Personalization of insurance and responsible use of data in the digital era
Recent technological advances in the data-driven environment have opened up exciting new possibilities for collection, analysis and use of data. Artificial intelligence (AI) or data analytics are some of the enablers for increasingly personalized customer risk profiles. These pose both opportunities and challenges for insurers and their customers.
Data-driven personalization applied to insurance brings considerable advantages to customers, such as greater affordability, better access and improved personal well-being. This is the main conclusion of a recent report published by the Geneva Association, which examines how insurers can responsibly capitalize on the benefits of increased data availability to better serve their customers without compromising customer confidence in the company.
“Increased data granularity can enhance insurance availability and access, and allow insurers to offer more adequate and tailored coverage”
The aim of the study is to drive understanding of the interplay between the traditional risk assessment model, and the opportunities and challenges presented by data personalization for customers and insurers.
“We’re increasingly able to reach a higher and more precise level of personalization, which is in fact called hyper-personalization. Getting it right is a function of excellent management in the quality and connection of data, which serves as our most valuable and abundant raw material,” says Maribel Solanas, Chief Data Officer at MAPFRE.
The Geneva Association, the leading international grouping of the insurance industry, identifies several essential elements for insurers to build customer confidence:
Digitalization allows insurance companies to obtain increasingly granular, nuanced and dynamic risk profiles. New digital technologies, AI algorithms, as well as exponential leaps in data availability and computational power are transforming how data are collected and how information is distilled from them.
Based on its research findings, the Geneva Association sets out five key recommendations to ensure the responsible use of data in insurance, as well as better alignment with customer expectations:
Opportunities and challenges in insurance personalization
One concern identified in the realm of personalized insurance is the fair use of context-based data, given that, without context, data can easily be misinterpreted. For example, a nonsmoker who occasionally buys cigarettes for another family member could be identified as an occasional smoker based on his or her purchase data.
The experts interviewed for the study have identified the following opportunities and challenges:
- Improved accessibility to insurance through expanded insurability
- More affordable insurance through loss prevention facilitated by digital and portable devices
- Increased financial well-being by preventing uninsured losses
- Better suitability of coverage
- More benefits for those more aware of risky behaviors
- Increased likelihood that riskier customers will receive less affordable prices
- Increased price variability for customers, potentially leading to a reduction in the appeal of insurance
- Higher prices for those with low digital literacy levels
Specifically, in health insurance, the main challenges arise when data does not reflect the person’s actual lifestyle; portable devices do not produce accurate data; or when the customer omits relevant information or makes false statements.
In Maribel Solanas’ opinion, “sometimes it’s preferable to give up a certain level of accuracy in algorithms, or to reject dubious data sources or where there’s no certainty that the customer has given permission for their use. The trust of our customers is at stake, and that’s something that is difficult to gain and very easy to lose.”
As such, robust data governance processes must be set up so that each case is assessed on a case-by-case basis. At the end of 2019, MAPFRE took the decision to create the Data Governance function, with the aim of helping to manage data as a strategic company asset. As a direct consequence, MAPFRE’s Corporate Policy was drafted and the MAPFRE Data Governance offices were created. Within the company, the Corporate Data Department acts as a transversal Competence Center responsible for driving and managing the main aspects linked to the Group’s data strategy.
In conclusion, the Geneva Association experts note in their report that customers with a better understanding of the products and the factors that influence their premiums and insurance coverage are more willing to share their data, which demonstrates the importance of maintaining clear and direct communication with the customer.
Complete report: Responsible Use of Data in the Digital Age