Big Data Analytics in the Insurance Sector: Is It Worth the Effort?

The Modern State of the Insurance Industry

The global insurance market was worth almost six trillion U.S. dollars in 2022, but in the upcoming years, it is expected to grow significantly, Statista reports. They also discovered that climate change and cybercrime are the two top risks of modernity that challenge the insurance business (i.e., extreme weather conditions aggravate health issues and increase the number of property-related incidents, such as wildfires and floodings). At the same time, as Deloitte writes, these risks intensify “focus on the insurance industry’s capacity and readiness to react as society’s 'financial safety nets'.”

Still, insurance comes with a price, and insurers are failing to raise it fast enough to compensate their expenses, especially in the face of such a brutal and unpredictable calamity as climate change. The same report by Deloitte states that 2022 was the 8th year in a row with at least 10 US natural disasters, which caused over $1 billion in losses. That made property-catastrophe reinsurance costs skyrocket by a staggering 30.1% in 2023, while in 2022, it was only by 14.8%.

These reports boil down to two obvious things:

1. Many insurance companies have the opportunity to do more than just risk assessment and turn that activity expansion into an industry game-changer. Risk prevention and loss mitigation are just a few things they can excel in to adapt the field to the terms and conditions of the world. A huge part of that shift lies in the customer-centric approach, which is something every finance-related industry lacks. Apart from elevating customer satisfaction rates and deepening consumer trust, it is also financially beneficial. A report by McKinsey & Company found that “the likelihood of generating above-average profits and marketing earnings is around twice as high for those that apply customer analytics broadly and intensively […] The effect on sales is even greater: 50% of the customer-analytics champions are likely to have sales well above their competitors’, versus only 22% of the laggards.”
2. Insurers have to reinvent their positioning in the market. Risks do seem to become gradually more unsupportable, but still, there are ways to overcome the challenge. The real trouble — and its cause — is that many participants of the insurance industry don't have a clear pricing strategy. As yet another Deloitte study suggests, firms that provide insurance services “do not have a clear view on how to position themselves in the market, how to differentiate themselves from their competitors, and what portfolios, products and segments to focus on. As a consequence, pricing does not necessarily contribute to an insurer’s strategic objectives”.

There are no immediate suggestions on how to defeat global risks and avoid drastic financial consequences. But we do have a few industry insights that can give insurers some perspective on the ways to transform their relationship with customers, as well as to increase their profitability and relevancy. The key to that turnaround is rooted in big data technology.

Without further ado, let's explore in detail how it can add some bright colors to a grim-looking circumstance.

Why Use Big Data in Insurance?

Insurance heavily relies on statistics that derive from relevant customer information. Yet, they tend to limit data sources to financial transactions and medical records. On the other hand, big data analytics in insurance introduces new settings where you can extract patterns of customer behavior, market trends, and hidden correlations. Internet clickstream data, social media contents, customer satisfaction survey responses, web server logs, sensors spreading with the rise of the Internet of Things — our modern informational treasury offers these findings and more for the benefit of the industry.

If you're still not convinced that those insights come in handy, here are a few reasons to give big data in the insurance sector a shot:

• Data analysis is a way to put to work both structured and unstructured data and extract valuable insights in bigger quantities (e.g., structured data is things like Spreadsheets, JSON, and XML files, while its unstructured counterpart is text documents, web pages, audio and video files). Such a panoptic coverage of historical data as well as data collected in real-time across a myriad of sources draw a bigger picture of the target segment and market state.
• Access to higher quality, in-depth information gives insurance industry players more space to study and optimize their insurance value chain. It also provides them with grander opportunities to apply data-driven decision-making.
• Predictive analytics and predictive modeling both utilize big data to identify fraud and assist with claims processing, highlighting high-risk clients. These data analysis types help recognize future customer behavior patterns to retain customers, and insurance companies aiming to increase customer satisfaction rates are 80% more likely to do so. Last but not least, these predictive guys decrease the undesirable prospect of significant financial and reputational losses and assist with tasks that are growing more complex and time-consuming.
• Big data doesn't benefit just one side — clients can take action, too. They have the opportunity to apply such data to extend their knowledge of the market and trace the most suitable insurance options at the best price.

*If you'd like to learn more about how big data might change your business, we're offering big data consulting services. Write to us, and we'll schedule a meeting to discuss your case ASAP.

Application of Big Data Analytics in Insurance: Use Cases

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Wait, What about the Challenges?

As you can see on the infographics below, there are three main challenges that the insurance industry has to deal with.

Big Data — Big Trouble?

Welcoming in new technologies and practices is never easy. When it comes to big data, that's even a more dramatic shift for any insurance company. As usual, there are two possible outcomes: you either excel and elevate your business, or you fall down the rabbit hole and crumble under the challenges. Nevertheless, with a clear understanding of your market positioning, target segment, and infrastructure readiness, you'll definitely nail it.

If you need iron tools to build a better future for your insurance company, contact us. Qulix has a vast experience with insurance and legacy systems.