By Katie Joll
Risk and insurance go hand-in-hand, and while insurers accept some level of risk, managing it to acceptable levels is a huge concern.
A recent NAIC study found that the core risks insurers face include underwriting, credit, market, operational, and liquidity risks. Every insurance company also collects vast volumes of protected data, so keeping that non-public information secure is a priority. A PWC report found that insurers are most concerned about risks related to business and operational models, cybersecurity and information management, and markets.
The PWC report states: “More and more carriers are investing in risk management technology, data analytics, and automation tools because they generate valuable business insights and efficiencies. Automation can eliminate menial tasks, data analytics can provide additional visibility into risks and risk functions, and dashboards and visualizations can streamline reporting of this information to decision-makers.”
The key for insurance companies is to have the right set of tools so that they can effectively manage their large quantities of data and leverage it for risk management.
Importance of Master Data Management in Insurance
One of the challenges insurers face is that it’s difficult to get an accurate or complete picture when data is spread across multiple disparate systems and sources. This can lead to inaccuracies or major errors.
A large UK case highlights the importance of proper data management. In a scandal that played out for the best part of a decade, insurers had to pay out billions of pounds to claimants due to mis-sold payment protection insurance policies. Proper data management could have alerted insurers early and helped to avoid this.
Master Data Management (MDM) is an information management discipline that draws data together from all sources and cleans it up to present a “single source of truth.” It basically means that insurers reduce the risk of “hidden” information that could have informed better decisions, or inaccurate information that leads to poor decisions. For example, inaccurate data can lead to misquoted insurance policies, as happened with the PPI scandal.
Accuracy, integrity, and validity are key data goals that MDM supports. In the end, no matter which department or job role needs to handle the data, it should be presented in a consistent way and tell the same story.
Master Data Management and Risk Management
Master Data Management supports risk management in insurance, firstly by helping insurers to make data-driven decisions based on complete, accurate data. It reduces the risk of outdated information or other errors by pulling together “clean” data. MDM also allows for better real-time information for decision makers. This gives a clear picture of risk exposure to inform those decisions.
Data integration is a core role of MDM, allowing data from different sources to be pulled together. Through this process, the data undergoes checks for quality so that the centralized source is trustworthy. For insurers undertaking risk assessment, this is essential for grasping the full picture and confidently making data-based decisions.
MDM can also help reduce fraud by avoiding duplicate information and ensuring that insurers have the full picture of each customer. This 360 degree view can also improve business insight into customer experience issues. Insights like this help insurance companies to tailor their approach and reduce customer churn risk due to poor experiences.
MDM allows insurance companies to streamline the risk management and due diligence processes. In some cases, you can choose to leverage algorithms or AI so that actions or decisions are automated based on risk profile. This can help to reduce the risk of human error.
APRIL is an international group of insurance services with over 2300 staff, a network of over 15,000 brokers, and operations in 16 countries. With so many sources of data, they were primarily driven to improve the customer experience with an integrated approach through Semarchy xDM, but found additional benefits once it was implemented.
From a risk management perspective, they improved customer knowledge so that anyone among their brokers or staff was presented with accurate, up-to-date data. They also benefited from improved business intelligence, helping them to define and enforce their corporate policies. In terms of legal or regulatory risk, MDM allowed APRIL to advance their data governance and ensure compliance with privacy and security requirements.
Pitfalls of poor data management for risk assessment
Poor data management can have severe ramifications for risk assessment in insurance. Incomplete or inaccurate data can lead to either over or under estimation of risk. Both can be costly.
When risk is overestimated, insurers may deny coverage where it could otherwise have been offered. This not only cuts off potential revenue, but creates a poor customer experience and reputational risk. People are often quick to tell others!
On the other hand, underestimating risk can lead to coverage decisions that shouldn’t have been granted in the first place. The company may end up paying out too much in claims for policies that were a bad risk.
Robust MDM strategies help to avoid these risk assessment errors. The “single source of truth” for data ensures that insurers get the full picture and can accurately predict risk profiles.
Master Data Management is a risk management game changer for the insurance industry. It helps insurers to know the full story and to rely on the picture that data is giving them, by presenting a unified source of truth.
From a risk management perspective, MDM allows insurers to gain a better view of risk profiles, improve customer experiences and reputational risk, mitigate fraud, and improve data governance.
PWC reports: “Insurers should increase investments in risk management technology, prioritizing tools that facilitate real-time automation and identify risks across functions. Risk management tech provides better insights into KRIs and KPIs with live dashboards, visualizations and real-time information.”
MDM is a valuable part of that risk management tech and will help your company to mitigate risk into the future.
Semarchy helps insurance companies to improve risk management through Master Data Management. Get started with us today.