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It is time for insurers to realise the value in data

05 November 2012 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

Data and the smart application of data were among the topics intensely debated at the FAnews Data is Priceless seminar held in Johannesburg, 22 October 2012. Event sponsors TransUnion, Lightstone and STRIDE took to the podium to share the latest developme

Technology was the major focus in the day’s second presentation. In Making Big Data Work for You, Royden Volans, commercial director at Lightstone, demonstrated how insurers – and especially underwriters – could apply data to their risk management scenarios. He said that the term “big data” had been circulating for years and had to be defined in terms of volume, variety and velocity. Massive advances in technology have enabled firms to store more data on their clients, products and transactions than ever before. It is difficult to comprehend the numbers in “big data”. US-based retail giant Wal-Mart is said to generate approximately 5 petabytes (100 terabytes) of consumer transactional data each day. It is no wonder the world’s data storage capacity has grown 1000 times over the past two decades and is forecast to grow at 40% per annum going forward.

From technology to application

“Data is being driven by the growth in technology,” says Volans. One of the greatest illustrations of this change is to compare today’s Apple iPhone 5 with the processing power of the Apollo guidance computer. Man went to the moon with a computer with 2kb of member (versus 256MB in the iPhone) and 1 MHz processor (versus 1 GHz). There is more data available to us than ever before. In South Africa alone there are some 325 million bits of data linked to residential properties that can be used to assess risk… The land surveyor’s office, for example, can provide facts about soil and substrate, precipitation and proximity to water sources to name a few.

Lightstone has approximately 2.8 billion pieces of data relating to motor vehicles too… Given 500000-plus new vehicles each year – and some 334 unique characteristics per vehicle – this data set just keeps on growing. “Third party organisations are aggregating this information and starting to make it more useable,” he says. But insurers and other financial services companies are not ready to harvest big data. “There is not enough data sharing, data is of a poor quality and it is difficult for organisations to create a useable representation of the data,” adds Volans. Insurers are in a race against time to overcome the obstacles in “big data” usage because by failing to tap into this “natural resource” they risk being at a competitive disadvantage.

The good news for local insurers is that progress has been made in the transactional data universe. In his presentation on data standards and international best practise in insurance, Deon Olckers, general manager of STRIDE, updated attendees on the latest in data sharing and processing. He kicked off with a definition: “A data standard is an agreed upon set of rules that allow information to be shared and processed in a uniform and consistent manner”. STRIDE is the data switch in the short-term insurance industry.

Designing and implementing insurance data standards in South Africa

The insurance data standard was jointly developed in South Africa and Australia and checked and verified by the US. By the time you read this newsletter the first standard for the short-term insurance industry – in terms of the ACORD model – will have been signed off. Olckers says that the industry has come a long way since deciding to develop a data standard. During the discovery phase stakeholders agreed on non-disclosure agreements and the data they wanted to standardise. A decision was taken to begin with personal lines and commercial general insurance.

The second step was the negotiation phase. “You have to fight this out,” says Olckers. “By the time the dust settled the personal lines standard was close to 1000 lines – not everyone will use each line item, but they will begin conforming to the standard for new products”. Step three is known as mapping… “This is the critical stage during which insurers map and transform their systems and procedures to be standardised within the agreed standards,” he says. This is undoubtedly the most difficult and important part of the process… STRIDE’s word of advice for insurers: Tackle mapping section by section and get it right!

“The data standard is the foundation for our industry,” concludes Olckers. Smart capture, storage and transmission of data will add value to customers, reduce the sales cycle, increase customer retention, streamline core business processes and ensure regulatory compliance. STRIDE will also help insurers to drive up the bottom line!

Three critical data management areas

Debbie Donaldson, General Manager: Strategy & Planning at the South African Insurance Association (SAIA) says there are three data sets that are of particular interest to insurers. These include vehicle data, flood and drought data, and fire data. Accurate motor vehicle data will increase accessibility and business efficiencies. For example: compulsory third party insurance cannot work unless the data is spot on!

Flood and drought data is important due to rising climate risks. “As an insurance industry we pay numerous claims relating to climate risk,” she says. “Climate risk is a reality; the challenge is to start looking at this risk differently”. Going forward data around flood, drought and fire – and the sensible application of this information at underwriting stage – will be crucial for the industry. “Our engagement with data must change – because if we want to sustain our industry we need to look at data around insurable risks differently – that is the reality,” concludes Donaldson.

Editor’s thoughts: Today’s insurers cannot expect to quantify their environmental, social and governance risks without accurate data… As technology advances apace one of the biggest risks is that incorrect legacy data (poorly captured historic data) poisons the system. Do you believe the country’s major short-term insurers are doing enough to ensure data integrity by cleaning up their existing data and capturing new data accurately? Please add your comment or send it to gareth@fanews.co.za

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