tuatara potential of data
Digitalization of insurance companies – the unrevealed potential of data
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Digitalization of insurance companies – the unrevealed potential of data

In the era of the digital economy, insurance companies face a choice: to include expectations of digital natives in their strategy – offering consistent customer service in real-time and in the omnichannel model as well as personalized products – or condemn themselves to business non-being. Data is the key to success here.

tuatara potential of data

Article published in Polish in Miesięcznik Ubezpieczeniowy, December 2018:

Digitization changes behaviour and expectations of consumers. It drives innovation, leads to creation of new business models, changes the rules of market competition and forces entrepreneurs to be open and flexible. It carries threats, but most of all, it opens many doors that have so far been closed.

Data itself is not enough

The Insurance sector is extremely abundant in data. It is a resource that could help companies maintain their market position, protect existing and acquire new sources of revenue.

However, Big Data in its raw form isn’t worth much. Collected data, to gain value and practical business use, needs to be processed and thoroughly analysed. It is a difficult task, requiring proper technological background and analytical expertise. Nevertheless, it is a game worth playing.

Market changes and new customer expectations

Within one of the modern economy trends – the interrelations of the value chains in various industries – new business models are emerging. Among them, insurtechs, a promise of new methods of extracting business hints from data and a competition for traditional insurers, at the same time. Extension of the consumer offer and easier access to new types of services have their implications. It increases the level of competition between insurers, reduces the margin and, as a result, threatens the market position of insurers.

For example, Revolut offers travel insurance that automatically activates when you cross the border and turns off when you return to the country. The mechanism of the service’s operation is based on location data. The Revolut application retrieves information about the current location of its user. This data then allows the service to activate itself in the most appropriate moment, moreover enabling its effective promotion.

Consumers’ awareness is increasing. When planning its strategy, a company must take sophisticated expectations of constantly more technologically aware customers into consideration. Younger generations, so-called digital natives, for whom the use of digital services is something natural, expect an omnichannel and real-time model of service. They are used to quick responses, consistency of experience and a possibility of continuing contact in different channels without having to start the process from the beginning. A company that does not offer such services condemns itself in awareness of young people to the non-being.

An excellent example of a company that knows how to find its place in the current business reality is the American insurance company, Lemonade. It promises to provide its clients with as much compensation as possible in the shortest time. Lemonade charges a fixed amount of monthly payments pays reinsurance and uses the rest of the funds to pay compensation. Unused money is transferred to charity. Submitting compensation claims is simple and done via an application. The company’s business model is based on a modern technological back room, enabling to analyse of much more data (approximately 100 times) than traditional insurance companies. Thanks to technical solutions applied, clients’ claims are considered quickly, and the money is transferred to the insured account immediately. As it can be observed, the strategy brings quick results. Within two years Lemonade gained the trust of 250.000 customers. Lemonade has also decided to hire a world-famous behavioural economist, Professor Dan Ariely as Chief Behavioural Officer, to be able to understand their clients better and consider their claims even more efficiently. The company cares not only about strong scientific foundations for their business decisions, it also attaches great importance to the client’s experience, offering beautiful and functional design and a consistent, distinctive, modern image in all communication channels.

The use of insights derived from data

Insurance companies may use knowledge developed on the basis of data analysis in three different ways.

The historical data collected by the insurer, such as loss ratio or insurance history, can be used to optimize products and offers. Combined with external sources, referring for example to the level of crime in the area in which an insured real estate is, data becomes a significant competitive advantage.

It can be assumed that the risk parameters and other indicators significant to the insurer – related to construction technology, a frequency of natural disasters in a given area or the level of crime – can be deducted from data available for the neighbouring buildings. Such analogies, predictable on the basis of available data, seem, therefore, to be a good reference point for the optimization of insurance premiums. Information on the history of insurance payments may have a similar application.

An insight into data may also be used while building products in the spirit of a customer-centric approach, products tailored to a particular customer and changes taking place in his or her life are a must, nowadays. The more affordable, understandable and personalized are your products, the more likely you are to reach the right audience and help your consumers to make purchase decisions. A high degree of personalization translates into creating an intelligent product. It enables setting an individualized, flexible duration and scope of insurance, depending on the evolution of customer needs, as Revolut does. It could also be an analogical location-based service, which activates with the client’s presence on the ski slope.

Customer-centric products are also those that improve the quality of customer’s life. Reducing the risk of damage, such as theft or illness, also reduces the insurer’s risk. This, in turn, enables the insurer to lower prices or raise the margin. For instance, by using data from fitness trackers in the process of insuring clients for life, an insurance company promotes a healthy lifestyle. Encouraging the clients to be physically active, the insurer offers attractive contract terms in return. The insurer may also support other habits, having a positive social impact. At the moment, there are, for example, some programs such as ‘Kasa wraca” by Link4 on the insurance market, promoting safe driving. Using an application that is a part of the program, minimizing the risk of damage thanks to a safe driving style, drivers may be refunded even up to 30% of the premium paid. Startup Metromile, on the other hand, offers drivers a motor insurance rate, depending on the distance covered, assuming that the high MTPL rate for an old car standing in the car park is a logical error.

What is more, the data held by insurers may also serve to reach customers with the offer more effectively. Information on the history of using the insurer’s products will allow an insurance company to propose the most appropriate offer at the perfect moment. And it doesn’t mean only the case of policy expiration, in which the probability of its extension is very high. The method called ‘next best offer’ would probably pass the exam well then.

Data from interactions with clients is an excellent material for customer segmentation. Customers have different expectations towards the insurer, its offer and price proposal. Micro-segmentation is necessary to meet the requirements of individual clients and to be able to prepare the best offers for them. Taking not only the clients’ statements themselves into account but also the sentiment analysis, the communication channel preferred by the client or the ‘best time to call’ for individuals can be specified. Choosing the right kind of communication with the client, will ensure maximum efficiency, the lowest costs and return on investment in marketing. The customer won’t be fed up with receiving inadequate offers, arriving at the wrong time or through the wrong channel.

Information about past or planned significant events in the client’s life, based on data from other sources, such as social media, is like a treasure chest of knowledge. It may be used to prepare a perfect offer, tailored to the situation in which the client is located. Automated life-event marketing will make it possible to offer appropriate protection to a selected group of people exclusively. For example, to those who have published on social media content indicating that their family has just grown.

The next step

The insurer, possessing data, being able to safely process it, and using the knowledge derived from it to optimize both the offer of services and products and the way of reaching the customer, may do one more thing.

Monetization of data, in contrast to its sale, means using it without sharing it with others, to develop an innovative product, in cooperation with partners from various industries which, in turn, allows to obtain a new revenue stream.

Cooperation based on data exchange

Establishing cooperation based on secure data exchange with other service providers, such as telecommunications operators or banks, will allow insurance companies to generate additional sources of income. As a part of the API Economy (combining data within the interface economics), it is possible to securely link data from partners from various industries. As a result, knowledge about the client is fuller and can be used better, and the revenue stream of each of the participating in the exchange parties expands.

The data combined from various sources will help create a more complete client view, which then significantly supports the appropriate marketing message. A complete profile, including, for example, information about purchasing power or history and purchase characteristics, enables better product positioning and the creation of the most adequate offer. For example, information from the partner about the occurrence of a specific event in the customer’s life, such as the purchase of a car, may become a trigger for the insurance offer.

Clients’ trust

Insurance companies, due to a long presence on the market, enjoy the high trust of their clients. Consumers believe that their data, in hands of companies with many years of tradition, is for sure processed in a safe manner. That is why they are much more likely to grant marketing approvals to such institutions. Thus, in such circumstances, a niche related to the use of consents emerges. Acquiring clients’ consent, the insurer can use their data to optimize offers, create customer-centric services, develop the most appropriate form of communication with clients. Thanks to the consent, the insurer, cooperating with third parties, will be able to reach their joint clients with marketing messages via its own channels as well as those available to the partners.

Business model based on data monetization

Data is more valuable than gold. It is high time for companies possessing huge amounts of data to treat it as assets, no less important than physical or capital ones.

Data monetization ceases to have a stigma of trading data, which would discourage every consumer to grant marketing consent to whoever. Processing and thorough analysis of data from joint sources provide an opportunity to create a completely new quality of services and products. Without making data available to any of the parties at any stage of the process, the companies are able to maintain absolute data security. This kind of understanding of the concept of monetization brings benefits to each party.

In the spirit of the API Economy and secure exchange of data from companies from various industries (in compliance with RODO / GDPR), TUATARA has created a platform that helps companies monetize their data, generating new revenue streams. The first implementation of the platform was carried out in cooperation with a leading telecommunications operator in Oman. TASIL enables the operator’s business customers to define hyper-precise, highly personalized advertising campaigns, which are then implemented in real-time through communication channels available to the operator. Subscribers’ data is secure. No party has direct access to it or shares it. Restrictions resulting from marketing approvals are taken into account. It is, therefore, an additional stable source of income for the operator, which does not require the sale of data. For the operator’s business customers, it is a unique marketing tool, functioning in real-time and for the end customers certainty of receiving a message corresponding to their needs in an optimal moment.

TASIL aspires to become a link, connecting representatives of various industries, developing a model of cooperation within the API Economy.

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