A strong 2013 has many insurers looking toward 2014 with growth on their minds, according to Deloitte's 2014 insurance industry outlook. However, carriers looking to big data as a way to differentiate in the competitive market face challenges integrating the wealth of new sources into their existing technology infrastructure.
"Developing strategies to better integrate and leverage existing and emerging data sources within legacy technology platforms and capabilities is proving to be a daunting challenge for many in the industry," writes Neal Baumann, Deloitte Consulting LLP's global insurance sector leader. "As more and more carriers look to execute strategies to drive performance and reduce risk via leveraging data and analytics, insurers should be prepared to make the tradeoffs needed to develop capabilities that they believe will provide them with strategic advantages. In some cases this might lead to the need to revisit and modify traditional business and operating models."
Take the example of usage-based insurance, Deloitte continues: A high start-up cost and a knowledge gap among consumers make the technology, though enticing, all but unattainable to smaller companies. However, the company believes that more sophisticated smartphone apps and aggregated data bureaus (including one Deloitte is working on with an unnamed insurance industry association) can level the playing field for smaller-sized insurers and challenge bigger carriers to raise their game and differentiate their brands on usage-based insurance.
[Read how two smaller insurers are stretching telematics boundaries]
"There are usually tactical steps insurers could take to make a short-term course correction, and tweaks can often be implemented to adjust systems and processes," adds Gary Shaw, vice chairman, Deloitte LLP, and the national sector leader of Deloitte's insurance group. "But to capitalize on emerging opportunities instead of being undermined by the disruptive changes likely to alter the competitive landscape, top insurance executives should be more predisposed towards bigger-picture innovations."
Mobility actually offers more opportunities to insurers than just telematics: the study expects "insurer apps to more routinely employ time and location data to issue customized safety alerts, vendor recommendations, and perhaps even loyalty program discounts." But that data requires vigilant stewardship, as data breaches or exposures could have the unfortunate side effect of turning consumers off. (For more on this issue, check out Is The World Too Cynical for Insurance Innovation?).
"As more data pours into insurance carrier systems, security and privacy may become an even bigger enterprise risk management challenge, rising on the agenda of senior management and boards," the study says. "The threat landscape will continue to evolve as cybercrime transforms, which means insurers should constantly update their responses. There also may be speed bumps raised by regulators as opportunities arise to collect, underwrite, and price policies based on customer data from additional sources."