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Improving life insurance… it’s all about the data

01 August 2016 Grant Field, FedGroup

The life insurance industry has seen many technological advances in the recent past.

A lot of these are being seen as quantum leaps for the industry and will definitely redefine the way business is done in the future.

Development points

Firstly, large life insurers invested heavily in developing bespoke systems or implementing legacy IT platforms that are able to manage administrative and operational requirements.

These systems were expensive, but deliver economies of scale that create cost and operational efficiencies.

The rise of cloud computing has also enabled greater access to these systems, particularly back-end access for the intermediary market to expedite the risk-rating process and speed up the sales process considerably.

Outside movement

While there is still innovation happening on a systems level, the next technological evolution that will reshape the industry is happening outside of the life insurer's network and actually requires minimal capital expenditure.

The rise of Big Data is being driven by cloud computing where data can be integrated and easily accessed. This is being done in large part by developments in consumer tech, most notably advancements in wearable devices and smartphone technology.

These devices are yielding massive amounts of information about the habits of people in their everyday lives which insurers can then use to improve underwriting and better manage risk.

This ensures better outcomes for the insurer, while also enabling better ratings for consumers who lead healthier lifestyles.

Pass off costs

While these capabilities require investment into data analytics tools, the major costs of developing these devices are carried by the manufacturers.

Take the Apple Watch as an example. Apple invested huge upfront capital and considerable expertise into the research and development of this device, which is something that life insurers simply cannot afford to do. However, monitoring heart rate and activity tracking have now been made relatively cheap, for both consumers and insurers.

The same applies to vehicle satellite tracking technology, which now delivers data on driving behaviour to help create more personalised short-term insurance premiums.

Tectonic shifts

Beyond the device, we are also experiencing tectonic shifts in the data available to insurers through the rapidly advancing sphere of biotechnology. Spearheaded by advances in modern medicine and other disruptive technologies that are still in their infancy, such as DNA analysis, these technological capabilities are reshaping the way life insurance is underwritten.

From a medical perspective, take the treatment of HIV as an example. Not even a decade ago, those with HIV had heavy loading applied on their premiums, but today it is a disease that can be controlled to the point where it hardly impacts mortality risk. If you take away the stigma, it is conceivably easier to live with HIV than it is to live with diabetes.

Ascertaining risk

In terms of the insights that DNA analysis offers, biotech companies are now able to ascertain the potential risk that an individual has of suffering from various dread diseases.

However, this is dependent on a myriad other factors, but this technology could conceivably be used to rate mortality risk once stronger associations between genes and these diseases can be made. While issues such as data ownership and how best to make use of this depth of information still pose barriers to implementation, those who get it right from the start will have a huge competitive advantage.

Despite these advances, the business of life insurance has not changed much. It is still a matter of taking what we know and then using predictive, statistical modelling to determine what will happen in the future; but now we have extended means to make these predictions.

It is not so much the data that matters most in the information age, but rather what you are able to do with it that determines your success.

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