How big data is changing the cost of insurance

Femi Akintoye our consultant managing the role
Posting date: 5/3/2016 8:08 AM
Dave Pratt winced when his teenage son bought himself a Jeep, thinking of how high the insurance would be on a young driver with a flashy car.

But unlike most parents, Mr Pratt is at the forefront of the insurance industry's efforts to change the way car insurance is priced. So Mr Pratt, who works for insurer Progressive, installed the company's Snapshot device in his son's car.

It's what's known in the business as a "telematic" device, which monitors the speed his son drives every second and what time of day he drives. The device also beeps three times when his son brakes too suddenly.

When his son accused him of trying to train him to be a better driver, Mr Pratt agreed that was what he was trying to do.

This, he says, is the future of car insurance: being able to monitor individual drivers to give them lower prices but also to make them better drivers.

"Now that we can observe directly how people drive, we think this will change the way insurance works," says Mr Pratt, who adds that Progressive has more than a trillion seconds of driving data from 1.6 million customers.

"18 year old guys pay a lot for insurance, but some 18 year olds are really safe drivers and they deserve a better deal."

Sloppy business

Car insurance firms like Progressive in the US, to Tesco Bank in the UK and Generali Group in Italy, are currently in a race to convince consumers that letting them monitor their driving behavior is actually a good thing.

This is because the technology, while not new, has only become affordable recently.

Also, consumers are just getting used to the idea of being tracking and having their data collected.

"The way we've done insurance now compared to what we can do is sloppy," says Mike Fitzgerald, senior analyst at Celent, a research firm.

"We're taking tens of thousands of people and saying they all have the same risk profile when in fact they don't.

"Most people are actually overpaying."

This is because traditional insurance looks at averages, as opposed to specifics. You fill out a form saying you're a certain age, and drive a certain type of car, and are a specific gender - and that's basically all the data car companies have to assess your riskiness as driver.

Better big data technologies, like the telematic driving data collected by car companies or even information gathered from social media profiles, can help augment that risk profile.

"If I'm a driver that doesn't drive that frequently, and I have a pattern that would indicate that I drive more carefully than an average person with my profile, then I may be able to save 30-40% on my car insurance, and that's pretty significant," explains Joe Reifel, a partner at A.T. Kearney, a consulting firm.

Social life insurance

It's not just car insurers who want better data on consumers.

Jamie Yoder, head of Pricewaterhouse Cooper's insurance advisory practice, recently wrote a report looking at how sensors - like those used to help monitor workouts - could be used by life insurers looking to evaluate customer health.

And of course, there are the tweets.

"Every insurer we have spoken to has a team that looks at social media. The tools are rudimentary, but the data is being used," says Craig Beattie, also of Celent and an author of a report looking at social media use among insurers.

The challenge is being able to automate those teams, instead of using up precious manpower. "They're sat on a great deal of opportunity with data but they can't get to it," says Mr Beattie.

Denied benefits for smiling

Of course, there is also the danger of misinterpreting that data.

Nathalie Blanchard offers one cautionary tale.

In 2009, while on leave from her technology job in Bromot, Quebec due to severe depression, she went to the bank one day only to find out her health insurance benefits had been cut off.

The cause? A few Facebook photos in which she was smiling.

The insurance company "determined unilaterally that based upon what they saw on the site, they didn't think that she was disabled and they cut her off," says her lawyer, Thomas Lavin. The case later settled out of court.

Anita Ramasastry, a law professor at the University of Washington, cautions regulations will need to be instituted to make sure that insurers don't overstep into big brother territory.

She asks: "are disclosures being made in a way that consumers understand how their social media information is being used for insurance scoring purposes and is there a way for the consumer to do anything about that?"

Fundamental shift

For now, using big data analytics for insurers is still in the early stages.

Only 2% of the US car insurance market offers an insurance product based on monitoring driving, according to A.T. Kearney's Mr Reifel.

But that proportion is projected to grow to around 10-15% of the market by 2017. And other countries, like Italy and the UK, are already using the data to analyze not just risk profiles but also to determine who is at fault in car accidents.

The future, most analysts agree, is to create a continuous feedback loop between insurers and consumers, so that consumers will react to the big data analyzes that insurers do on them and change their behavior accordingly.

"That's the end game - insurers could not just cover losses if they occur, but actually prevent them," says Mr Beattie.

Related blog & news

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From Idea to Impact: How Charities Use Data

From Idea to Impact: How Charities Use Data

It’s that time of year again. As the festive season draws near and we pull together wish lists, many of us also begin to think about how we can give back. Given that the UK spent over £7 billion this Black Friday and Cyber Monday weekend, it’s not surprising that the idea of Giving Tuesday is becoming more and more popular.  But with 160,000 registered charities in the UK alone, institutions are turning to data to find new ways to stand out and make a greater impact.  Far from just running quarterly reports, charities are now utilising the insights they gain from data to inform their strategies, improve their services and plan for the future.  IDEAS Given that not every charity is lucky enough to go viral with an Ice Bucket Challenge style video, there is a need to find other ways to stand out in such a crowded market. As such, many are looking to the data they have collected to help create a strategy. Macmillan Cancer Support, one the UK’s biggest charities, wanted to see more success from one of their main fundraisers, ‘The World’s Biggest Coffee Morning’. The event, which sees volunteers hold coffee and cake-fuelled gatherings across the country was revolutionised by data. By engaging with their database and researching what motivated fundraisers, they refocused their marketing around how the occasion could create an opportunity for people to meet up and chat, such as swapping ‘send for your free fundraising pack’ for ‘order your free coffee morning kit’. Whilst these amends may seem superficial, they had a major impact increasing funds raised from £15m to £20m.  Some brands have taken this idea even further, using Data & Analytics tools to engage with potential donors. Homelessness charity Cyrenians’ data told them that there were a number of misconceptions about rough sleepers, including 15% of people believing that they were homeless by choice. To counter this they created an AI chatbot, named Alex, that allowed users to ask questions they may not have been comfortable asking a real person.  Another charity using data tools to counter common misconceptions is Dyslexia Association. Their Moment of Dyslexia campaign saw them utilise facial recognition technology; the longer a person looked at their digital poster, the more jumbled up the words and letters became. By harnessing both insights and the technology made possible by data, they were able to offer an insight into what dyslexia is like for people who previously didn’t understand.  INDIVIDUALS A big issue facing a number of charities is trust. Following a series of recent scandals, the public are more sceptical than ever of how charities are run, and their use of data is no exception. This ‘trust deficit’ has resulted in vast amount of potential donors staying away, with recent research highlighting that only 11% of people are willing to share their data with a charity, even if it means a better service.  Whilst charities with effective Data Governance are able to use their vast amount of data to enhance those business, those who mismanage it are likely to suffer. Following a cyber-attack that exposed the data of over 400,000 donors, the British and Foreign Bible Society were fined £100,000. As hackers were able to enter the network by exploiting a weak password, this serves as a timely reminder that our data needs not only to be clean, but secure.  Financial implications aside, improper data usage can also do irreversible damage to a charity’s reputation. St Mungo’s has faced criticism for passing information about migrant homeless people to the Home Office, putting them at risk of deportation. Whilst they were cleared of any wrongdoing by the ICO, this controversial use of data has had a negative impact on the charity’s image. With a decline in the number of people donating to charity overall, anything that can put people off further is bad news.  IMPACT Whilst there is more demand than ever for charities to share their impact data, there is also more opportunity. With Lord Gus O’Donnell urging charities to make data an ‘organisation-wide priority’, many are going beyond publishing annual reports and fully embracing a culture shift. Youth charity Keyfund have been able to justify how the spend their funds based on their impact data. Having heard concerns from fundraisers regarding whether their leisure projects were effective they looked at the data they had gathered from the 6,000 young people they were helping. What they found was that not only were their leisure projects effective, they had an even more positive impact than their alternatives, particularly for those from the most deprived area. This allowed them to continue to support these programs and even increase funding where necessary. Going one step further are Street League, a charity that use sports programmes to tackle youth unemployment. Rather than share their impact data in quarterly, or even annual, reports they moved to real-time reporting. Interested parties can visit an ‘Online Impact Dashboard’ and see up-to-the-minute data about how the charity’s work is impacting the lives of the people it is trying to help. This not only allows for the most relevant data to be used strategically, but also supports the business holistically, gaining donor both attention and trust. To stand out in the charity sector institutions need to take advantage of data. Not only can this be used to generate campaigns and streamline services but, when used securely and transparently, it can help rebuild trust and offer a competitive edge.  If you want to make the world a better place by harnessing and analysing data, we may have a role for you. Take a look at our latest opportunities or get in touch with one of our expert consultants to see how we can help you. 

Using Data & Analytics To Plan Your Perfect Ski Trip

Using Data & Analytics To Plan Your Perfect Ski Trip

The Ski season may be drawing to a close, but it’s never too early to start planning for next year. Born and raised in the mountains of Austria, I have been skiing all of my life. For me, it’s about freedom, enjoying the views and forgetting about everything else.  But, since I’ve stepped into the world of Data & Analytics, I started to asked myself “what can I learn from my work that I can apply to my skiing”? After having a look around, I began to discover ways in which Data could support my passion. I’ve pulled together some of the most interesting things I’ve discovered and created this handy guide to help you prepare for your next trip. Here’s how you can use data to create the perfect ski trip.  Follow the snow Anyone who has skied before knows about the uncertainty before a trip. Will there be enough snow? Will the weather be good? Which resort is the most suited to my ability? Fortunately, somebody has already pulled this information together for you. Two "web spiders" were built via Scrapy, a Python framework used for data extraction, the first of which extracted ski resort data. The second spider, on the other hand, extracted daily snowfall data for each resort (2009 - present). After collecting Data from more than 600 ski resorts and spitting it into 7 main regions, the spiders were able to form a conclusion. The framework then pulled out key metrics, including the difficulty of runs, meaning that skiers are now able to decide which resort is most suitable for their ability.  As for the weather, onthesnow.com has recorded snowfall data from all major resorts, every year since 2009. We all know that good snow makes any trip better, so the collected data here will help skiers ensure they are prepared for the right weather, or even plan their trip around where the snow will be best.  Optimise your skis Ski manufacturing is a refined and complicated process, with each ski requiring many different materials to be built. Unfortunately, this often results in the best skis running out quickly as supply outspeeds demand.  To help speed up and improve the process, companies are implementing technologies like IBM Cognos* that monitor entire supply chains so that no matter how much demand increases, they have the materials to meet it.   Additionally, since the majority of companies have become more data-driven, production time has been reduced by weeks. Predictions for future demand has also become 50% more accurate, resulting in a drop of 30% idle time on production lines. Skip the Queue Tired of queuing for the ski lift? There’s good news. As they begin to make the most of data, ski resorts are introducing RFID* (Radio Frequency Identification) systems. These involve visitors purchasing cards with RFID chips included, allowing them to skip queues at the lifts as there is no need to check for fake passes. The data can then be utilised for gamification platforms to turn a skier’s time on the slopes into an interactive experience.  The shift towards Big Data not only has advantages for the visitors, but the management are also benefiting. In the past, it has been difficult to analyse skier’s data. Now, with automated and proper data management, the numbers can be crunched seamlessly and marketing campaigns can be directed at how people actually choose to ski.   Carve a Better Technique Skiing isn’t always easy, especially if you haven’t grown up with it. Usually, ski instructors are the solution but, in the age of Data & Analytics, there are other solutions. Jamie Grant and co-founder Pruthvikar Reddy have created an app called Carv 2.0, which allows you to be your own teacher. It works by using a robust insert that fits between the shell of your ski boots and the liner. It then gathers data from 48 pressure sensitive pads, and nine motion sensors.  This data is fed to a connected match-box size tracker unit, sitting on the back of your boots, before being relayed via Bluetooth to the Carv App on your phone. Carv can then measure your speed, acceleration and ski orientation a staggering 300 times a second.  Thanks to a complex set of algorithms this data is then converted into an easy to follow graphic display on your phone’s screen as well as verbal feedback from Carvella. The accuracy of this real-time data could make it a better instructor than any individual person.  Data & Analytics are helping streamline every part of our lives. Whilst the above can’t guarantee a perfect ski trip, they can help us minimise risks and optimize our performance and experience.  If you’re able to use data to improve day-to-day living, we may have a role for you. Take a look at our latest opportunities or get in touch with our expert consultants.  

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