Articles - The contributory factor in assessing risk

It is now almost a quarter of a century since the first contributory database entered the insurance industry, and today, 71% of personal motor insurers are using some form of ‘shared’ data such as No Claims Discount information and claims history at point of quote and throughout the customer lifecycle. However, that leaves 29% out in the cold. This is according to a survey we conducted of the motor insurance market in 2017.

 By Martyn Mathews, Business Director, LexisNexis Risk Solutions, Insurance, UK and Ireland

 90% of those using contributory databases find them useful, so what is holding back the 29%? We believe this figure could represent some of the larger insurers who may have the ability to analyse data in house, and therefore might not see the value of sharing information with their competitors and might not trust the idea of sharing their customer data in this way.

 However, even for larger insurers with data on hundreds of thousands of customers, keeping that data locked within the walls of one organisation is limiting. Almost every one of those customers will, or currently has, some form of insurance with another firm. Therefore, no one insurer can truly have a comprehensive view of that customer. So they will know some of their motor insurance history, but what about their home insurance claims, or any other insurance policy they may have and what it says about their risks? And what if they hold motor insurance with another provider already, with the aim of fraudulently claiming from both providers?

 Whatever the size of the insurance provider, operating in a silo can create blind spots and security gaps, leading to inaccurate risk profiling, inaccurate pricing and potential losses through fraud.

 Aggregated information from across the insurance market can fill those gaps. It can confirm details provided by an applicant or claimant, mitigating risk from incorrect information and providing a far more detailed picture of that customer, their risk, their propensity to claim and any indicators of fraud.

 Our study supports the theory that one of the primary reasons motor insurers use contributory databases is to help detect and combat fraud – 64% stated that this is one of their main aims, followed by more accurate pricing (54%), operational cost saving (49%) and better risk assessment (41%).

 One concern regarding the use of contributory databases, particularly for the larger insurers, is the loss of their pricing advantage. However, without specific consent being given, pooled data cannot be used for model building, so it poses no risk to their advantage. In fact, we have found that when a leading insurer participates in a contributory database, it significantly increases take-up. This in turn benefits the data pool and all those tapping into it. It can be a win-win.

 Where contributory databases make the difference
 While 80% of our respondents stated that the use of contributory databases has improved their ability to detect fraud, and 57% rate them as effective for more accurate policy pricing, the sharing of data through contributory databases also allows more digitisation and a simplification of the workflow. This increases efficiency, reduces operational costs and, as such, improves customer experience and retention.

 The insights from contributory databases can have a significant impact on an insurance provider’s strategy. The industry can see activities like 30% of consumers switch at renewal or that 45% wait to buy their new policy in the last week with 10% buying their new policy on the day of expiry. With a gap in cover, a consumer is 23% more likely to file a claim.

 What insurers want
 With a satisfaction level of 90%, contributory databases are clearly doing a great job already. But of course, improvements can always be made, and the insurers we surveyed had some strong opinions on exactly where the data could work harder.

 59% believe underwriting and claims have the potential for greater benefit, closely followed by compliance, with 56%, and marketing at 54%. Surprisingly, considering the rapid growth of application fraud, only 28% of insurers felt contributory databases could do more for contact and application.

 Overall, motor insurers are extremely positive about the role of contributory databases moving forward, with 76% agreeing that they will hold a prominent role in future and 86% believing they will help make the market more competitive.

 Contributory databases of the future
 As the volume of behavioural data continues to grow, from connected vehicles and connected homes, the potential increases for more accurate pricing and rewards to help incentivise better behaviours and reduce risk.

 As more data sources are created and begin to feed into the data pools to provide more detailed pictures of customers, applicants and the market generally, the power of contributory databases can only grow. With such clear advantages and no real disadvantages, we believe it will not be long before that 79% of insurers using contributory databases, becomes 100%.


 In January 2017, LexisNexis Risk Solutions released a comprehensive study on how digitisation is affecting the UK insurance market today. Conducted anonymously, the survey included a variety of insurer perceptions, attitudes and market insights – from defining digital strategy and digital risks, to understanding the value of using data enrichment and contributory databases. 
 Using a mix of online panel and telephone interviews, we collected data from 107 insurance professionals, who all answered questions specific to their insurance line. To take part in the survey they had to spend at least 30% of their time in underwriting-related activities. The results showed that the majority of respondents spent over 80% of their time pricing and underwriting policies. LexisNexis was not identified as the sponsor of the study (conducted 8th December - 9th January 2017).

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