Growing value with data driven insights: An actuarial perspective

Long before terms like Analytics, Data Science and Big Data invaded our everyday lexicon, data had been at the very foundation of the actuarial profession. For actuaries, data analysis is the prerequisite to tie past observations to future expectations, unearth behavioral trends that feed into product design and market prospects, bring forth the nuances and patterns that allow the creation of risk mitigants and fraud prevention strategies.

Actuaries in India have traditionally gleaned insights from a select few sources: customer statistics published by Mortality & Morbidity Investigation Bureau (MMIB) and Insurance Information Bureau (IIB), annual reports of (Insurance Regulatory and Development Authority of India) (IRDAI) and, of course, the insurer’s own database of past transactions. The latter is often augmented by data from reinsurers with wider footprints in the global insurance market. Standardized projection software is used to process these data to create models around features and life cycle of a product. Well established analytical tools have been employed since forever to generate risk scores and power experience studies for monitoring.

Then came a recent paradigm shift. In a big leap towards using data and technology efficiently and smartly, policies started being issued digitally based on OTP consent, without resorting to physical signatures. While the paper forms did have customer phone numbers, they rarely worked as a practical conduit for ongoing customer interactions. The real-time feedback to actuaries was mostly through what the sales and ops rep would collect and report. The customer filling online forms, or using a phone app, however, is a lot more likely to reveal her concerns and preferences through easily recordable means like chat transcripts and email feedbacks. Actuaries now have ready resource that help tap directly into the customer psyche, and accordingly adapt. Newer products that are being launched today actively try to incorporate recent customer inputs– preferences about payment frequency, term or even types of products e.g. money backs and guarantee vs. return heavy products. Such examples are but a tip of the iceberg when it comes to the potential of using electronic data attributes. The implications are not just for policy issuances. Today’s internet-savvy customers take recourse to chatbots and other apps for multitude of information and services, and all that can be used to fuel business.

There is growing realization that the industry must react to this reality. Recently, IRDAI pioneered a program through which, insurance products can be piloted within a ‘sandbox’– a test and implementation platform where the insurers are encouraged to adopt dynamic practices towards designing and pricing their products. Insurers too are doing their part in exploring more innovative ways to understand customer behavior, needs and necessities. Investments are being made towards building capabilities to leverage Big Data and creating a skilled analytics workforce. This has become key to designing customized products.

For the insurer, delivering value to a customer is not just about adapting one’s product suite, but also in offering the right mix of products to the customer. Knowing a customer who has just insured his 3 storey house is to also know whether he needs to insure his car, or whether he needs to top up the medical coverage for his aging parents. Actuaries are wearing their analytics hat to model customer data for effectively identifying such cross-sell and up-sell opportunities while leveraging their firm’s distribution diversity and outreach. The effort increases entrenchment and penetration, while adding more effective tools to the sales and distribution teams.

Data capturing a customer’s habits, propensities and preferences not only reflect her needs, but also broadens actuaries’ understanding of her risk profile– life expectancy and persistency. Not to forget, designing a product involves determining the right price for continuing to serve a customer. The insights into the data paints a far more accurate picture of life expectancy and persistency, which are key pillars underlying product pricing. At an industry level, many companies have started using credit risk scores to correlate customer discipline and financial wellbeing with life expectancy. A good credit score reflects the regularity of income and lifestyle. This eventually indicates an ability to have healthier and stress-free life. Tracking customer behavior through smart phones and wearable devices has become a useful method to build risk scores, especially where products must be made available over the counter without complexities of medical underwriting or financial due diligence. In many parts of the world, car-mounted sensors provide real-time data on customer behavior, which feed directly into dynamic pricing of their car insurance. In the same vein, life and health insurance companies are promoting fitness bands tracking BMI, stress and physical activities. Even substitutes of medical underwriting are not uncommon anymore. New age techniques like video medicals and retina scan have gained momentum which can help approve a proposal at the blink of an eye.

And then there’s the looming and ever-increasing specter of fraud. With growing intricacies of business, diverse distributions channels, expansion of digital sales and threat of cyber-attacks, fraud has become an increasingly critical issue. It’s hard to prevent but can be mitigated. Companies are steering their focus on AI-driven tools to identify fake ID and impersonations, both at issuance and claims stages. Such tools are also effective in identifying anomalies in policy experiences. In addition, biometric data are fast becoming indispensable in the fight against fraud. The resulting seamless process is not only safer but is also creating a hassle-free customer journey and faster payment of claims within a few hours.

Customer’s demands and expectations have been soaring ever since digital technology has caught on. The need for frictionless, uninterrupted services like instant issuances and pre-approved life covers without much scrutiny are becoming reasonable expectations and an integral part of service level agreements. This necessitates faster yet smarter and effective ways for underwriting and issuances on the fly.

For actuaries, data insights and adoption have created a flurry of opportunities to innovate, estimate, price, manage risks and optimize processes that bolsters a company’s financial position. It forms the foundation of a continuous feedback cycle where data defines the problem through opportunities, and data itself drives the next generation of solutions.

By Peuli Das, Chief and Appointed Actuary, IndiaFirst Life Insurance Company Limited