The FINANCIAL — As every aspect of life and business becomes digitised, so too does our ability to understand how individual events relate to each other and this will change the way we live. In 2008, the number of devices connected to the internet surpassed the 6.7 billion people living on the planet. Depending on who you believe there could be as many as one trillion devices connected to the internet by next year, according to Lloyd’s, the world’s specialist insurance market providing insurance services in over 200 countries and territories.
The information recorded by these devices – the Internet of things – creates a titanic treasure trove of big data for insurers, and they’re pushing hard to analyse it effectively and apply the findings to their businesses.
“With a trillion sensors embedded in the environment – all connected by computing systems, software, and services – it will be possible to hear the heartbeat of the Earth, impacting human interaction with the globe as profoundly as the internet has revolutionised communication,” Peter Hartwell, Senior Researcher at HP Labs, put it very powerfully when he said.
Capitalise on what you’ve got
Many insurers are already focused on extracting fresh insights from the vast amounts of data they currently hold, as the industry rushes to catch up with the rest of the world, according to Lloyd’s.
“Their history has been to exploit their internal databases. They are maturing in their understanding of the old data they have and looking for value,” said George Marcotte, Managing Director, Financial Services Analytics for UK and Ireland at Accenture.
However, insurers seeking to put their finger on the pulse of the Earth’s heartbeat and get an insight into the direct and indirect correlation between world events and commercial losses will probably need to make significant investments in data collection, generation, conversion and storage.
Sync with other sources
In the area of risk management alone, IT company Celent estimates that financial firms will spend US$470m on big data projects this year, and predicts this will rise to US$730m by 2016, according to Lloyd’s.
These projects fall into four main areas: risk assessment and measurement, risk control and monitoring, risk reporting and governance, and front office and risk operations. Drilling down further, they cover everything from risk modelling and scenario analysis, to fraud detection, risk-based pricing and regulatory reporting.
Fraud detection is a big driver when it comes to big data investment in the insurance industry, according to Lloyd’s. Through pan-industry initiatives such as the Claims and Underwriting Exchange and the My Licence project, the Driver and Vehicle Licensing Agency (DVLA) will open up its database to motor insurers so that all information given when someone applies for cover can be instantly cross-checked and forms pre-populated with accurate, up-to-date details of car and driver.
Joining up multiple sources of data can also have significant benefits when handling claims, as was seen in the recent prolonged severe flooding in parts of the UK. Insurers were able to use digital terrain data from Ordnance Survey and Google to predict how inland and coastal flooding might develop and monitor its spread, alerting claims teams and loss adjusters as well as spotting potentially fraudulent claims that fell outside the affected areas.
Do it the Wal-Mart way
One thing underwriters may find difficult to come to terms with though – say Kenneth Cukier and Viktor Mayer-Schönberger, authors of Big Data – is the lack of immediate connection between different databases: “Society will need to shed some of its obsessions for causality in exchange for simple correlations: not knowing why, but only what.”
A simple example of the breakthroughs that can be made once such inhibitions are abandoned comes from Wal-Mart. They reviewed years’ worth of till receipts, matched that data against a wide range of other databases, and noticed surprising correlations between hurricane warnings and the types of food people purchased. It didn’t matter that they couldn’t explain why that happened – they had extracted vital sales intelligence and now change the stock in the shops as soon as hurricane warnings are issued, according to Lloyd’s.
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