Customizing Personal Lines Insurance with Location Data
Insurers are increasingly adopting data from smart devices and related technologies to support and service their customers better. According to Statista, the projected installed base of IOT devices is expected to increase to 30.9 billion units by 2025, a huge jump from the 13.8 billion units that exist today. I have been researching more about how we can use the new data from those devices to design more innovative insurance products while being aware that these should all be contingent upon customer opt-in. I recently attended one of Majesco’s excellent webinars hosted by Denise Garth, Chief Strategy Officer. In this session, Denise mentioned a range of smart devices and related technology that insurers are adopting to support and service their customers better. Here are some product examples inspired by my research and Denise’s session that show the possibilities available to create innovative, customer-centric products using data that can elevate a carrier’s offerings and make them more competitive.
Using Location Data Without Borders
Real-time access to phone location data can be used by travel insurers to create products that only become active when the phone (and hopefully the human attached to it) crosses country borders or travels beyond a specific distance. This data enables travel insurers to perform much more granular risk assessment, underwriting and pricing based on the specific travel behaviors and the specific risks that the insured represents. All locations and travel behaviors do not carry the same risk profiles, of course, and the assessment of detailed location information allows for fairer pricing and underwriting. It also is much easier for the insured, as it reduces the communication and administration needed about their travel plans in the case of a subsequent claim. Much of the evidence required in the past is already available from the IOT sensors.
Currently, most annual travel policies have standard coverage, limits and exclusions in place around allowed travel locations, duration of the trips, and activities engaged in by the travelers. Insurers have very little, if any, insights into specific travel behaviors on these policies and therefore use generic rates and policy conditions for these annual programs.
Enabling real-time location data can also be hugely beneficial to proactively assist travelers as well. If insurers get real time details on where their policyholders are traveling, when they travel, how they travel, and for how long, the location data could be a great help in the unfortunate event an insured needs assistance during travel. Carriers might even consider adding an “emergency button” to the travel insurance app, that can be activated during covered trips to inform the insurance carrier that help is needed. Better rates and more proactive service present relevant benefits for travelers to potentially feel compelled to share their travel data.
Know Your Customer
Reflecting on this actual, real-life travel use case, you can quickly see the applicability of location data to similarly improve other insurance lines. For example, my telematics-based car insurance knows when I am driving and where my car is parked when not in use. Of course, we can use this data to assess and price my car insurance. However, if we link that location data from my car to my home insurance, my home insurance carrier will know when I am likely to be in the house (either as a trend such as “most workdays after 6 PM” or at any specific real-time moment). Certain coverages under home insurance have a higher risk associated with them when the home is empty (theft, vandalism), and others might have a lower risk when homes are occupied (liability, work at home coverages). So, if my homeowner’s insurer maintains detailed data on when my family and I are at home or not, they could more accurately underwrite me, offer me more specific, relevant coverage for my situation, and rate me accordingly.
Ideally, if an insurer could create a package for my family and pets residing in my home, based on when and where we all are, and adjust coverage, premium rates, and services based on that information, insurers take a big step forward towards “knowing your customer.” This personalization is a key component in reinforcing trust in a carrier and enabling a better long-term customer relationship, yielding a better customer lifetime value.
This is a very similar scenario to when we first started with telematics – the insurance (UBI) products were based on how much somebody would drive, followed by where they were driving. The more innovative telematics insurers subsequently moved on to how you drive (hard braking, speeding, etc.). In a similar manner, the above products advance from quantity of the risk via location to quality of the risk using more precise analysis of the location data combined with additional relevant data.
Data Ecosystems Surrounding Insurance
I see the evolution of using data and becoming smarter users of data starting to develop in other insurance products. We can start with location data (phone, car, home) to understand our customers’ behavior better, and create innovative insurance products around new data sources. This is a jumping off point to enabling a better understanding of customer needs and more customized, proactive capabilities related to how we live – where we better understand what we do in those locations such as in our house (in my example above). Smart devices such as toothbrushes, refrigerators, health and fitness trackers, watches, thermostats, lights, gaming systems, heating and water sensors – our IOT world – can help insurers get a true understanding of our behaviors and associated risks to provide the right insurance.
Always Mindful of Privacy
And while there are lots of ways to use data from these devices to innovate insurance products, data privacy has to stay top of mind. Using location data from a customer’s smart phone, vehicle, and the host of other IOT devices must be a choice of the customer. They need to be able to control what data they choose to share with the insurer. And by the way, Happy Data Privacy Day! The privacy and protection of personal and sensitive information is especially crucial when it comes to health, insurance, and financial activities. The privacy laws surrounding this data must be top of mind when developing these innovative products. This is a complex task, especially with the variety of specific local laws that apply. For example, in the U.S., Virginia’s Consumer Data Protection Act (CDPA) is similar, but not exactly the same as California’s Consumer Privacy Act (CCPA). We covered this a bit when the Virginia law was first approved. This creates a complex environment for insurers to manage and heightens the importance of quality data governance (which is something we understand on a fundamental level here at Cloudera and are happy to help you figure out).
When they opt in to sharing their data, individuals are already realizing the value of this connected digital world. They benefit from and embrace it in how they shop, select music and books, get their news, set fitness goals, etc. The choice to disclose their data to better enable an insurer to provide an accurate premium and help protect their family is a logical extension. But, yes it takes a little getting used to and the benefits have to be evident in the form of improved premiums or enhanced servicing or a customer just won’t agree to share their data.
Putting Data to New Use
At Cloudera, I have the pleasure to work with insurers on their data strategy and business objectives related to data and AI use cases. Insurers are very accepting of acquiring new data sources for specific use cases. I am starting to see a keen interest in new innovative use cases, as a result of new IOT and streaming data sources. I strongly believe that when we acquire data for a specific use, we should consider what else we can use that data for and re-use it where appropriate for different business use cases (assuming the customer has agreed, of course). This approach benefits the insurers with focus and budget discipline, limits strain on data management, and supports customers with holistic insurance propositions instead of discrete, disparate lines of business. It does require a solid enterprise data cloud platform such as Cloudera Data Platform, that provides governance across the whole data lifecycle. I always say that insurance is sexy (just not everyone realizes this!) I personally think this is one of the most exciting developments in insurance right now and expect to see some of these use cases come to market in 2022.
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