Chapter(18): Insurance Industry

Advances in Big Data analytics, artificial intelligence, and the Internet of Things transform the insurance industry, and data play a critical role in insurance strategy decisions. New digital data sources reveal information about behaviors and lifestyle habits that allow insurers to assess individual risks much better than before. However, the emergence of Big Data raises several concerns regarding privacy, personalization of insurance, and competition, which require intricate and complex value judgments.
Digitization and the application of Big Data analytics can considerably reduce insurance costs by automation of processes along the entire insurance value chain. They could mitigate informational asymmetries, a key driver of inefficiency in insurance. Moreover, they allow for new usage-based insurance propositions and coverage for risks that so far have been considered uninsurable. Great societal benefits can ensue from better data and increased potential to reduce risks. Big Data facilitates new approaches to encourage prudent behavior. More and better data also allows for early intervention and risk prevention based on predictive analytics. Ultimately, these technologies will enable the role of insurance to evolve from pure risk protection towards predicting and preventing risks.
This chapter aims to review the opportunities and challenges of advanced analytics in the insurance industry.