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The future of risk: why Big Data demands a big shift in perspective

Success in the new data-driven reality will require a strategic mindset, according to Stephen G. Anderson of The Institutes.

The numbers are almost unbelievable. More than 2.5 quintillion bytes of data are created every day. By 2020, 1.7 megabytes of data will be created every second for each person on planet Earth.

This exponential explosion in the amount of data comes from a tremendous increase in data sources. Everything from our cars to our microwaves now collect large amounts of information -- not to mention the phones we all carry in our pockets, which create a steady stream of data on where we are, what we're doing and how we're communicating.

Risk and insurance is the original big data industry. We have always sought to mitigate risk and achieve better outcomes through data; it is fundamental to the insurance industry mindset. But to maximize today's data we need to update our mindset.

Big data: collect it, store it, leverage it

Emerging technologies are reshaping how we interact with data and derive insights and innovative new approaches from it. That effect is concentrated on three fronts:

  • Data capture - the Internet of Things (IoT) is a driving force behind the massive amounts of data being generated. This data is being created in a variety of evolving forms, from audio and video to transactional data and voice web searches. New tools are enhancing our ability to capture insights from these sources.
  • Data storage - Distributed ledgers and blockchain technology are reshaping how organisations and individuals share data and verify its accuracy. Blockchain technology is quickly finding real-world applications in the risk and insurance sector and will play a key role in how our products and services connect with other industries.
  • Data analysis - Artificial intelligence (AI) is taking the potential for insights from this abundant data to untold levels. With each new analysis, AI gets smarter and learns new ways to derive more value from the data.

These big data tools have near-limitless potential for the industry and our approach to risk. To create actionable outcomes based on these evolving approaches to capturing, storing and analysing data, there are a few ways we need to evolve our thinking.

We no longer need to start with a hypothesis

Here's one example of how insurance and risk professionals need to reorient their perspective in today's world of big data. In the past, successful data analysis was based on a smart hypothesis. Younger drivers will have more accidents. Smokers have more health complications. Experts developed the hypothesis, then confirmed it by looking at the data and running the numbers.

That's still how much of the industry operates in practice today, though the amount of data and its sources are constantly expanding. But with emerging AI tools, that initial hypothesis is becoming less and less important. Analytical tools are combing data sets and identifying powerful sources of causation and correlation, which in turn provide direction that is already supported. These tools present a tremendous opportunity to develop new products or services we may never have discovered when starting with a hypothesis - because we now have the right perspective.

We must go where the data takes us

The idea that AI tools could reveal new opportunities to better serve customers is an exciting one. But our industry must be prepared to accept and follow through on bold changes to how we meet customer demands. That will likely mean close coordination with other industries.

The largest market cap companies in the world, from Amazon to Alphabet, have built their business on data. Four out of five c-suite executives say they're concerned about data-driven competitors disrupting their business. The risk management sector has a considerable role to play in opportunities to mitigate risk lurking in data from all sources, but that expertise will face challenges. The future of our industry will be decided in how those with risk-management expertise work with those who own the data.

Our approach must be strategic, not episodic

Our industry is well positioned for this data-driven reality. We recognise the power of using data to create a competitive advantage. But organisations must view big data opportunities strategically, not episodically. Successful firms, from the largest global corporation to the newest insurtech startup, will look at individual technology needs as part of a larger industry evolution, not a solution to a specific short-term problem or new customer demand. For all the hype, technology remains a means to an end, not the end itself.

Success in this new reality will come from this strategic perspective. Increasingly, a competitive edge will be defined by who can grasp insights in the data and convert it to greater value or a better experience for customers. In a changing industry, the focus on improving the lives of our customers through mitigated risk remains a constant.

Steve Anderson ARM, CPCU, AIC, AIM, AINS, AIS, API, ITP, SPHR is head of international business development for The Institutes. He will be talking to members at the Learning Hub in Exhibition Hall B in Harrogate.