6point6: CUOs must lead the data revolution
With a PhD in the History of Ideas, Dan Budden spent many years working in technology and data consulting with a Big Four consultancy before joining specialist data consultancy to the insurance sector 6point6. Here, he speaks to Insider Engage about the challenges facing the insurance sector when it comes to embracing the data revolution, and the role of the Chief Underwriting Officer in leading the charge.
Q: You could argue that the insurance sector has been data-driven since its inception – so what are the big data opportunities for insurers today?
Dan Budden: Life tables and regression models have been around for a long time in the insurance industry, but what’s changed today is the ability to do these types of things at scale, using the cloud. you can transform your customer experience, solve problems across the underwriting value chain, and across claims as well.
But the hard part is that all the low hanging fruit has now been picked. The easy use cases like chatbots have been done or are getting done.
The second hard part is that being in the ecosystem makes it hard to know where to focus first. Those dealing with multiple lines or complex risks are interacting with many different markets, portals, platforms, insurers and clients, who are also in the process of changing. You have a lot of dependencies in that network, so it’s difficult to know where to focus first.
This is why so far, the main data-led advances have come from carriers that can isolate their innovation from that ecosystem in some way: either by selecting the line of business carefully or going direct to the consumer. Lemonade is a great example of how success has happened so far.
Q: Where are the best examples of this type of innovation done well?
DB: For those in the market tasked with underwriting risk, and looking for large scale transformation, the best place to look for inspiration is in other sectors. No matter whether you’re looking at a hard or soft market, you need to know the risks, who your best clients are, and find more clients with the same profile.
A great example of a sector that’s already doing this is retail. Supermarkets, for example, have a really complex and nuanced understanding of their customer. When it comes to underwriting, a lot of insurers still think in terms of basic personas. But a multidimensional view of their market would help them make better strategic decisions.
Another great example is Netflix, who use thousands of different genre labels on their content to build a detailed understanding of the viewer. Risk should be thought of the same way – as a matchmaking exercise.
Q: How do you see the role of the chief underwriter evolving using data and analytics?
DB: I’ve met lots of different CUOs, and some have that actuarial background, and some are in leadership positions that are more about the sales and relationships. My point of view is that they need to be the data leaders of the business – but many of them don’t realise it yet.
What tends to be missing from the conversation about data roles (e.g. data science, data engineering), is that businesses also need data leaders, who should come from within the business. The data leader needs to have a really good sense of the purpose and mission of the organisation.
...they need to be the data leaders of the business – but many of them don’t realise it yet
I believe this is the future of underwriting, which already has the heritage of actuarial. It’s about blending the best of actuarial together with data science and engineering – bringing those three things together. That’s where the future of insurance lies.
The data leader’s role is to ask the right questions and set the right limits. Questions like, how far into the decision making do you want this data solution to have control? What’s the limit over human intervention? What are we looking for in an algorithm: new risk factors or new customers?
The CUO needs to ask these questions so that the rest of the team can design and curate the right solutions. CUOs are the only ones who can do this. It taps into the fundamental process of the insurer and how it operates.
Imagine a business as a restaurant. The data is the ingredients coming into the restaurant and being processed by machinery and sous-chefs – algorithms and data scientists. There are also creative chefs coming up with new recipes. But if the food never leaves the kitchen, it’s not working as a restaurant – the key part of the process is getting new food out in front of customers and satisfying them. This is the role of the CUO.
Insurance is like the old, grand hotel: it’s been there forever, and people go there because they like the tradition, ceremony and heritage. They’re trying to find a new head chef, use exotic new ingredients, but you need to strike the right balance to make sure it still works for the customers. Only CUOs can do that – because not only do they understand what the customers need, but they also know how to work with information. They’re going to become the hotel owners. You’ll go there for their name, but the restaurant will be an attraction rather than a distraction.