The alternative data footprint that is changing how insurance companies assess risk

Millions of small businesses apply for insurance policies on a yearly basis, while insurance companies have access to very limited information. Alt data is powering new risk – reward assessment models. 

In this article we will discuss:

• Customer risk classification
• What insurers stand to gain from applicant alt data footprints?
• Beyond risk assessment

Customer risk classification 

General liability insurance application – business profile 

Most of your small business insurance policy customer applications probably look something like this:

When insurers look at a given application they may see employee work permits, shop title deeds or lease agreements, fire code compliance forms and a long list of documents which are very important. But these pieces of information are partial at best, and in a worst case scenario they do not even begin to shed light on the potential risks at hand. 

So, how can large insurance enterprises get granular about who they insure, what risks said business or property really poses, and what pricing plans and premiums should be applied?

The short answer is alternative data 

What insurers stand to gain from applicant alt data footprints?

Alternative data is any user or environment-generated data set that deviates from your classic data such as:

Store opening times 

Something as basic as when a business actually has its doors open is crucial when assessing the validity of a claim. A business may claim to be open 9am-8pm when they submit a liability claim for an employee who was injured during working hours. Alternative data may paint a different picture when their Facebook page reveals that they are only open until 5pm, deeming the insurance policy irrelevant for an accident that took place at 7 pm. 

Risk mapping 

Mapping geographic areas for crime rates and other above average risk factors such as hurricanes, can have a major impact on the premium of a general liability insurance application. Say Jim Choo is located smack in the middle of downtown with through-the-roof crime rates versus a quiet crime-free suburban strip mall. Insurance companies need to have access to this kind of information in order to accurately risk-based policy rates. 

Health code compliance

A customer can bring a lawsuit against a business for any number of healthcode violations. In this case, the general liability insurance policy would cover Jim Choo’s legal expenses. But what if they already have a track record for healthcode violations such as using products with an expired expiration date. Knowing this could set off a cautionary alert and potentially even disqualify this business from receiving coverage from your insurance agency. 

Claims and fines 

Insurers will want to know about previous claims and fines submitted and levied. This may include: 

• The number of customer/employee injury lawsuits brought against a business
• Municipal building code infringements 
• Immigration-documented illegal aliens previously/currently employed at a place of business

This information may help insurers tailor a special general liability insurance plan which is tailored to this company’s unique needs. It may stipulate that employee injury lawsuits are disproportionate in number and thus not included in the requested insurance plan. This information may empower an insurance company to drastically increase a businesses copay in the event of an employee-filed lawsuit. 

Reputational harm 

Insurance companies may also like to find out how long a company has actually been in business. Have they changed their name or branding to cover up previous unfortunate occurrences in order to avoid driving insurance premiums up? Collecting social media and search trend data points may hold concrete answers, which can help insurers decrease risk and liability. 

Beyond risk assessment 

Beyond sheer risk assessment, enabling insurers to practically set risk-based rates, and exclude problematic high risk portions of a policy for certain businesses. Alternative data sets are also enabling insurance companies to provide more personalized customer experiences as well as staying on top of their market intelligence game. 

Personalized customer experience

Customers today have come to expect tailored experiences. They expect their insurance providers to follow suit without any special exceptions. One way that modern insurance providers are achieving this is through alternative data. For example, a store located in the vicinity of manufacturers using highly flammable materials may not think to get tier-1 fire coverage until his or her insurance provider points out the very real risks at hand. 

Market intelligence

Market intelligence is a very broad term that can be used to describe the practice of understanding what is being done in your industry and how your company can respond. For example, alternative data may turn up new insurance trends that are helping decrease insurance liability while helping consumers maintain their property. One such example is, Hippo that offers policyholders complementary smart home devices. By scanning alternative data including, but not limited to, search trends and paid promotion, your insurance agency could identify such trends in order to better compete. 

The bottom line 

Whether you are a national or global insurance provider alternative data sets can help you upgrade your risk assessment models based on information which would otherwise not be factored in. A personalized customer experience, and market intelligence will help you cement yourself as an industry leader.