The following guest article was written by Dallán Ryan, Content & Advisory Lead, Data Strategy at Eagle Alpha, an alternative data aggregation platform that also provides supporting advisory services for data buyers and vendors.
Access to accurate and timely information is the lifeblood of the insurance industry. Alternative data sources can contribute to success on various fronts, including underwriting, risk mitigation, and claims management. Applications of alternative data can be more diverse on the property and causality (P&C) side; however, for life insurance, more traditional sources of external data are used to identify growth opportunities and where customers are.
At our 2022 INTERACT 2.0 Conference, McKinsey provided a detailed overview of the opportunities for external data in the insurance industry. They found that external data sources have helped the insurance industry in many ways to improve decision-making across the organization and as an additional source of information to mitigate risk. For P&C, alternative data has helped by providing a better sense of actual risk, thanks to satellite and geospatial data, filling some of the gaps in internal data, and improving the accuracy of the underwriting process. They also added that while applications of alternative data are more diverse on the P&C side, for life insurance, more traditional external data sources are used to identify growth opportunities and to target customers. New data sources and technologies are being experimented with—for example, retinal scans, BMI readings through cameras, and health information other than medical records.
Of course, there are also challenges associated with external data sources, including data analysis and regulatory compliance, but with the rapid growth comes increased opportunity for data providers and data aggregators. At Eagle Alpha, we provide advisory for various use cases and sectors. Our expertise in educating and advising the insurance industry comes from our ten years as market leaders in alternative data.
The impact alternative data has on modernizing insurance companies.
On a recent Eagle Alpha client webinar, Carlos Albo, CEO of Wenalyze, a firm that helps insurers and banks to validate, update & enrich the data of their commercial lines’ clients with open data analytics, said that “60% of the critical data commercial insurers have is inaccurate resulting in insurance companies making wrong decisions.” With additional risk insights, insurers can make new decisions. For example, insurers can sell cyber insurance if a company opens a new online shop or reassess risk levels if a company gets plenty of negative online reviews. The abundance of new data sources made some insurance companies realize the need to shake things up and change their business models.
Lemonade, for example, is an insurance company established in 2016 to “fix a broken system.” The company charges a flat fee for its services and returns unused premiums to charitable causes. Lemonade collects 100x more data points per customer (compared to 20-40 that traditional insurers collect) and uses chatbots that do away with forms altogether. Hippo is another example of an innovative insurance company. Its focus is on property insurance, and the company uses public data, satellite imagery, and smart home devices such as water-leak detectors to streamline applications and minimize claims.
Satellite imagery data, in particular, has become more widely used in the insurance industry. SCOR, one of the world’s largest reinsurers, recently announced the launch of a satellite-based pasture insurance tool in Brazil. The company is collaborating with IRB, ESSOR, and AgroBrasil in partnering with Airbus Defence & Space to bring this insurance tool to Brazilian livestock farmers. Similarly, Swiss Re announced a partnership with a satellite-based flood monitoring provider ICEYE. And Zurich North America is innovating by giving its customers access to the advanced analytics department.
Alternative data in action
We are seeing more interest from the corporate side than asset managers for insurance-related datasets. In addition, we have been focused on the P&C sector and avoiding insurance-related segments that are heavily exposed to personally identifiable information (PII). This blog touches on examples across eight key categories. For access to the full report available on our client-only content platform, please get in touch with firstname.lastname@example.org.
- Tracking Urbanization Using Satellite Data
Growing urbanization across the globe presents an opportunity for P&C, life, and health insurance companies to identify new and growing markets. Residential and business buildings can represent rising incomes and potential new insurance customers.
Satellite data provider SpaceKnow’s algorithms and image agnostic approach can further identify objects of interest for insurance companies that can give them an edge in their market. This can include detecting changes in roofs, roads, vegetation, warehouses, cars/trucks, parks, construction development, and more. Observing patterns in some of these objects allows information on occupancy patterns, population movement and development, construction trends, and more.
2. Tracking Weather- Related Claims
Using historical weather data is critical in flagging suspicious weather-related claims. For example, if there is a damage claim due to a lightning strike, insurance companies can use lightning data to pinpoint the exact location, strength, and type of lightning strike to see if it matches up. Secondly, weather data can help insurers accurately predict claims reserve allocations before a significant weather event occurs.
On the insurance data webinar, Athenium Analytics, a weather data provider, noted that companies mainly use their data to measure and mitigate enterprise risk. Insurance companies might decide not to insure a particular property if it is not in a safe weather zone. On the other hand, they might adjust the premium to cover the excess risk.
3. Mitigating Cyber Crime Risk
In another recent insurance-focused client webinar, HackNotice, a cybersecurity data provider, discussed the increased risk of cybercrime, highlighting a 6 trillion USD worldwide loss caused by it. They stated that spend on cybersecurity is projected to reach 250 billion USD in 2023 due to a 26% YoY growth in data breaches and account takeovers.
Hackers target people instead of computer systems as 99% of global breaches rely on human interaction. Breaches of smaller companies might result in hackers getting information that is then used to target corporate employees.
4. Corporate Liability Monitoring
According to LinkUp, a job market data provider, product liability insurance is one of the most important coverages a manufacturing company can purchase, with the highest average claim pay-out of any coverage available. As people and businesses interact with and consume their products, there is a substantial possibility that the product will harm someone.
LinkUp analyzed job data from five major vehicle manufacturer companies in the US during the last five years. Tesla has the highest percentage of compliance & safety jobs (38%), while Toyota has the lowest (24%). We can assume that Toyota has greater quality control and reliability than Tesla, consistent with J.D. Power’s 2021 U.S. Vehicle Dependability Study.
5. Using Smart Devices to Tell the Whole Story
Smart dashcams provide unique benefits to vehicle owners, from ride-share to trucking, improving the claims process, reducing losses, and better controlling the resolution of an insurance event. For example, Nexar’s smart dash cams are AI-based and detect 90% of collisions, detecting many incidents that go unnoticed by standard dash cams. These cameras can detect an incident as small as a fender bender. They can provide reconstruction that includes a second-by-second timeline reconstruction with driver behavior (e.g., speed and braking data) and reduces the chances of error or wasted dispute time for insurance companies and claimants.
The rapid increase in adopting alternative data-driven activities to improve internal processes and mitigate risk has spread past asset managers in recent years and into a range of sectors known to be more traditionally focused on tried and tested practices. At Eagle Alpha, we are experiencing significant growth in requests for advisory and trialing data for specific use cases. If you are interested in a demo, please get in touch with email@example.com for more information.