Although insurance companies may benefit from using big data to improve risk and pricing models, they could also find themselves challenged by other sectors if they don't move quickly in this area, which could include insurers becoming marginalized or vulnerable to consolidation, cautions a new report from Fitch Ratings Inc. released on Thursday.
Insurance companies are taking steps to reap the benefits of advances such as greater data processing power, "smart devices" and expanded Internet use, which creates opportunities for gathering data about customers, states the report, entitled Disruptive Technology: Insurance. However, slow adoption among insurers has "helped leave the door ajar" for others, who may either encroach on insurers' business or become their technology partners.
The report also flags challenges insurers are likely to encounter as they collect more sensitive information in the quest to improve pricing and risk schemes. For example, new technologies such as wearable devices that collect data on clients' lifestyles have the potential to draw the attention of regulators concerned about privacy and discrimination. Regulators in these fields may potentially move to limit the use of data for some purposes.
When it comes to the race to employ the new technologies first, and with the greatest impact, "Those who reach critical mass first can pick the best risks and achieve operational cost efficiencies compared to the laggards," the report says. "Smaller insurers that lack the resources to invest are most at risk. Benefits from scale tied to greater technology use and investment will also contribute to further [merger and acquisition] activity in the sector."
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