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Data gets bigger and better: McKinsey & Co

The release of third-party public sector data from governments around the world will make Big Data an even greater source of competitive advantage for insurers, a report by McKinsey & Co predicts.

“The US and UK governments and the European Union have recently launched ‘open data’ websites to make available massive amounts of government statistics, including health, education, worker safety and energy data, among others,” it says.

“With much better access to third-party data from a wide variety of sources, insurers can pose new questions and better understand many different types of risks.”

It means, for example, insurers can better calculate the life expectancies for Parkinson’s disease patients, workers’ compensation incidence rates, car crash death rates or losses from floods.

Third-party data sources also reduce insurers’ dependence on internal information, the consultancy group says.

Digital “data exhaust” from social media and multimedia, smartphones and computers has become a rich source of behavioural insights.

New tools for underwriting risk and monitoring behaviour through applications such as in-vehicle telematics are other key developments.

Analytics vendors specialising in insurance applications are developing new and more sophisticated tools, according to the report.

One has developed a longevity risk model that captures data from traditional mortality tables and adds information on medical advances and emerging lifestyle trends.

“Innovations in analytics modelling will also enable carriers to underwrite many other emerging risks that are underinsured, including those related to cyber-security and industry-wide business interruption stemming from natural disasters.”

However, the challenges of capturing business value through Big Data should not be underestimated, the report warns.

Insurers must manage complex and large-scale organisational change, altering work habits and processes for thousands of highly skilled managers, “many of whom have been working for decades without analytics-driven decision tools. Any habit is hard to change, and such habits are a factor whenever automated systems are introduced to support human judgement.”