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Aligning Cost to Performance: How Digital Transformation is Nurturing the Insurance Industry

Blonde hair, blue eyes, fair skin – we know about our physical make up... what about our digital make up? What does our Code Halo say about us? And more importantly – who does it say it to? How is this “changing the rules”?

Yesterday, Cognizant launched its book: Code Halos, which looks at the way in which our digital composition is changing the way industries operate. Though we can’t see it, we all have a ‘Code Halo’; it is our digital finger print that comprises our tastes, preferences and lifestyle choices, based on our digital interactions.

Although this is far from a new concept, it seems that the world in which we live is moving through different generations of Code Halos, without us necessarily knowing about it. We’re aware of how they impact on our social media interactions, our shopping experiences and our online movie choices, but there is no reason it should stop there. And it isn’t. Code Halos can be used, and are starting to be used in areas such as banking, financial services and insurance with a view to creating the most highly customized products, packages and pricing available to individuals.

After banking, the insurance sector is the most economically impacted by the application of business analytics; this is evident through the number of insurance BPO providers delivering some form of analytics services to insurers today: 100% of major P&C BPO providers offer some form of analytics (notably CAT Modelling, offered by around half of providers - nearly double that of 10-years ago) and ~60% of LA&P BPO providers are doing the same. To date, analytics in insurance has existed to help eliminate, fraud, risk and leakage – that still remains, but the existence of Code Halos is providing another level of detail about the way individuals live, which is allowing insurers to tailor what the bring to market – and how they price it.

An obvious example is in the the increasing use of telematics in the auto insurance industry. So far, insurers have relied on estimates to price policies, but the introduction of the little black boxes in cars enables insurers to know about individual’s behavior behind the wheel: how fast they move off, how suddenly they break and the times of day they drive. This information paints a picture about the sort of drivers that they are and how likely they are to have an accident.

But there is scope to take this further still – Code Halos provide an insight into individuals behaviors before they even get behind the wheel or what they are doing when they reach their destinations, all of which tells a story about the way in which they choose to live their lives which ultimately helps to assess how their auto insurance packages should be tailored and how it should be priced – to ensure the driver gets the most reflective service for how he or she is acting 24/7.

The same is true in health insurance where providers of healthcare can reward customers who choose to maintain good health – to the point where companies are developing tooth sensors to monitor eating habits and oral hygiene. This gives providers of dental cover a true insight into how their customers are living and what sort of products would be most suitable to their lifestyles.

There is simply no longer a need to make estimates on how to price insurance policies or guess which products would suit the needs of individuals based on mass analysis. Code Halos allow insurers to truly know their customers and understand what they need to bring to market for them. 

There is understandable concern over who can get hold of all of this data and exactly what can be done with it – especially since much of it is outside the individual’s control. The Code Halos book discusses the need for an ‘Opt-In’ mentality, rather than ‘Opt-out’; this way, consumers of insurance, finance and anything else do not feel that their privacy is violated and the relationship remains ‘truly elective’. Likewise, although there is little chance of the law catching up any time soon with the speed at which technology moves, it is likely that legislation will be implemented in developed countries which will ensure best practices are adhered to  with respect to Code Halos usage and hopefully remove any possibility of the ‘dark side of the Halo’.

Ultimately: knowledge is power and in a world where it seems information knows no limits, the important take away from Code Halos is how to best manage the information to ensure individuals and organizations alike can receive reflective and accurate outcomes.

In Q3 2014 NelsonHall will be looking into how digital transformation is impacting the Insurance industry, and how providers of Insurance BPO are working with insurers to make the most of Code Halos to reduce their own costs and provide a more complete customer experience. 

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