How Big Data is disrupting pricing models within the (re)insurance industry
Big data may be the catalyst for the next turning point in the (re)insurance industry’s evolution. It lies at the heart of innovations like the Internet of Things (IoT) and telematics that are proving disruptive to the sector.
As society embraces this increase in knowledge, so must the services that support it, including (re)insurance.
For this industry, when it comes to data, some fear there is truth in the saying that you can have ‘too much of a good thing’, as the increased accuracy afforded by big data could have an undesirable impact on policyholders, and may challenge the fundamentals of the industry’s pricing structure.
The use of big data and its innovations is currently more heavily associated with general insurance. One such innovation harnessing Big Data in this arena is telematics, which is where small pieces of information about an event at transmitted to a capturing source; this allows for usage-based insurance (UBI).
When used for motor insurance, insurers can accurately predict losses based on driving behaviour data, collected from the actual driver, and are therefore able to discern which drivers are ‘good’ or ‘bad’ – and most importantly why.
Sciemus chief executive Rick Welsh says that, while these concepts are heavily associated with motor, they are also used in other areas of insurance, and can very well be tapped into by the reinsurance industry. Welsh says: “This concept is also happening in Space, Power, Renewable Energy and Cyber. And, although such approaches are more prevalent in insurance, it will only take a slightly different approach in portfolio management techniques for reinsurance to mirror the same metrics for rating – although aggregation will of course need to be addressed differently.”
Continue reading this story on this year’s Global Reinsurance Monte Carlo special edition, which you can find here.
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