What big data analytics achieve in world of risk
Initially published on 19 May, 2014 08:39 am
The smart players in the insurance and reinsurance industry recognise the urgent need to modernise. The complexity of risk and the need to get risk management profiles right are leading reinsurance firms towards advanced big data analytics.
Getting the right data analytics is easier said than done. This is a 325-year-old industry, and in many respects, has been fairly set in its ways compared to other parts of financial services.
In terms of how it approaches information, the insurance sector has often relied on a combination of bespoke deals for large underwriting, and different types of individual and event risk profiling for commodity insurance. Both are reliant on the expertise and experience of underwriters and brokers.
However, the big problem with the way things have been done is that decisions are based primarily on historic data, rather than predictive market trends and analytics.
Aon has become much smarter about data in recent years, focusing on advanced analytics, which show in real time what is happening in the marketplace. We run a global centre for innovation and analytics, established in Ireland in 2008, as well as a newer centre in Singapore.
We have also established what we call the Global Risk Insights Platform (GRIP), which is the world's largest proprietary database of insurance placement data. This system takes billing data from our annual premium flow of over $80 billion of insurance, coupled with quotation data brokered by over 6,500 personnel around the world, in order to provide clients and underwriters with key trends and data analysis at their fingertips.
The reason for doing this is that the insurance marketplace is very fluid. Insurers often want to have a clearer picture of the risk they are underwriting and having the right data helps them to sharpen their risk appetite. Analytics is really able to help in a post-financial crash environment in which companies have to focus hard on cutting costs yet simultaneously wish to improve their risk profile.
Our investment in data and analytics also supports our global risk consulting business, in which we advise our customers, across a wide range of industries, to determine how they can reduce risk. For this, we work with our own advanced risk experts as well as drawing on our risk profiling systems.
The data challenge
The difficulty with excelling in the analytics business is that it requires different types of talent with different skillsets. As an example, we need the highest skilled data scientists in our global analytic centres.
This inevitably puts us in a talent competition directly against other local businesses that rely heavily on analytics, such as betting firm Paddy Power. It also positions us against locally based technology companies such as Google and Apple. We based the first centre in Ireland, because we already had a strong business there, and there was a high quality pool of technical and analytical talent available following the problems of the economic crash.
The future of risk management
At Aon we continually convert data into valuable insight for clients to help them understand new and emerging risks which they may not have considered.
As new risks emerge and technology companies become far faster in highlighting those risks, the insurance industry absolutely has to travel ahead of the curve. A great example is a flu outbreak in the US: while the main authorities took several days to understand the problems, Google had created a map within a day, based on where people were searching for flu vaccines.
A similar challenge in keeping ahead could emerge in cyber security. Few people really understand the risks, and insurers have trouble underwriting it. It is very conceivable that young technology experts will soon be employed as key advisers to businesses, so that those firms can properly understand the risk. Insurers will also need to gain a similar understanding of this area.
The growth of technology, and emerging opportunities and risks, are the new dimensions in which the insurance industry needs to consider. There is a great potential to do better to analyse risk for businesses and improve how we help business. It will be the next steps we take, with technology, data analytics and expertise, that will make all the difference.