The business of insurance—specifically, trying to predict and account for the risks inherent in our modern world—is actually a lot like forecasting the weather.
After all, both an underwriter and a meteorologist are trying to make the unknown known: trying to identify the future so they can prepare and protect others.
Predicting the weather, while still imperfect, is the closest humankind has achieved to actually seeing the future. Prior to about 1960, forecasters could use only what they observed firsthand to make predictions. Now, modern weather forecasting involves satellites and supercomputers that process quadrillions of calculations per second, with data pouring in from thousands of sources. Accuracy has increased dramatically, and what’s commonplace today (think of knowing the path of a hurricane five days before it hits land) was science fiction 50 years ago. A key point to remember is that no single prediction model is perfect, but when computers have access to vast quantities of data and the ability to communicate, they can find patterns and insights that we never would.
Now, what on earth does this have to do with insurance? Well, to understand how data and analytics will change our industry, it’s helpful to look at other fields that have walked this path already. Prior to joining Vertafore, I spent seven years working on analytics within the energy, aerospace and automotive industries, just to name a few. In the insurance world, we are still doing things the “old way” for the most part. But that’s about to change.
The idea of using data to assess risk and calculate premiums is nothing new, but like weather forecasting, continuing to do things the “old way” will no longer be good enough to keep up with your clients’ needs or your competitors’ pace. Technology has advanced quickly in the last few years, with the availability of cheap computing power now making techniques like machine learning and advanced analytics readily available. Understandably, some of these technologies are having an impact on insurance agencies.
Take, for example, the RiskMatch intelligent insurance solution, which uses machine learning and advanced analytics to extract insights from the industry’s largest database of in-force premiums information—drawing from over $100 billion of premiums. These insights mean agencies have access to what customers are buying today as well as predictions about what they should be buying tomorrow, based on computer analysis of millions of insurance transactions. Using these insights, you can learn what your customers need before they even realize they need it. Imagine how this kind of foresight could improve your relationships with customers and increase retention.
Tools like RiskMatch are also using data to project the range of commissions paid across carriers and products and to infer the risk appetites of carriers you may not be doing business with today. These tools give you the capability to gain more advantageous rates and closer relationships with carriers, leading to greater profitability.
As time goes on, these predictive models will become smarter and more accurate by using ongoing data to adjust their predictions. Just a few very real results include:
- A completely automated workflow between a broker’s CRM, the agency management system, the carrier and the end-insureds, including real-time data flowing consistently between them
- Highly individualized and accurate policy pricing that reflects real-world risks, allowing you to provide better and more personalized service to your customers
- A management system that alerts you to cross-sell opportunities based on industrywide data showing the types of coverages similar customers have that your customers don’t have
- Predictive intelligence on carrier risk appetites based on data so you market only to carriers that want your business.
To achieve all of this, systems are going to have to communicate. Now, and even more so in the future, the success of any one software or piece of technology is going to rely heavily on its ability to connect with others. As with weather models, the data that drives the insurance world will be exponentially more accurate when systems combine their computing power. But unlike the weather, which has no potential for security breaches, privacy and data security are going to continue to be central to everything we do in insurtech.
The bottom line is that the days of managing your agency with only the information from within your own four walls will soon be behind us. Like meteorologists who look out the window to make a prediction about tomorrow, agencies that rely on what they see in front of them are going to be overtaken by those who embrace new technologies, built to uncover hidden futures. Similarly, agencies that rely on a single software or a platform claiming to be all-in-one will find themselves missing out on incredible intelligence that can be gleaned from partnerships, integrations and open architecture.
And just like with the weather, while no one prediction model is perfect, when systems communicate, when data is shared, and when supercomputers continue observing and learning, the result will be a level of achievement the agencies of today can’t even imagine.
Chad Hawkinson is SVP of Data & Analytics at Vertafore.