By Shivakumar Shankar,
Managing Director, India, LexisNexis Risk Solutions
The insurance industry in India is at the forefront of economic development, not to mention economic resilience and protection of businesses and people. Over the last decade, gross written premiums have grown at an annual rate of over 7% pushing this sector into the group of large insurance economies globally.
At the same time, with the rise of the Internet of Things (IoT) and the digital economy, businesses have become more aware and inter-connected. The government has also amended the original Insurance Laws (Amendment) Bill in 2015 and increased the FDI limit from 26% to 49% paving the way for the entry of foreign companies into the insurance sector.
Digitalisation, increased awareness, efficient distribution, innovative products have increased the number of insurance companies, revenue generated and market penetration. As of 2019 63 insurance companies are operating in the country*, of which 24 are in the life category, and 39 are in the non-life (general insurance, health and special risks) category.
It is heartening to note how the Indian insurance industry has grown, and with continuing improvements in regulation it is moving towards another plateau of growth. It’s likely to be a growth phase based much more on collaboration between incumbent insurers and the insurtechs, moving from a traditional ‘buy or build’ product focus towards a higher, more personalised customer experience and higher customer expectations, with data as a critical asset.
Based on the findings from the recent World Insurtech Report*, 70% of global insurers and insurtechs said a focus on holistic risk solutions for customers is going to be critical in moving the insurance market forward. Collaboration on data sources is going to a higher level than ever, and more than 70% of insurers and insurtechs said advanced data management is now critical.
There’s a transition going on from asset ownership, where an insurer controls all of its data processes in its own data silos, towards the platform economy, or shared economy, with insurers and other market participants coming together to bundle services.
Overall, in the World Insurtech Report, 90% of insurtechs and 70% of incumbent insurers stated that they want to work with one another. Recent history shows that India has all the capabilities to make the transition to this new digital platform economy and make the right technology adjustments.
Despite the global economic recession in 2010-2013, the insurance industry and gross premiums continued to grow at a remarkable rate. Supported by strong fundamentals, ongoing digitisation and technology adoption, it is expected that the sector in India would continue on the growth trajectory and by 2020 reach US$280 billion**.
However, within the positives, there are challenges that still remain to be addressed. Despite steady growth of the insurance sector, the insurance penetration in India (measured as the ratio of premium underwritten to GDP) stood at only 3.5% in 2016-17. Although, there was a considerable growth in market penetration from 2.7% in 2001, India today compares poorly with other Asian countries such as China (4.8%) and Thailand (5.4%) when looking at insurance penetration.
The penetration of life insurance for the same period stands at 2.7% and general insurance at 0.8% as compared to the global average of 3.5% and 2.8% respectively. Thus, there is still a huge underserved market that can be tapped. With India’s rural economy and youthful population, we know that a large part of this insurance potential can only be tapped by using the smartphone and other digital distribution channels.
Another issue for the insurance industry is related to data availability. Although the industry is sitting on rich piles of historical data, the same cannot be easily used to extract maximum benefits for pricing, underwriting, counter-fraud or other purposes.
One of the reasons is that a few remaining parts of the data are still non-digitized or being held in an individual insurer’s data silos, as an isolated part of the jigsaw.
Secondly, there is an issue with structuring, integration and standardisation of data with the digitised data spread across different systems of the insurance companies. Another issue that plagues the insurance industry is the lack of reliable third party data, especially financial data that is not necessarily built with insurance as the intended purpose. Years of manual data handling and customer self-declaration of data in dispersed systems tends to introduce errors and data anomalies, which is effectively what we are dealing with today.
At LexisNexis Risk Solutions recently we’ve been working with insurers on pooling data into a series of shared platforms or data exchanges, creating what is effectively a vast new ocean of shared data insights and risk attributes.
What big data promises?
As we’ve mentioned the insurance industry has long been sitting on piles of data. Traditionally, however, there was a lack of structuring, integration, accessibility and reliability of this data.
However, a lot has changed in recent years. With the progress made in the fields of image recognition, natural language processing, speech recognition along with the availability of massive computing power such useful new data sources can now be made ready for the insurance workflow, with the help of data normalization and standardisation from a data aggregator.
When the data is prepared correctly for the analytics process, it then becomes possible to apply BI (Business Intelligence) tools on these vast streams of heterogeneous data from various sources and derive actionable insights. The insurance industry has evolved tremendously by leveraging big data, although this is still more to be done on this journey. Traditional insurers, along with insurtech companies, are making use of data analytics to create new efficiencies and drive the customer experience, all along the value chain but primarily in pricing, underwriting, claims handling and to some extent in marketing (knowing the right time and the right place to interact in the customer’s lifestages).
The benefits of big data can come through the use of advanced analytics in marketing, and shaping the product or the distribution method, but not limited to customer-facing functions. The insurer can use big data analytics in areas like product development, R&D, risk assessment, product development, fraud detection.
Given the fact that IRDAI has created the regulatory sandbox to encourage innovation, testing products to the limit of the regulation, it’s expected that this will further encourage new products, by modelling them internally before being introduced to the broader market.
There are some great examples in the market of insurers leveraging several modern technologies in harmony, like the cloud native, mobile first approach, API enabled micro-services architecture for the digitisation of the end-to-end value chain. By leveraging big data analytics at the core of the process, together with customer aids such as chatbots, it’s possible to increase conversion rates, launch new products at a faster rate than before, and engage better with the customers.
Another area where big data analytics has a significant impact is in the detection of fraud. This is another important area where we at LexisNexis Risk Solutions are helping insurers. Data analytics can be brought forward to help fraud specialists analyse massive volumes of data and predict instances of fraud, effectively looking at patterns and signals for fraudulent behaviour across large inter-connected databases. This is an important area that helps insurers to drive out unwanted costs, drive out any unwanted participants in the market – vehicle repairers, sales agents, health insurance administrators, rogue hospitals or organised fraud gangs – leaving the insurer able to select the risk it chooses.
Collaboration is the new way forward
We also have to state that the greater the amount of clean data available for the analytics model, the higher would be the accuracy of the analysis. Thus, the way forward for insurers and other stakeholders is to increase collaboration.
We can see that data is not only going to become much ‘bigger’, it is going to become more diverse, deeper, challenging to move around, and also increasingly critical to the insurance business.
Increasing collaboration and data sharing amongst insurers in the regulated space will result in the greater availabilty of data, what we term the contributory data principle, for gaining better insights.
Through their combined efforts, insurers would be able to improve the quality of life and protection for the end customer, delivering more appropriately priced products, more appropriate to their needs. The benefits achieved with big data analytics until now represent just the tip of the iceberg.
It is now upon the different stakeholders to be more willing to collaborate and share data amongst each other, based on the fair and balanced rules of the exchange.