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How do life insurance companies use big data?

Jul 30, 2021 9 Minute Read

As a consumer, protecting your data is an important part of your financial security. According to Pew Research Center, 81% of Americans believe they have little control over the information companies collect about them, and that the potential risks of collecting that data outweigh the benefits. With more companies relying on personal data to market and sell their products, what is big data – and what does it have to do with life insurance?  

The concept of “big data” can be confusing. It might even seem intrusive to your privacy. Yet big data doesn’t mean giving up control of your personal information, and it can actually benefit you as a consumer. A growing number of companies are using data-driven techniques to offer better products and services and improve customer service, especially when it comes to big data in insurance. 

Big Data in insurance

Take a step back. What is big data anyway? What do you need to know about insurance big data?

Gartner, a leading research and advisory company, defines big data as “high-volume, high-velocity and/or high-variety information assets” – which means data that’s large, quickly changing or complex enough to require technology to understand. 

“By using technology to process big data, companies can make decisions faster and gain a better understanding of customers’ preferences, lifestyles, and needs,” says Dave Drollette, Chief Data and Technology Officer at eFinancial’s parent company, Vericity, Inc. 

Many businesses have access to vast amounts of information on current customers or people that may be a good fit for their products. Using this information, companies can make better decisions about how they meet customer expectations and fill needs.

To some people, “big data” may bring up thoughts of intrusive use of personal information, including detailed financial transaction data, how often they eat fast food, or the types of subscriptions they receive. That’s not the way big data works in the insurance industry. Instead, insurers mainly focus on the digitization of health and lifestyle-focused data.

Insurance companies have long used information about mortality rates, health trends, and consumer behavior to make better decisions for their companies and for policyholders. Today, big data is changing the way they do this. While employees used to gather and analyze that information by hand, companies are now using sophisticated technology to:

  • Better understand trends. By taking in this information on a large scale, rather than a person-by-person view, the insurance industry can review that information to help determine trends. This can help insurance companies better understand risks, price policies accurately, and design more effective products for customers.
  • Speed up operations. Since insurers use technology to collect and analyze this data, big data also eliminates the need for manual review conducted by a human. As a result, data-driven decision-making is faster, more accurate, and less influenced by human decisions and beliefs. 

How do companies use big data in insurance?

Life insurance companies gather data from various sources to create underwriting standards and verify information shared on customer applications. The data they collect may include:

  • Prescription history
  • Motor vehicle records
  • Criminal records
  • Electronic health records
  • FCRA-compliant financial records
  • Professional licenses, such as a medical license

For example, an insurance company might request an applicant’s prescription records to take a closer look at their medical history and verify information shared during the application. They can use this information to better understand the applicant’s overall health and risk to the insurance company. Insurers also collect data to make decisions about products they offer, such as reviewing life expectancy trends to set prices for life insurance products based on age. 

Keep in mind that insurance companies only collect data that’s available in the public domain and follow relevant regulations to make sure data is used fairly and accurately. That includes following the Fair Credit Reporting Act (FCRA), a law set by the Federal Trade Commission that sets standards for the sharing of financial information. For the data to be FCRA-compliant, it must be disclosable, disputable, and correctable. 

Once they collect data, insurance companies may use it to:

  • Get better insight into consumer behavior
  • Understand risks so they can underwrite policies more accurately 
  • Evaluate customer preferences and unmet needs so they can create better products and services

Some of the methods companies use to collect and analyze life insurance data include:

Predictive analytics: Predictive analytics allow companies to gain insight into what could occur and anticipate emerging trends. This can help companies to make better risk assessments based on life insurance analytics, often ensuring more accurate pricing for consumer policies. 

Machine learning: By collecting, organizing, and using data more efficiently through machine learning, insurance companies improve their operations processes. That can directly help consumers by speeding up insurance application and claims process. Machine learning may also help insurance companies make recommendations for policies that may fit a person’s needs based on trends.

IoT (or the Internet of Things): Did you know that wearables and insurance products often go hand-in-hand? Using IoT, companies can better understand what people are doing and how they are doing it, such as incorporating apps to encourage customers to participate in fitness programs. Consumers who meet exercise goals may receive a discount or another acknowledgment for their efforts. 

These are just some of the ways life insurance companies are using big data today. Expect technology to become even more sophisticated in the coming years, like the use of blockchain to document complex and detailed records and artificial intelligence to help automate decision-making.

How does insurance big data benefit customers?

By tapping into a wide range of data sources, life insurance companies can continue to improve the products they sell and the service they provide. Here are a few examples:

Faster Approvals

Big data helps companies underwrite policies, enabling faster approvals and denials. This means your life insurance policy may go into effect faster – helping you protect your family financially sooner. It also means less hassle, with fewer phone calls, fewer records to track down manually, and potentially fewer medical requirements to complete. 

Cost Savings

Big data does a lot of the work employees had to spend hours doing before. This can add up to big cost savings for the insurance company, which they can then pass on to policyholders.

Waived Medical Exams

Interested in life insurance but don’t want to go through a medical exam? Another way big data may help consumers is by simplifying the more frustrating parts of the life insurance application process, including scheduling medical exams. These data sources can provide medical records and other health information to the insurance company to help them price your plan accurately. That may enable you to skip the formal medical exam, in some cases.

Incentivizing Positive Behavior

Insurance companies use big data not just as a static figure, but also as a moving target. The less likely a person is to die during their policy term, the lower the price for life insurance coverage. In some cases, insurers use big data to offer ways to reduce risk.

For example, some insurers may provide a pedometer to help encourage policyholders to be more active. If people exercise regularly and track steps in an app, insurers can offer them incentives or lower prices. 

Reduced Fraudulent Claims (which saves customers money)

Accuracy and honesty are big factors in securing life insurance policies. Insurance companies want to do all they can to reduce spending on fraudulent claims. Verifying data and gathering information about applicants plays a big role in that process.

Better Customer Service

Big data can give your life insurance company a better snapshot of your needs and preferences, so they can serve you better from the time you start your application to the time a loved one files a claim. By analyzing trends in applications and purchases, companies can pinpoint and address challenges that make buying life insurance difficult for customers. Big data also provides a way for companies to offer more personalized service. Using insights on which customers tend to choose specific policy types, insurance agents can help consumers select policies that fit their needs and budgets.

MIB insurance database

The MIB insurance database (formerly called the Medical Information Bureau) is one resource insurance companies may use to vet applications. This service allows insurance companies to verify applicant information for accuracy. For example, say a customer applies for a life insurance policy noting they have a clean medical record, but they applied for a different policy last year and stated in the application that they had cancer. The MIB insurance database can flag that omission to the insurance company so it can get the full picture of the applicant’s risk.

In the long term, this extra layer of verification helps companies assess risk better and reduce fraudulent claims. Those lowered costs for insurers can translate into savings for policyholders.

Life insurance analytics

Once you’re covered, data analytics and systems can help your insurance company do a better job of providing the support you and your family need. When a family member makes a life insurance claim, for example, the process of verifying information, processing, and making payment becomes more streamlined and less stressful in a time of need.

Ultimately, big data benefits you as a consumer in many ways. It helps insurance companies better meet your needs and also improves their ability to provide cost-effective, quality policies you can feel good about investing in to protect your family’s needs. There are few, if any, risks to consumers, and plenty of reasons to want your insurer to use this type of data and technology to determine your life insurance eligibility and rates.

Do life insurance companies share information?

Protecting your personal data is a big (and legitimate) concern for many people. That’s why life insurance companies take steps to minimize any type of privacy concerns for consumers – both those who are their policyholders and those who are not.

Generally speaking, insurers manage this data in the same way they would handle any other type of health or financial data. The most sensitive data is highly protected and kept within the company’s systems and facilities. Only those who have a business need to access that data can do so.

This data protection applies to all types of data, including medical records, health care applications, radiological images, payment information, or medication information. It includes proper management of every aspect of the process, including methods used to gather, use, store, retrieve, and finally dispose of it when it’s time. The goal is to ensure all personal information about any individual is completely private and safeguarded at every step.

Companies follow industry standards, laws, and regulations to help make sure their data use is fully compliant. Newer laws and regulations include the California Consumer Privacy Act (CCPA), which is a data privacy law that regulates how companies can use personal information for residents of the state, and the California Privacy Rights Act (CPRA), which takes that law further by regulating advertising using personal information. 

Companies also work to maintain and enhance security on an ongoing basis as new technologies and threats occur.

What questions should consumers ask their insurance company about the use of big data?

As a consumer, you have every right to ask questions and understand how an insurance company is incorporating big data into its operations. Check the company’s privacy policy to understand: 

  • What type of data sources is the company using? For example, what types of data are they collecting in general and about you specifically?
  • What steps is the company taking to ensure all information is kept private and secure? This includes not only information on your application, but also any information collected through big data.
  • Who should you contact if it appears that any of that data has been compromised?
  • What happens if the data collected is not accurate? Who should you contact to correct that data?
  • Will you be alerted to concerns or information that does not match the information on an application?

Based on those answers, you should feel comfortable about requesting more clarification if you’re concerned about a company’s personal information and big data use.

Big data is a big part of the insurance industry today, and the role of data is likely to only grow in the coming years. As a consumer, big data in life insurance creates new opportunities for better insurance products and services. That means you have a better chance of finding a plan that fits your goals, needs and budget, so you can keep your family secure financially as the future unfolds.

Still have questions about big data and insurance?

eFinancial is committed to using data responsibly and accurately to make life insurance simple, understandable, and affordable for everyday families. 

Ready to shop for life insurance? Start an online quote or give our team a call at (844) 632-8899.