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Insurance Article

Predictive Analysis Is Changing The Game For Insurers

September 01 2019

The adaptation for data-driven solutions like predictive analytics have opened up new frontiers of innovation for Indian insurers


Buying an insurance policy is a prudent financial decision. It is a contract by which the insurer underwrites the risks to your assets. But have you ever wondered, what goes behind the scenes to enforce such agreements? What are insurers doing to design better risk coverages for your assets?

The non-life insurance market in India is experiencing a steady growth. As per the latest report by IBEF, in FY 2018, the gross direct premiums for the non-life insurers in India have touched USD 23.38 billion, with over 182.8 million policies sold during the said period. To meet the demands of a vibrant non-life insurance market and sustain a steady growth curve, Indian insurers are increasingly turning to technology infusion into their service offerings.

The evolution of IT platforms like cloud computing, artificial intelligence, software as a service, coupled with advanced analytics methodologies has provided the insurers with many tools to fine-tune their service offerings. One such means in their arsenal is Predictive Analytics or the science to forecast the outcome of unknown events.

What is predictive analytics?

The insurance ecosystem thrives on information. Your KYC form, social media activities, usage of smart devices, online shopping etc. all serve as potential sources for the insures, for generating billions of megabytes of data. Predictive analytics is the technology used to make sense of this massive data. It assimilates data into meaningful insights and actionable information

Insurance companies today are using predictive analytics in insurance underwriting. It is done to investigate historical trends based on the available data sets and predict the outcome of future events. It is assisting them in fine-tuning their service offerings by:

Identifying your needs

Insurers collect data about you through multiple channels, an online search for products and services being one of them. India is characterised by low insurance penetration, much of which is due to the lack of knowledge about insurance products available in the market.

In such a scenario, insurers have positioned themselves to pitch various innovative insurance policies to you proactively. Such pitches are formulated by studying and analysing your online search patterns, the sites you visit or the products and services you buy.

For instance, suppose you are planning to visit Europe, the coming winter. You have been going through various packages and deals offered by the tour operators, online. With access to this data, insurers might pitch you with products that are relevant to your upcoming trip.

It will educate you about the features of such products including coverage against contingencies like theft of baggage and travel documents, health emergencies, cancellation of trip etc. It may also help you to find the best deal for availing an international travel insurance product that suits your needs.

Correct risk assessment and pricing

Insurance plans exist to shield you against a potential loss in the future. The underwriting process is responsible for assessing the likelihood of such an event or the risk. The accurate measurement of risk helps in determining the premium that you need to pay for the cover.

Earlier, insurance underwriters conducted risk assessment through a combination of historical and demographic data and intuitions based on experience. But with the advent of data-driven technology, this scenario is changing rapidly. Today, risk assessment systems are being increasingly modelled closer to the actual behaviour of the policyholders.

Risk assessment based on real-time behaviour is perhaps best demonstrated by Telematics. The potential for this new technology is understandable from a report published by Frost & Sullivan. It predicted the market of telematics devices to reach 1.3 million installations by 2021, moving from 233,708 in 2014. With an Insurance Regulatory and Development Authority of India (IRDAI) committee suggesting M the use of telematics in car insurance pricing, the technology is rapidly gaining ground in India.

Traditionally the pricing of your car insurance premium is based on static data points like make, manufacturing year, model and location. With limited data available, underwriters tend to bracket clients into specific groups based on certain commonalities and are charged the same premium amount. In such a case, your driving skills and on-road habits are excluded from the equation.

Telematics devices installed in your vehicle collect data about your driving behaviour in real-time. Predictive analytics tools for insurance is applied to this data to assess the risk by projecting the possibilities of threats arising from such driving patterns. If it is found to be disciplined, you may be incentivised with reduced premium rates.

Similar systems are used in rationalising your health insurance premium by assimilating data from your wearable devices.

Detecting fraud

According to research by Indiaforensic, Indian insurers lose over 8% of their revenue to fraud every year. This loss is passed on to the policyholders. The use of predictive analytics in the insurance industry seeks to nip this problem in the bud by taking preemptive measures like:

  • Analysing claims history: A pattern may be established from the records of approved and denied claims by an individual. By interpreting the data and applying advanced Data Mining techniques, algorithms can calculate the probability of frauds.
  • Analysing claims history: A pattern may be established from the records of approved and denied claims by an individual. By interpreting the data and applying advanced Data Mining techniques, algorithms can calculate the probability of frauds.

With chances of fraud reduced, insurers can establish an efficient system for processing genuine claims by cutting down on time to be taken for due diligence.

Improved customer support

The insurance space is highly competitive and values customer satisfaction. Advanced analytics will enable insurers to preempt the loss of business, by detecting and addressing issues for the customers who may not be happy with the services provided.

The availability of granular data enables the insurers to provide personalised service and prioritise claims processing in some instances to save time and money, thus enhancing customer satisfaction.

The anticipation of customer requirements allows the insurers to stay two steps ahead. It helps them to expand their portfolio by designing innovative products with advanced features. Many new types of insurance policies available today are the results of market research guided by predictive analytics.

Detecting possible losses

Predictive analytics offers the strategic advantage of detecting insurance contracts that have the probability of resulting in losses. Such a study can be conducted by reviewing the history of similar claims.

It allows the insurers to make provisions for the loss or to avoid such contracts altogether.

Being the most significant private player in the Indian general insurance sector, ICICI Lombard took early cognisance of the potential of data-driven technologies. It strives to offer superior value to its customers through a unique portfolio of products and services.

Predictive analytics technology has found wide applications in the offerings of ICICI Lombard. Mention should be made of their robust feedback based car insurance product, powered by telematics or an instant cashless claims settlement system, backed by Artificial Intelligence (AI). ICICI Lombard has time and again achieved technological milestones, befitting a market leader.

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