At the start of 2020, we asked an audience of insurance professionals at our annual Customer Advisory Meeting in London, how ready they were for disruption. Little did we know then what was in store.

The pandemic has brought disruption and challenges but has also accelerated opportunities and allowed agile insurance providers to view disruption as a chance to serve customers in a different way. For example, due to the change in the way people are now living and working, short term and miles-based products have come to the fore, providing consumers with more flexibility in their motor insurance.

At the centre of innovation is the ability to leverage data. But to put data at the heart of decision making in the insurance sector, it’s important to distinguish between the interesting data and the truly meaningful insights that will actually allow you to decide the next best action – from pricing a policy to managing a claim.

With the massive growth of available data – understanding this difference is really important or you risk becoming overwhelmed and distracted.

When insights are meaningful they create a shift in thinking, they help us evolve and they influence how we address a challenge to gain a competitive advantage.

Last year, we invited insurance providers to sit down with us, look at the data that we have, including industry-contributed policy history, quote behaviour, public and proprietary data sources, and the data that they have, and see if we could bring more value to their business.

Occasionally, the data didn’t tell us anything, or simply reconfirmed what the insurance provider knew or had suspected, and this confirmation from a third party was helpful. But the answers to industry problems were revealed when we combined the meaningful insights of the contributory data we host and the insurance provider’s data. For example, we can tell insurance providers about someone’s policy behaviour, we can tell if they renew with the same provider, switched, or left the market altogether.

Understanding these kind of policy behaviour trends is important because a shift, or a new pattern in behaviour, could be an indicator of the propensity to file a claim or be a flag for fraudulent activity. By the same token, a shift in behaviour during a lockdown needs to be seen in a different light.

To illustrate that point, cancellations are predictive of a future claim risk. We know there was a decrease during the pandemic, so if a consumer did cancel their motor insurance cover, insurance providers need to understand the context to help support fair pricing when they take out a new policy.

This led to the development of our COVID-19 attributes based on policy history data, to help insurance providers understand the changes in behaviour that could have been lockdown-led.

We expected that financial stress, mixed with repeated lockdowns, would have had a significant impact on the number of consumers seeking new motor insurance. That was not the case, consumers had more time to shop around more for a competitive price and were therefore, switching providers.

Going further, to look at the policy behaviour data from a benchmarking perspective, we can see if there are any significant shifts in the market. For example, we can identify the number of people renewing with their existing insurance provider, or if there’s a shift in shopping behaviour. Or, if there is an increase in those who have exited the market, by market segment.

We can also see how many times people have modified their No Claims Discount value and the number of mid-term policy adjustments made prior to a claim, which could also be a potential indicator of fraud.

Past policy and quote behaviour data is giving the insurance market the power to adapt to changes in risk, for improved pricing accuracy at new business and renewal. With the implementation of the FCA’s pricing rules now imminent, attaining a more granular understanding of risk will heighten in importance.

Dan Cicchetti | Director Client Engagement | LexisNexis Risk Solutions

Read more article from Modern Insurance Magazine here