Using Big Data to Personalize Insurance Rates Offers Opportunities, Challenges
June 20, 2016
Quadrant Information Services sees potential major benefits to the insurance industry from the use of individual monitoring technology—but to realize that potential, carriers will need to develop a higher level of mutual trust with their customers.
(Pleasanton, CA) June 20, 2016—The combination of miniaturized data collection devices and powerful big data analysis is beginning to have what could be a transformative effect on the insurance industry, says Quadrant Information Services, a leading technology supplier to property and casualty carriers. Health-related wearables—such as the Fitbit Flex or the Jawbone UP, for example—used by many Americans to track their physical activity or vital signs, are playing a new and rapidly growing role in setting rates for health insurance.
According to a recent study conducted by Boston-based research group Strategy Meets Action, while only three percent of health insurers are currently using wearable devices to help set individual rates, nearly 22% of health insurance carriers are in the process of developing a strategy to deploy such devices. Other studies have predicted that wearable technology will become mainstream in the insurance industry within the next two years. The basic idea is simple: by monitoring heartbeat, exercise, height/weight ratios and other indices, insurers will be able to offer lower rates to customers who maintain an active and healthy lifestyle.1
“In many ways, this is a terrific idea,” commented Quadrant CEO Michael Macauley. “It offers carriers a much more nuanced approach to rate-setting, and for many consumers it could offer lower insurance costs. It could also, by focusing attention on day-to-day fitness, have a beneficial effect on the nation’s overall health.”
Macauley notes that there are some issues regarding this technology that need to be carefully handled, among them data security and privacy. The benefits, however, are compelling, and both employers and carriers are beginning to find ways to implement the technology without alienating customers.
For example, the CEO of Appirio, a tech company headquartered in Indianapolis, reports that about 400 of his 1,000 employees participate in a voluntary program that includes uploading their activity with Fitbit. By sharing the data with his company’s health care provider, he was able to negotiate $300,000 off of his company’s $5 million in annual insurance costs. “We had an initial batch of data about people who had lost weight, and people who had moved from high to moderate risk. When we could show all that to our insurer, that’s pretty powerful.”2
Auto insurance, per Macauley, is another area in which monitoring technology is enabling a new approach to risk evaluation and rate-setting. Auto insurers such as Progressive and Metromile in the U.S. (as well as Tesco Bank in the UK and Generali Group in Italy) are monitoring their customers’ driving and offering lower rates to safer drivers. Noting that the safest drivers are, statistically, those who drive relatively little, Metromile installs monitors in its customers’ cars and offers annual premium savings of up to $500 per year to drivers who travel 200 miles or less per week.3
Sensor technology is also offering ways to lower costs for even the most expensive covered class of drivers, young men. BBC News recently reported on the case of a Progressive Insurance employee named Dave Pratt, who convinced his teenage son to install the firm’s Snapshot sensing device in his new Jeep. Snapshot is known in the business as a “telematics device”; it constantly monitors the speed at which a car is driven and the number of miles driven, and records incidents such as sudden stops. “Now that we can directly observe how people drive, we think this will change the way insurance works. Eighteen-year-old guys pay a lot for insurance, but some 18-year-olds are really safe drivers, and they deserve a better deal,” Pratt said.4
And not only drivers, but the roads they drive on, are being measured and analyzed. According to the latest statistics from the U.S. Department of Transportation, weather-related crashes make up 23% of all vehicle crashes in the country. Researchers from the Institute of Electrical and Electronics Engineers have found a way to detect when roads are dangerously wet by using an artificially intelligent neural network of computers, which could help drivers—and, eventually, self-driving cars—stay safe during bad weather.5
Quadrant Information Services, which for 25 years has been devoted to providing increasingly better data analytics to property and casualty insurers, is firmly convinced that personalized insurance based on big data analysis is the industry’s next step. This will require a very high level of trust between agent and customer—higher, perhaps, than has traditionally been the case. The rewards for building that trust, however, are compelling.
“Big data,” said Macauley, “will result in better coverage for customers and better control of cost and resources by carriers. And by raising awareness of the importance of healthy living, careful driving and safer roads, it will improve life for everyone.”
About Quadrant Information Services:
Quadrant Information Services, headquartered in Pleasanton, CA, provides pricing analytics solutions for property and casualty insurance companies. Quadrant gives actuary, product development, pricing, sales and marketing personnel at its client companies—which include all the major insurance carriers in the United States—the data they need to make accurate, data-driven decisions. An industry innovator since its founding in 1991, Quadrant has provided the P&C insurance field with a long series of technological advances—most recently InsureWatch, the industry’s first cloud-based pricing tool, which allows the user to produce unlimited combinations of reports with the click of a mouse. For more information, and to learn why Quadrant is recommended for insurance companies that are tired of losing the right customers and winning the wrong ones, please visit www.quadinfo.com.
1. Srinivasan, Anand, “How Big Data & Wearable Technology Is Transforming The Insurance Industry, SmartDataCollective, March 14, 2016 smartdatacollective.com/anandsmartdata/395348/how-big-data-wearable-technology-transforming-insurance-sector.
2. Satariano, Adam, “Wear This Device So the Boss Knows You’re Losing Weight,” Bloomberg Business News, August 21, 2014. bloomberg.com/news/articles/2014-08-21/wear-this-device-so-the-boss-knows-you-re-losing-weight.
3. “Pay-per-mile insurance is saving our customers an average of $500 annually,” Metromile Insurance. metromile.com/insurance/?utm_source=bing&utm_medium=cpc&utm_campaign=2016B_S_Brand_AllStates&utm_term=metromile&utm_content=metromile.
4. Gittleson, Kim, “How big data is changing the cost of insurance,” BBC News, November 15, 2013. bbc.com/news/business-24941415.
5. Russon, Mary-Ann, “This is how self-driving cars can detect dangerous roads,” IB Times UK, December 8, 2015. businessinsider.com/this-is-how-self-driving-cars-can-detect-dangerous-roads-2015-12.
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Karla Jo Helms