Real-time data set to inform menuisation-based products, but can this deliver premium savings?

As insurers and brokers alike scrabble to source in-house data science teams and business decision-making is increasingly becoming data-driven, the use of real-time data within insurance products is escalating at a correspondingly rapid pace.

Telematics based on real-time data is becoming more sophisticated, but new trends – such as menuisation – are also starting to come to the fore.

For Glen Clarke, head of transformational propositions at Allianz, this is because of a shift in underwriting focus, from using past data and projections based on a minimum of customer touchpoints, to instead offering quotes based on up-to-the-minute data.

“That movement from what happened, to what’s happening, to what’s going to happen is a theme that underpins a lot of product development, as we go from risk assessment to risk mitigation, to risk management and prevention,” he said.

Menuisation

With the rise of real-time data and its usage also comes the idea of menuisation. Alexandra Foster, director of insurance, wealth management and financial services at BT, explained: “You have different levels or real-time menuisation of insurance and it becomes a different sort of insurance policy.

“When something’s in your home, it’s insured at X; when it’s outside of your home, it’s insured at two [times] X because of the mobility factor. That’s where real-time data with real-time decision-making comes into play.”

The aim of menuisation, therefore, is to ensure that premium pricing better reflects the day-to-day risks experienced by policyholders; this is supported by real-time data gained via customers themselves inputting information on an app or website, or through cloud-based technology, such as telematics tools.

Rob Hartley, co-founder at Dinghy, added: “There’s a large surge in on-demand insurance. We’re going to that culture where people do move around, do want to have flexibility with their lifestyle. I do think insurance has got to move that way.”

For Clarke, menuisation could be the solution to over and under insurance. “The greater we can really understand the policyholder and the risks that they’re undertaking, the better we can make sure that we’re matching product and price to match that risk as well,” he said. “It’s just being fuelled now by data in a way which it wasn’t before.”

However, Peter Blanc, group chief executive at Aston Lark, questioned the actual savings policyholders could gain through menuisation. For example, with a motor insurance policy, menuisation would dictate that when the vehicle is static on a driveway, this would be considered a lower risk and therefore have a cheaper premium. When out on the road, this would be a greater risk with a higher premium price attached.

“Cars are normally static, stood on their driveway 95% of the time. The road risk is only 5% of the time, but probably 95% of the premium,” he explained. “If you start trying to discount premium because the car if off the road, the maximum theoretically you can discount the premium by is 5%.

“It’s a bit of a gimmicky idea.”

Market usage

Although the implementation of menuisation is still in its infancy, with insurtechs scratching their heads over potential products, real-time data is already in use, primarily within the car, household and drone insurance arenas. “We’re seeing [real-time data] appear in almost every line of business, although to what meaningful extent is still fairly early days. We’re at the start of something rather than something that’s mature,” Clarke said.

Hartley, however, sees opportunities for real-time data to expand into business insurance. “What I expect to see in business around employers’ liability will be much more flexible based on the number of employees [firms] have; we might see that changing with open banking,” he added. This would involve, for example, seeing employees’ pay being transferred over open banking and knowing how many staff are on the payroll and what they have been paid for – the insured then wouldn’t have to make any declarations, if needed, and insurance adjustments could be made in real-time.

Challenges

Despite the potential advantages, there are still considerations around menuisation for insurers, brokers and insurtechs.

For example, Hartley noted that crossing different regulatory boundaries between commercial and personal line insurance could prove tricky. He also observed that real-time telematics data could cause monthly premiums to drastically change month-on-month, but “customers like the stability of knowing that they’re not going to pay more than a certain amount”.

Blanc, on the other hand, warned that the insurance sector should not rely too heavily on data. “We have to be really careful that data doesn’t end up excluding some customers from claiming insurance,” he added.

Allianz’s Clarke puts forward data ethics as a further challenge. He said: “With real-time data comes a lot of responsibility and so the real task in hand here is to make sure that there is a proper value exchange with the end customer when we’re using real-time data.

“The customer’s got to fully understand how their data is being used, for what means and what value they’re going to derive out of it, so that they can make informed decisions on whether to go down that path.”

Silver bullet?

However, for Blanc, the use of real-time data in insurance products is not a silver bullet for more accurately priced premiums.

He said: “One of the wonderful things about insurance is, no matter how good your data and no matter how up-to-the-minute, it doesn’t change the fact that the world is an uncertain place and things happen that no one predicts. That’s the whole point of insurance.

“Real-time data is an attempt by underwriters to try and cherry pick risks that they think will never have a claim, but of course, that’s just not the way the world works.

“Just because risks have never had a claim and all the data says they won’t ever have a claim, doesn’t stop something unusual happening that causes a claim.

“My biggest concern is that as brokers and as an insurance profession, we’ve got to make sure above all else [that] our products are fit for purpose and actually deliver what customers need.

“Unfortunately, there’s too much of a trend of people just trying to make products cheap rather than necessarily trying to make them good.”