Insurers rely on big data analytics to improve underwriting performance

When it comes to insurance, most of us don’t think deeper than our own policies protecting our most meaningful assets like our homes. For the insurance industry, though, each policy, client, and potential client, while individualized, also represents a wealth of data.

“Insurance in general is all about data,” said Kevin M. Mucci, account executive at J.D. Chapman Insurance Agency, an independent agency founded in 1958 with offices in Macedon and Canandaigua. “From an agency perspective data is used to find carriers and align clients with them. Using analytics and data is helpful to fine-tune and tailor a product to a customer’s needs.”

The abundance and reliance on data in the insurance industry has exploded of late due in large part to the COVID-19 pandemic. The year 2020 was a watershed moment for the industry. It set a new annual record for catastrophic events (those with at least $1 billion in damages) at 22. Number one on the list was the pandemic, but there were also the California, Oregon, and Washington state wildfires, Hurricanes Isaias, Sally, Laura, and Delta, and the Tennessee tornadoes.

The insurance industry was one of the hardest hit by the catastrophes of 2020 and one of the ways it is trying to stabilize itself is by improving underwriting performance, which relies heavily on data acquisition and analysis at the carrier level.

Insurance companies invested a record $3.6 billion in big data analytics in 2021, according to Xenonstack, a cloud and data intelligence technology consulting firm. Of the companies that invested in increased big data, 30% saw more efficiency, 40% to 70% saw increased cost savings, and 60% improved fraud detection rates.

Big data analytics that carriers are using include machine learning, natural language processing, artificial intelligence, predictive analysis, and more. Much of how carriers are using these tools are proprietary and the three carriers The Rochester Business Journal reached out to for this article did not respond to interview requests. However, three local insurance agencies – the mediums between carriers and individuals and businesses – did.

“We have a plethora of data that’s constantly being given to us by the carriers,” said Brian Allen, a commercial insurance consultant with Walsh Duffield Companies, Inc., a fifth-generation family-owned company founded in 1860 that has offices in Rochester, Buffalo, and Medina. “The carriers are constantly changing their predictive tools because they’re trying to have a crystal ball, but no matter how hard you predict, catastrophic events still occur.”

Allen has been in the insurance industry for seven years – he was previously an elementary school teacher and now enjoys educating business owners about insurance. Over the past seven years, he’s seen a lot of changes in the industry in terms of the increased use of data, but at the same time, he’s seen the importance of the human element remain a constant.

“Tech is evolving rapidly, but people still want the human element,” said Allen, who has clients who like to meet him for breakfast once a month and others who text him. He finds value in the data that allows him to best connect his clients with the different services and resources that each carrier has.

Internally, data collection also happens at the agency level, but it’s a much smaller level and is often done through surveys, referrals, and discussions.

“From an agency perspective, we want to know more about the personal side of our clients, for example, ‘Why are they changing agencies? Did they have a bad experience? Did they not like the way customer service was handled when they called the 1-800 number?’ ” Mucci said. “We use that information to place them with the best carrier and coverage for them because not every carrier is a good fit.”

For example, Mucci trialed a telematics device with his personal automobile carrier. A telematics device is either a physical device that plugs into a car on the dashboard or an app-based program for your smartphone. The device records data on your driving activities, such as speed, mileage, rates of acceleration, and power of breaking, to determine your insurance class and rate.

Carriers that offer telematics devices include Allstate, Geico, State Farm, USAA, and Farmers. Mucci enjoyed the experience and benefitted from a small discount just for giving telematics a try. Some users can see up to a 25% reduction in their rates, but not everyone is a fan.

“I’m a data guy and I love numbers, so it was fascinating for me to see the results,” Mucci said. “But it’s not for everyone and that’s OK. Some people feel uneasy and are concerned about their privacy.”

Gordon Quinton, president, Quinton Insurance president of Rochester-based Quinton Insurance, has also seen an uptick in carrier-driven analytics since he founded the company in 1996, especially analytics used for insurance scoring, which is a rating that represents the likelihood of an individual filing an insurance claim while under coverage.

Scoring – which produces an “insurance score” – is based heavily on one’s credit rating, as well as accident and claim history. The insurance score places an individual or business in a tier based on the carrier’s formularies and each tier has a different rate.

“All the carriers now do insurance scoring now – it’s no longer just for auto coverage, but for commercial policies too,” Quinton said. “On a commercial level, the carriers are looking at data like how long you’ve been in business, if your bills get paid on time, and if there’s any indication you’re going to use your insurance policy as a maintenance policy.”

When it comes to data, Quinton feels his biggest role is not gathering it, but making it as understandable as possible to his clients.

“The carriers provide most of the data to us and our job is to cut through the insurance jargon and translate it into human terms,” Quinton said. “Our job is to educate our clients.”

Caurie Putnam is a Rochester-area freelance writer.