The CII View: Are we all Big Data professionals?

The ability to innovate in pursuit of better customer outcomes is core to being a professional in any field. In insurance there are daily iterative innovations as firms and individuals predict and respond to market demands.

Occasionally, a major innovation comes along that disrupts or significantly affects the status quo. Big Data is potentially one such disrupter. In many fields, such as media, it has already transformed the way consumers access products and companies target and tailor their offerings. In insurance it is arguably still largely peripheral to the core model, but we have some tough questions still to answer if we are to adopt new technologies while ensuring the right outcomes for the customer.

There is an argument that Big Data is just an extension of what insurance has always done: analysing all available data about a risk to determine acceptance, cover and price. After all, according to Microsoft’s James Murray, “All Big Data really means is taking lots of different signals from myriad sources and putting them together and processing them in a way that is meaningful”.

In most conventional insurance models, the customer provides material facts about their risk to the insurer, and the insurer combines these with any data they may already have, or are able to access from reliable public sources, such as credit ratings or flood mapping data.  

I’m often reminded of an apocryphal tale of a Lloyd’s underwriter who used what I might argue was Big Data almost 100 years ago.

He made a lucrative career in cargo risk specialising in certain regions of Central America, but his peers couldn’t understand how he selected his risks with such prescience. He declined most risks, but those he led on almost never suffered a loss.

He went to his grave hiding his Big Data secret: he used upriver weather reports for the month prior to the journey to get ahead of pirates. Heavy rain fall increased the river depth, larger vessels took to these rivers and local pirates attacked them.

Is this Big Data? Not in the modern sense perhaps, but fundamentally he was sourcing and correlating disparate data sources to underwrite.

In 2015 we no longer have to send off for handwritten weather reports. Terabytes of data can be immediately and, often, freely found on anything from a customer’s browsing history, buying preferences or social media use. The question now is which of these data sets can be used ethically to deliver better customer outcomes. Some feel this degree of personalised risk profiling challenges the fundamental principles of risk pooling.

Insurance buyers expect good value, but that value must be delivered by those with the professional expertise, ethical culture and customer centricity to justify faith in our industry. Chartered firms have demonstrated their investment and commitment to these professional standards, and firms that drive innovation for better customer outcomes will be those that adapt best to the challenges of Big Data and any future market disrupters.