How Big Data and Cognitive Computing Are Transforming Insurance – Part 1
Today, two major factors are poised to change the insurance industry in a way it hasn’t seen in more than 50 years—emerging capabilities enabled by cognitive computing and big data, and an empowered consumer. If history is any indication, these technologies will usher in a new paradigm for the insurance industry.
Over the last 50 years, little has changed when it comes to the fundamentals of the insurance industry. A provider models a set of risks, determines which factors indicate variations in the risk, creates a rating model based on these factors, collects data pertaining to the factors and then computes a rate. This is the traditional product-centric approach to business: the product is modeled and personal or corporate factors determine the price of the product. While the industry has continued to seek efficiencies and created more segments for the models, the underlying business model remains the same in terms of how carriers provide coverage to the market.
Cognitive computing will allow underwriters to underwrite like their forebears—by evaluating the unique risks of each customer as opposed to aligning risk to a defined product. And this work can happen in real time based on knowledge of the customer, past experiences and future predictions—at great scale. This defines a paradigm shift to a customer-centric approach to insurance. Each customer presents their own unique risk profile. Insurers will be able to assess profiles at the customer level instead of assessing abstract personal attributes and relating them back to a rigidly defined product model.
Cognitive computers have the ability to do what the earliest underwriters did: approach each risk individually and, based on historical learning, apply reason and judgment to determine a rate. Going forward, logic will no longer be dictated strictly by lines of code. Cognitive computing allows insurers to analyze massive amounts of unstructured and structured information in real time, formulate thousands of hypotheses, test for the best hypothesis, determine an optimal outcome and learn from the results.
As demonstrated by IBM Watson, the supercomputer that competed—and defeated—the best of the best on the Jeopardy! television game show, this can be done in milliseconds. Ultimately, this presents a new computing model that will allow insurers to create a truly personalized and customer-centric product. The new era of cognitive computing has the potential to transform the insurance industry.
To learn more about how the emerging capabilities are reshaping the industry, read our white paper, The future of insurance: How big data and cognitive computing are transforming the industry
Leave me a comment below: how do you see big data and computing effecting the "tried and true" insurance paradigm?