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Data is the New Oil and Its Implication for Insurance

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The Facebook/Mark Zuckerberg hearings recently held by the U.S. Congress made me realize something. Most people don’t know just how potent data is in today’s digital world. It’s more important than many of us probably realize. Simply put, data is the new oil.

Congress’s lack knowledge about Internet basics was evident during the hearings—even though Facebook is the second largest company in America. All this attention from the Congress stems from the activities surrounding the country’s presidential and England’s Brexit elections.

Social media may have influenced both elections’ results and marked a major milestone in media history. The impact was similar to that made by television during the Nixon/Kennedy debates back in 1960, when TV first inserted itself into politics.

Trade off Is Clear

The impact made on the public during Brexit and the presidential elections is the result of a trade made between consumers and major tech giants, like Google, Facebook, and other social media companies.

They’ve invested millions in creating amazing personalized user experiences for their consumers by offering by using a proven marketing strategy: They offer consumers free use of their services in exchange for one simple thing: their personalized data.

As long as you gave them your data, you can use their platforms as much as you want—at no charge. But using their platforms comes at a huge cost. The more data you provide the tech giants, the more things they know about you and the more personal they make your customer experience.

Up until a few weeks ago, everyone was fine with that trade-off. Consumers traded their personal information in exchange for getting advertising relevant to their interests. But the elections changed all that. It made people realize just how powerful their data is.

The Power of Data

Facebook is a great example of the power of data and how companies use it. Only 10 years ago, Facebook was little known. It had few users and not much visibility. Since then, however, things have changed. Facebook has grown to more than 2.13 billion monthly active users, with 1.15 billion using mobile devices.

People loved the tradeoff between data and free services, so they freely gave their information. That strategy has worked out well for the tech giants. In fact, it’s been a veritable Garden of Eden for them for the last ten years and many other companies, including a lot of prominent insurance companies. Thanks to the tradeoff, the tech giants knew just about everything about its users.

During that time, I’ve always been in a “performance” field, so all my marketing investments had core KPIs of sales and ROI. I’ve done well in insurance thanks to the data these platforms generate and the powerful analytics and segmentation information provided by them—information I could use to boost sales and profitability.

Online to Surpass All Other Media Formats

Online advertising in the U.S. has done well for itself. In fact, it has surpassed all other ad media formats with more than $83 billion invested in it, says eMarketer. During the last few years, digital advertising has experienced dramatic growth, especially in Social Media, where researchers expect that 3 billion people will link up with Social Media by 2021. That would be 74 percent of the total Internet users.

With all this data available, social platforms have been able to employ deep analytics and machine learning to create great user experiences. Analytics has been critical in the creation process. It’s the hub around which everything revolves. Also critical is all the data consumers provided them.

We all love getting great recommendations on video from Netflix based on what we have watched. We also love getting great recommendations on music from Spotify based on our tastes in music. Plus, we love getting cross-sell and upsell recommendations from Amazon based on previous searches and purchases.

But what marketers and politicians can do with our data using the same logic, platforms, and tools, however, has shocked us. Clearly, data is extremely powerful. Plus, there’s nothing illegal about what these companies are doing with our data. Instead, they’ve put our data and their tools to good use generating additional revenues for themselves.

The Future of Data

Given these events, I expect three things to happen:

  1.  Data protection and regulation for big tech companies will change. I expect increased governmental regulation of third party data companies and increased “transparency” as a result.
  2. Big tech awareness about their role in protecting your data will increase, and they’ll become more careful about how they use the power produced by our data. Plus, they’ll get better at regulating themselves.
  3. Customer awareness about the importance of data will grow as well: The #DeleteFacebook movement hasn’t led to mass user defections yet. But younger users were already starting to leave even before they heard about Cambridge Analytica in March. Privacy concerns may lead some Gen Xers and Baby Boomers to reconsider their usage patterns as well.

What does it mean for insurance?

Insurance uses data copiously. In fact, it’s the heart of its business model. Using historical data and deep statistics for actuaries and underwriters to define risk is the nature of the business. The only things that insurance manage and produce are “smart data,” which helps determine what the company’s risk is and what customers will have to pay to cover this risk and be compensated for in case of a claim.

Plus, claims are paid based on data. There is no better landscape for digital technology to exploit than the insurance sector. Insurance produces no physical good, so we don’t need to transform data or need to deal with factories, logistics or suppliers. We only work with Data.

But insurance companies that work with sensitive data must have tight control of customers’ personal information. That can’t allow the data they collect to impact the public perception of political candidates, economic issues, or other critical issues. And will they may need to regulate the advertising they do on social media platforms, they don’t have to do anything critical.

More Thoughts on Data’s Future

Below are some additional thoughts on data that come up when talking about data issues:

  1. Data strategy — All insurance companies need a “data strategy” designed to optimize and manage their internal and external data. Data will become more and more critical as time ensues, so having the people, capabilities, and vision regarding data protection will be imperative. The insurance companies that manage data well can take advantage of it.
  2. Enriched data — With all the customer data they have, insurance companies can combine internal and external information to create better customer experiences and create insurance products tailored to customers’ demands. They can be one to one products with help from external data.
  3. New risks — There will be new risks associated with these critical data assets. At Chubb, for example, we have a Cyber product for SME and individuals so they can protect themselves in case there is a breach of their privacy and key information.
  4. Analytics as a core pillar of the organization — More and more analytics needs to become the “director” of their decisions. When insurance companies combine their data with that from third party sources, they’ll have an amazing repository of data. But data by itself doesn’t mean a thing without analytics to interpret it.

We live in exciting times, where data is the new oil. Data is both a resource and a key asset. How we get it, how we process it, and how we take steps to create products and services using data will become the foundation of every company competing in the digital age we’re now entering.

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