faster and real-time decision-making.

The roundtable discussions underlined how the insurance industry’s use of data is undergoing fundamental change to align with new capabilities, sector challenges and the need to demonstrate business value.  

The insurance industry’s use of data is undergoing fundamental change to align with new capabilities. Source: Shutterstock

The importance of data monetization

Today, insurance companies are spending more effort and budget than ever towards preparing and managing their data assets. 

Participants in the roundtable agreed that the value of data to the business had been increasing exponentially in recent years, alongside the perception of its value. 

However, as one panellist stated, measuring data’s business value to justify more investment in data analytics has been one of the toughest challenges. This is particularly true of ‘under the iceberg’ elements such as data management, quality and ownership. 

Tracking data monetization – the conversion of data investment into business value – is critical to showing that those investments are paying off.

To achieve this, CDOs have to ensure that data operations are aligned with business priorities, customer goals and behaviours and define tangible KPIs to demonstrate business value and return on investment.

“We expect an inversion of the pyramid, where automation, cloud and other trends will ease the effort we currently expend on data management, and our focus can move to generating insights and making real-time decisions,” stressed Dinanath Kholkar, Vice President & Global Head, Analytics & Insights, TCS. 

This is particularly important considering that the role of the insurer is changing: rather than customers simply transferring risks, they are looking to work in close partnership with their insurers to find solutions jointly and share risks.

Tracking data monetization is critical to showing investments are paying off. Source: Shutterstock

New risks, new opportunities

One of the areas for data-based decision-making with a huge impact on insurer performance is risk assessment. 

The panel discussion highlighted some of the wide variations across lines of business and markets when it comes to risk assessment. 

For example, data analytics in life insurance for emerging markets has little historical data to draw on, so insurers may need to look at alternate data sources to assimilate information and avoid delayed decision-making.  

The availability of external data from sensors, geospatial and other third-party sources can also be a challenge. Rather than ‘boiling the ocean’, panellists advocated a process of continuously exploring, analyzing and identifying the best sources of data. 

Then there is the issue of insuring against new or evolving risks, such as cyber threats. These are highly dynamic, so insurers need to constantly adjust to them as they evolve. 

One panellist pointed out that their data initiative had succeeded as a result of taking a systematic approach to identifying business use cases and constantly sharpening the business outcomes and KPIs over time. These include better profiling of clients according to their life situation, and smarter and more efficient processes to handle back office processes, amongst others.

Insurers must be aware of evolving threats such as cyber crime. Source: Shutterstock

The importance of data governance

While data analytics and management have advanced in leaps and bounds, governance remains a challenge for the industry. There was agreement that data governance investments are likely to grow exponentially in the next few years, with concepts like data privacy, data protection and data security at the centre.  

As one participant highlighted, the insurance sector needs to be proactive and invest significant time working out how to deal with these issues, rather than risk them striking the organization unprepared. 

This is particularly true given that data increasingly comes from outside sources. Public and other external data are increasingly being merged to glean deeper insights, raising new data governance challenges.  

In codifying data governance, insurance CDOs need to ensure that their approach is tangible and inclusive, offering opportunities for the entire company to benefit. It has to directly support the business’ objectives and strategy − and adapt to these as they evolve.  

Setting up the right governance structure is also a challenge for the global insurers the panellists represented. They regarded a combination of global and local to be the most promising approach, with centralized shared services and governance but freedom for local units to decide how best to deliver business results within this global framework.

Becoming data literate

Another important task for the CDO department is education. Despite the sector’s intrinsic relationship with data, there is still a need to nurture data literacy in the wider organization, going beyond underwriters, actuaries and IT staff. And this must include senior management. 

Building this wider appreciation of the value of data for the present and the future of insurance will be critical, as data continues to grow its fundamental role in the industry.  

“While data has always been the cornerstone for insurance, new dimensions of data are evolving. The current pandemic and increased digitalization are accelerating the availability of new sources of data from adjacent industry sectors, which will add further value to insurers. Insurers must put their data estate in order to unleash the power of data from within and outside of the organization,” stressed Prab Pitchandi, Global Head of CDO Strategic Initiatives.