Other parts of this series:
To compete with the digital disrupters entering the insurance market, carriers will need to seek out external data as a matter of course and adopt new analytics methods when assessing risk. Carriers that do not will be left behind by their competitors, particularly digital disrupters.
As Accenture explains in its report, Spatial Risk Diffusion: Predicting the Propagation of Risk Linked to Human Behavior, we believe that carriers can gain a competitive advantage over digital disrupters by adopting a risk assessment approach that focuses on risk as a social construct. The premise is that societal norms are formed through the social network interactions of a group. Those societal norms then influence the behavior of individuals within the same group.
The theory is supported by peer-reviewed medical studies involving weight gain and smoking cessation, but the insurance industry has not applied it to understanding the propagation of risk trends throughout the larger population. We believe that for the many lines of business in which human behavior drives risk, carriers that adopt this approach would be able to predict, with meaningful certainty, how today’s behavior in one part of the society will be tomorrow’s behavior somewhere else.
To test our theory, Accenture partnered with researchers at the Stevens Institute of Technology in a nearly three-month-long project last fall. The research team studied 12 years of National Highway Transportation Safety Administration data on risky teenage driving behavior, as measured by fatal and severe non-fatal accidents. Applying the model, the researchers accurately predicted which statewide populations of teen drivers would be influenced by the behavior of young drivers in other states, as well as the time needed for that behavior to propagate.
With this ability to forecast behavior, insurers would have a competitive edge in assessing whether they should enter, exit or remain in a geographical marketplace, as well as how they should best time any marketplace moves. In addition, where regulation allows, insurers could use the model to develop rates.
To learn more about the study, download Spatial Risk Diffusion: Predicting the Propagation of Risk Linked to Human Behavior.
Next time: The model’s potential impact.