YOUR SECRET WEAPON: BIG DATA
Agency Financial Management
Put this trend to work and build volume and profits
Only a handful of today’s independent agents have been around long enough to remember how dramatically computers transformed the industry. These days, customers expect you to produce quotes within seconds—and computers make it easy to deliver. They’ve also eliminated a lot of paperwork that used to consume a significant amount of time and file cabinet space. In fact, it’s difficult to imagine doing business without computers.
The insurance industry has always been focused on using data, but now it is being tracked. Like all big changes, this will disrupt the way you do business today, but you can take advantage of it and become more efficient, more profitable, and more successful in the process.
Introducing big data
The latest change involves the availability and use of what’s known as big data. We’ve always
been surrounded by and gathered data, including
any kind of information that can be recorded and stored, but the expansion of technology and the ability to capture information have led to the generation of unprecedented levels of new data. Technology experts say that 90% of the data that currently exists has been created in just the last two years.
Think of all the ways you generate data every day. When you browse through websites or use social media such as Facebook or Twitter, records of what you’ve viewed are stored by your computer and the sites you visit. Each time you use your smartphone to call, text, or check email, you’re generating data. Do you wear a fitness tracker? More data. Visit the doctor for a checkup? Electronic medical records are data. If you drove to work over a toll road or bridge, there’s data about when you traveled. Cameras recorded images of your trip, creating more data. It’s been estimated that society is creating 2.5 quintillion bytes of data every day.
When we talk about big data, we’re referring to the ability to access and analyze all that data so we can make smarter decisions. If you and I both enter the same term in Google, we’re going to receive different results. Why? Much of Google’s success is attributable to how the company personalizes information based on what it already knows about us. Social media sites like Facebook use big data to determine what we’ll see when we visit them.
Big data and carriers
Insurance has always been about managing risk, and the actuarial departments of carriers have always tried to get better at predicting the likelihood that someone will have a claim. If they notice that people between 25 and 33 who drive a particular model get into accidents more frequently, they’ll charge a higher premium to everyone in that category.
Big data allows carriers to pinpoint risk with a much greater level of precision and accuracy so they can tailor rates to better match risk profiles. You can have two policyholders who are the same age, in similar occupations, and driving identical cars, but they may be charged substantially different rates based on what big data says about each of the drivers.
In theory, that should lead to greater fairness for your clients. Just because a 23-year-old man drives a sports car doesn’t mean he’ll face a steep premium. After all, the data may show that his behavior is more responsible than that of his peers. Conversely, a 46-year-old executive may warrant higher-than-average payments given his poor traffic violation record. A recent report from Towers Watson says that fewer than half of carriers use big data today, but more than three quarters will do so within the next two years.
Big data and agents
You can use data in many ways. It can sharpen your marketing efforts and enhance your confidence when you’re making business decisions. Data may be full of clues that could allow you to identify business opportunities that you’ve been missing. You also can use data as a way to make employee evaluations less subjective. You may think that Jennifer is a better CSR than Charlotte because she sells more policies, but the data may tell you that Charlotte’s policies produce higher profits and fewer claims.
Tracking and analyzing data can help you identify trends so you can make better decisions. By analyzing data, you may notice that your renewals for homeowners coverage have been slipping over the last couple of years. Or you may see that people who have reported claims aren’t renewing. By itself, the data may not give you the answer, but it can provide clues for further investigation. It may be that your staff isn’t being proactive with claims, or that your carrier’s claims department is treating your policyholders rudely.
Know your customers
Your customers entrust a great deal of personal information to you as part of the process of obtaining insurance. Analyzing that information can help you spot opportunities to sell new policies or enhance the coverage customers already have. For example, customers who have children are more likely to consider life insurance than those who do not. Even among parents there are differences, because parents of toddlers have different concerns than parents of teenagers.
You also can use your data to identify opportunities. Many college students live in apartments, but how many of them realize that they need renters insurance? You could develop a renters insurance promotion that goes only to parents who still provide auto insurance to their kids between ages 17 and 22. The opportunities are limited only by the available data and your imagination. You might be wary of this approach, thinking it smacks of Big Brother, but customers are more likely to view it as your knowing enough about them to provide highly personalized service.
The coming years will see more data becoming available to agents and the development of analytical tools that will make it easier to put that data to work. The agencies that embrace the use of big data will gain a powerful competitive and management advantage over those that brush it aside. Just as computers have become indispensable business tools, data—even publicly available data—will be used to drive decision making and is likely to become the lifeblood for healthy independent agencies.
About the author
Rick Dennen is president and CEO of Oak Street Funding, which provides commission-based lending for insurance agents who need capital to buy, build or sell their agency. Dennen is a licensed agent in the state of Indiana for life, accident and health products and a licensed Certified Public Accountant in the state of Indiana. He holds an MBA in finance and is an instructor of venture capital and entrepreneurial finance at the Indiana University Kelley School of Business. He can be reached at email@example.com