The insurers that will best incorporate data analytics into their daily operations have multinational scale and are already technology savvy in their underwriting practices, Fitch ratings concluded in a new report.

In other words, the carriers set to benefit most from the often-talked about big data revolution have the raw material and abilities to make it work in the first place.

“Insurers that are currently more proficient underwriters and are adept at using technology in operations are likely to continue to reap success by developing big data analytics,” Fitch said in its report on disruptive technology in insurance.

Fitch notes that large insurers (multinational and otherwise) have the scale and resources to invest in technology and maximize the benefits big data can bring to operations and underwriting. But specialty and niche underwriters that have strong underwriting records and the embrace of technology in their DNA also have a good shot at big data success.

Insurers risk being left out of the big data revolution, however, if they don’t stay current with their technological investments.

“Failure to keep pace with investing in underwriting technology and analytics exposes insurers to significant risk of being marginalized,” Fitch said in its report.

Fitch envisions that marginalization happening as more tech-savvy insurers take away the best risks from rivals that haven’t stayed technologically current.

“Risk of adverse selection in the underwriting portfolio is a primary threat as more adept competitors pick off less sophisticated carriers’ best risks, leaving behind lower market share and poorer underwriting results,” Fitch said.

Small Insurers Could Struggle; Insurance Cycle Might Limit Big Data Gains

Mutual insurers “that have previously not kept pace with technology” are vulnerable to losing out on the big data transformation,” Fitch said. Small insurers will also face problems, particularly those “that lack the resources and expertise to invest.”

Fitch said that the nature of the insurance business could prevent broader and lasting big-data improvements, despite the real gains that tech-savvy underwriters will see.

“While the more proficient underwriters should improve profitability and return on capital by leveraging big data and advanced analytics, overall industry performance improvements will be more difficult to observe and could prove short-lived due to the cyclical and highly competitive nature of the insurance business,” Fitch said.

Fitch said that the insurers that succeed most with big data will likely have the following factors at play:

  • Support from the chief executive and board levels of the organization and a “clear commitment” to providing the necessary time and resources.
  • A clear big-data strategy, core to the business itself, that defines focus areas and “measurable business objectives.”
  • A realistic viewpoint about whether a carrier has enough technological prowess to adapt to big data on its own or with a partner. (Mergers and acquisitions are among the options here).
  • An ability to recruit top talent that can drive technological innovations and is pulled from various sectors. To do this, carriers may have to modify their organization and operating model.
  • An embrace of the idea that trial and error are synonymous with innovation and that “controlled errors” are OK in the process of ramping up big-data operations.
  • A clear way to address potential privacy concerns, which will help make sure that data and information is handled ethically and fairly and protected against cyber risks.

Source: Fitch Ratings

Topics Carriers InsurTech Tech Data Driven Underwriting