Accenture believes that carriers need to understand risk as a function of customers’ collective and individual behavior and how those behaviors are linked and influenced across different customer segments. This risk assessment capability would allow them to predict the propagation of risk throughout society, giving them a competitive edge over the digital disrupters entering the insurance market.

As Accenture explains in its report, Spatial Risk Diffusion: Predicting the Propagation of Risk Linked to Human Behavior, we partnered with researchers at the Stevens Institute of Technology to develop a model to test our theory. And indeed, the Spatial Risk Diffusion Model did validate it.

Spatial-Risk-Diffusion-SmallSo, what could this new risk-assessment approach mean in financial and other terms for carriers?

According to Accenture’s analyses, the model’s potential impact on carriers’ financials is significant. For example, consider the auto market. In the United States, teenagers’ risk attitudes are becoming more conservative by about 4% annually. Auto insurers could improve their loss ratios by 60 to 100 basis points by accounting for the risk diffusion effects gleaned from state-level data, Accenture’s analyses suggest. However, as we refine our analyses to a more granular zip code or county level, the loss-savings opportunity could be larger.

Insurers that use Spatial Risk Diffusion Modeling also would likely realize benefits in loss reserving.  As a result of their improved risk assessments, their estimated future liabilities for those risks should be lower relative to their relevant premium volumes.

In addition, the model opens up more avenues into target markets. Not only could insurers approach these markets directly, they also could allocate some marketing resources to regions the model has identified as having a meaningful influence over the behavior in the target markets. The model would work similarly in public policy campaigns.

To test the Spatial Risk Diffusion Model further, Accenture is preparing to conduct a study involving actual insurance claims data. If you think your company might be interested in participating in this study, please get in touch with me.

To learn more about the study, download Spatial Risk Diffusion: Predicting the Propagation of Risk Linked to Human Behavior.

Next time: Getting started.

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