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Technology and Insurance
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Big Data and Insurance
August 2015, CIPR Newsletter
Last Updated 10/02/17
Issue: Big data is disrupting the insurance sector and will dramatically affect the way it looks in the next decade. Insurers' use of big data has changed the way they market, price and process claims, as well as their approach to risk management. These changes can be beneficial or detrimental to both consumers and insurers. Properly used, big data can enhance customer engagement and provide insurers with a competitive advantage. However, it also has the potential to create consumer protection concerns. Additionally, the complexity inherent in synthesizing huge amounts of digital data brings the need for enhanced insurance regulatory systems.
Background: The digital revolution has allowed for the collection and storage of large and diverse amounts of information. This data is referred to as big data because it is too complex for traditional data processing techniques. For insurance purposes, big data refers to unstructured and/or structured data being used to influence underwriting, rating, pricing, forms, marketing and claims handling. Structured data refers to data in tables and defined fields. Unstructured data, comprising most data, refers to things such as social media postings, typed reports and recorded interviews. Predictive analytics allows insurers to use big data to forecast future events. The process uses a number of techniques—including data mining, statistical modeling and machine learning—in its forecasts.
Insurers use big data in a number of ways. Insurers can use it to:
Big data has tremendous potential to positively affect insurers and consumers. However, all disruptive technologies bring challenges. Big data concerns include:
Status: As stated earlier, the age of big data brings both positive and negative impacts to society. The job of state insurance regulators is to ensure regulations and regulatory activities sufficiently protect consumers from harm. To assist with this, the NAIC created the Big Data (EX) Working Group of the Innovation and Technology (EX) Task Force. The Working Group held a public hearing during the 2016 NAIC Spring National Meeting. The hearing was the first step in obtaining a broad understanding of how big data is being used in the insurance industry, the impacts on consumers and how state insurance regulators can make use of it.
In 2017, the Working Group is reviewing current regulatory frameworks used to oversee insurers' use of consumer and non-insurance data for possible revision. The initial focus is on insurers' use of data for rating and claims in personal lines property/casualty (P/C) insurance. It also will assess data needs and required tools for state insurance regulators to appropriately monitor the marketplace and evaluate underwriting, rating, claims and marketing practices. Additionally, the Working Group is developing a proposal to address the need for the state sharing of resources to review complex models used in rate filings. The aim is to eliminate duplication of effort.
Sources: Big Data (D) Working Group Dec. 10, 2016, minutes accessed at www.naic.org/meetings1704/cmte_ex_bdwg_2017_spring_nm_materials.pdf and May 19, 2016, minutes accessed at www.naic.org/meetings1608/committees_d_big_data_wg_2016_summer_nm_materials.pdf.