Insurance Interests:
Data Supercharges the Mastery of Risk
In his book Against the Gods, Peter Bernstein argues that what marks the boundary between ancient history and the modern world is the mastery of risk. “Until human beings discovered a way across that boundary,” he writes, “the future was a mirror of the past or the murky domain of oracles and soothsayers who held a monopoly over knowledge of anticipated events.”
The demise of oracles and soothsayers may not be top of mind for insurance professionals working to evaluate applications and determine coverage and premium amounts. But mastering risk is at the heart of what they do, enabling them to help consumers protect the things they own and the people they love while enabling communities to recover from disaster and providing the risk management services that support a safe, healthy economy.
Kari Souder has a very real sense of the value of this protection. After carpenter ants hollowed out the base of a tree in her garden, it fell on her home in Alpharetta, Georgia, smashing through the roof and causing water damage to the furniture and hardwood floors in the room below. From the day the claims adjuster arrived to assess the damage, things moved relatively quickly. Forms and photographs were submitted and soon after, a check from the insurance company arrived to cover the repairs.
“The process was pretty seamless,” says Souder. But the unexpected nature of the event and a bill for repairs that ran into tens of thousands of dollars gave Souder and her husband pause for thought. “You look at how much money you’ve spent on home or car insurance, and it seems like a waste,” she says. “But when you have something like this happen, you think, ‘thank goodness.’ I’d tell anyone insurance is definitely worth it—get as much as you can!”
Change is on every horizon
Today, insurance is experiencing unprecedented disruption. From advances in technology to shifting business models, there are very few parts of the insurance industry that do not need to adapt to what Bill Madison, CEO of Insurance at LexisNexis Risk Solutions, part of RELX, calls “the constant heartbeat of change.”
Internally, business models are shifting from providing insurance and determining premiums based on customers who share common habits that define risk, to decisions informed by the consumer's specific circumstances. And insurance products have become far more than financial transactions: They are now opportunities to provide the increasingly seamless yet highly personalized customer experiences consumers demand.
Externally, regulatory shifts are increasing requirements for disclosure and compliance while insurance industry disruptions, such as the transition to electric vehicles in the auto sector, are prompting a redesign of business models. Meanwhile, the long tail of the pandemic and a rapid intensification of the effects of climate change demand new ways of thinking.
But if the pace of change might seem daunting, data and analytics are transforming the ability to make sense of complexity. For the insurance business of LexisNexis Risk Solutions, this means harnessing high-performing predictive analytics and developing products using next-generation artificial intelligence to help its customers make better decisions faster.
These technologies enable everything from prior claims and policy data to credit attributes, driving behavior, geospatial imagery and public records data to be integrated into insurer workflows.
With LexisNexis Risk Solutions data and analytics capabilities at their fingertips, insurance industry professionals can navigate an increasingly disrupted world. In fact, when it comes to the business of mastering risk, data is the insurance industry’s most powerful tool, says Madison. “It allows us to do what we’ve always done in helping insurers better understand the consumers they are protecting—but better.”
“We put the consumer experience, how a consumers is going to approach researching, evaluating and purchasing insurance, first and foremost in our minds,” says Madison. “Because each of us in this organization are also consumers, we take the opportunity to think about taking friction out of the process the way we would want to interact with our insurers. Using data and analytics to drive better decisions and better market segmentation, our solutions help ensure a true understanding of risk in the market and help insurers offer consumers the personalized premium they desire."
Data helps navigate a tough environment
In the mid-seventeenth century, French scholars Blaise Pascal and Pierre de Fermat worked together to find an answer to a question: How do you divide the stakes in a game of chance if that game is forced to end before one of the players has won? Their solution—developing a mathematical formula for calculating probability—is considered among the major advances in humankind’s understanding of risk and uncertainty.
Mastering risk, in other words, has always relied on data. But if probability calculation is now well understood, today’s insurance carriers face a complex array of new computational challenges.
First, their products must be affordable and accessible while enabling the business to remain profitable. In property insurance, they must navigate a new world in which the home has become an office for a small business or remote employees and buildings are increasingly threatened by climate-related events. And in auto insurance, growing ownership of hybrid and electric vehicles calls for new pricing models.
These and other forces are challenging the insurance business model. Inflation has been pushing up the cost of repairing a home or a car, while rises in the cost of reinsurance continue to make it hard for insurers to price their products.
“Right now, they’re very concerned about operational efficiency and cost containment,” says Karlyn Carnahan, who leads the insurance practice for North America at advisory firm Celent. “And that means doing a better job of choosing and pricing risk.”
Complicating matters is the fact that this industry cannot simply choose to increase prices. “Insurers have to go through a regulatory body in many states to justify their rate increases,” explains John Beal, who led the insurance data science teams that develop and service LexisNexis Risk Solutions analytics and modelling products for more than 15 years. “The state regulators may or may not approve, so it’s very complex.”
However, this is an industry that has been adapting rapidly. Carnahan, who has spent most of her career in insurance, has witnessed the transformations. Most importantly, she says, today’s insurance products go far beyond a simple promise to pay covered claims.
“Insurance companies are working to prevent and mitigate risks and to provide services long after the claim has occurred,” says Carnahan. “The move from simple payment to prevention and recovery is one of the big shifts in the product.”
Meanwhile, underwriting is no longer based solely on information about an individual but increasingly on the way that person behaves, from how and when they drive to the way they maintain and secure their home.
The new approaches have brought another change to the business of insurance: Partnership. Instead of building everything internally, collaboration has become vital, with carriers engaging third-party organizations such as distribution managers, billing providers, investment managers and reinsurers.
This has in turn prompted the industry’s most significant strategic shift: the embrace of a data-driven approach. “If you can outsource everything, what is an insurance company?” says Carnahan. “It’s data and the ability to use that data.”
What triggers payment is also changing. For example, parametric insurance offers new ways of managing risk through pre-determined payouts based on the magnitude of events—windspeed, rainfall levels or the strength and duration of an earthquake’s waves—rather than the magnitude of losses.
Data fuels better decisions
For Bill Madison, data and innovation in the use of that data is what enables LexisNexis Risk Solutions to fulfill its core purpose: helping its insurance industry customers to advance their strategies—strategies that ultimately make it easier for these insurers to help consumers to manage their individual and household risk.
“Are there new ways of using data and analytics and AI to bring more intelligence of the risk to insurance carriers to help with the decision-making process?” Madison asks. The answer, he says, is a resounding yes.
Yet in some ways, this is nothing new. In the adoption of technologies to advance business, the insurance sector has long been ahead of the game, embracing COBOL, the computer programming language used in commerce, many decades ago.
And while advanced analytics and machine learning have been at the core of LexisNexis Risk Solutions’ infrastructure since the early nineties, the technology is now evolving in ways that 20 years ago could not have been imagined. Today, AI powers a continuum of information-based analytics that supports everything from identifying potential risk factors to making recommendations and informing decision-making. “We live the data world all day long,” says Madison. “But a lot of what we do has never been done before so we’re bringing something new into the marketplace.”
The evolution of auto insurance demonstrates how technology offers novel ways of mastering risk: by analyzing telematics data, carriers can make informed decisions. With the LexisNexis Telematics OnDemand product, for example, insurers can access attributes and scores created from telematics data through a single access point and, in real-time, use that Fair Credit Reporting Act (FCRA) governed data to inform decisions on premiums.
“Through technology enabled on a smart phone or coming from a vehicle, we can analyze telematics data - i.e. driving behavior-based data from a connected vehicle or mobile application - and provide vehicle insights,” explains Madison, whose vision spearheaded the creation of the LexisNexis Risk Solutions Connected Car business, which develops insurance telematics data and analytics solutions.
“We were on the forefront of businesses using technology at scale back in the sixties,” says Carnahan. This, she says, remains true today, with technologies such as generative AI, chatbots, large language models, data lakes and cloud computing enabling the transformation of insurance products. “If you’re coming out of college and you want to work in the hottest technologies,” she says, “come to insurance.”
“Automakers want to be able to help their owners with the total cost of vehicle ownership, including insurance,” says Jeffery Batiste, who leads the U.S. auto insurance business. “So, we’ve created a solution that helps them work with the insurance industry efficiently rather than have many relationships to manage.”
Meanwhile, in claims, large language models are being explored to help identify the severity of auto claims by extracting risk characteristics from unstructured text such as claims notes and damage descriptions.
For the home insurance industry, the challenge is the rise in extreme climate events such as floods, hurricanes and wildfires, which in states such as Florida and California have forced some insurers to withdraw operations altogether. As these challenges intensify, data will become an increasingly vital tool. By combining geospatial and weather data with historical claims data, losses data, property attributes and building permits, data enables better assessments of property risk.
For example, LexisNexis® Total Property Understanding, a LexisNexis Risk Solutions product, generates insights on individual properties by applying computer vision technology and artificial intelligence to data captured by the consumer, removing the need for an in-person site inspection and enabling customized approaches to pricing and risk reduction.
“We’ve developed a data solution called ‘Smart Selection,’ which allows an insurance provider to run a book of business through our models to prioritize where to begin addressing risk,” explains Cole Winans, vice president and general manager, home insurance at LexisNexis Risk Solutions. “It amounts to over 100 data points that enable us to score risk based on the probability of a loss occurring or a hazard being detected.”
This data granularity is critical, says Beal. “Today we have the ability to go down to the individual property,” he says. “That allows the insurance company not only to price better but also to help the customer manage risk.”
Managing risk also means being able to prioritize. With so many customers on their books, insurers cannot inspect every property. Data and analytics can help them focus their efforts based on the probability of a loss occurring, says Winans.
Data transforms the customer experience
At the end of every decision made by an insurance company is an ultimate beneficiary: a person who is looking to their insurance carrier to protect the things they own and the people they love. By covering large groups of people, insurance gives individuals more control over their lives and softens the blow when disaster strikes.
And while data and analytics help ensure that the price a consumer pays for protection is fair and affordable, technology is enabling another critical shift in the industry: a rethinking of the customer experience.
Adam Pichon has witnessed this transformation. Today, Pichon leads the global analytics and data science team at LexisNexis Risk Solutions. However, he has been in the insurance business long enough to remember how things used to be.
“When I first started working for an insurance company in 2002, our entire rate manual was printed on an eight-by-eleven sheet of paper, front and back, and given to agents,” he recalls. “There were a lot of underwriting rules, and the process was arduous and time-consuming for a consumer.”
Fast forward to today and this process is unrecognizable. “Today, the average consumer can get online and, in a few minutes, get an insurance quote for themselves and their household,” Pichon says. “And all the magic is happening behind the scenes.”
As providers know, the process must also be user-friendly. Whether seeking a quote or putting in a claim, today’s insurance consumers expect the experience to be as seamless as using social media or online banking. “If anything is clunky, I go somewhere else,” says Lesley Rice, a Houston-based commercial real estate professional, who does all her shopping from renting wardrobes of clothes and everyday groceries to last-minute party planning online. “User friendliness is everything.”
Her experiences have so far met this expectation. Last year, for example, when she needed to make a claim after Houston’s freezing weather caused her home’s pipes to freeze and burst over the main living, kitchen and dining area, everything except the adjuster’s visit was conducted via her provider’s app. “We had one in-person touch, but other than that it was all on a tech platform,” she says.
Technology helps consumers in other ways, too. Providing multiple layers of data also makes it less likely that a single variable (a speeding ticket, for example) will have an outsized impact on an insurance premium. By providing a holistic picture of a consumer’s risk, data and analytics help insurers to create fair premium pricing and to find opportunities to introduce pricing discounts.
Meanwhile, technologies such as telematics enable far greater product customization, which ultimately helps the end customer. “The opportunity for consumers is huge,” says Madison. “When insurers can offer more precise rates, drivers can see meaningful benefits on their premiums.”
But perhaps the biggest shift in the industry—one enabled by data—is the forging of a new relationship between insurers and their customers, one in which the consumer is an active partner in the mastery of risk.
“How can data be used for good? Insurers can use data to inform consumers of their risk as well as making recommendations on how to reduce and manage their risk,” says Winans.
With better data at their fingertips, consumers can take steps to reduce their risk, whether that means adopting different driving practices or removing trees and brush within a certain distance of a residence, dramatically reducing the probability of losing a home to a wildfire.
For Madison and his team of insurance experts at LexisNexis Risk Solutions, the data and analytics that inform insurers also help insurers provide consumers with everything from a seamless online experience to the ability to secure the best premiums and play a part in reducing their own risk.
Using the power of data, insurance becomes about far more than numbers. “You get to use the best of today’s technology to protect people and the things that matter most to them,” says Madison. “And that’s a pretty great spot to be in.”
Learn more about LexisNexis Risk Solutions Insurance.
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