Insurance Research

Insurance research helps insurers in many ways from setting premiums to understanding trends. Insurance research makes a big difference is the setting of premiums. The understanding of risk is a central part of the insurance industry. Actuaries use mathematical tools and other techniques to understand risk and set premiums. Understanding risk is the key to setting premiums as intense competition does not allow insurers the luxury of high rates.

Insurance research for the consumer market

In the consumer markets insurance research has led insurers to use a variety of information for setting premiums. For example auto insurance. Insurers set premiums on the basis of the use to which the vehicle is put to; the location of the customer; past-claim record; and the model attributes. Factors such as location take into consideration he traffic flows in the area where the consumer resides to help in assessing the likelihood of an accident. Other factors such as age and marital status also play a role. Insurers set higher premiums for young unmarried males because insurance research has shown that this age group is more likely to be involved in accidents.

Insurers are increasingly using insurance scores, compiled from credit scores and insurance histories, to set premiums for home insurance policies. Insurance research includes a host of other factors involving the setting of premiums in the home insurance markets. Some of them include the age of the house, location, type of materials, number of rooms, etc. Insurance scores promise to become a growing part of the insurance research pie.

Insurance research for the commercial market

Insurance research plays even greater role in commercial segment. The needs of the policy holders in the commercial segment tend to be complex, calling for many qualitative and quantitative judgements. The premiums for liability insurance, for instance, are dependant upon the nature of business. The premiums basis for segments such as stores and manufacturing is gross sales. Insurance research plays even critical role in the reinsurance segment. Reinsurers insure the exposures of the insurers for a portion of the premiums.

Insurance research also provides crucial insights into past events. Insurers put data relating to historical claims under the magnifying glass to unearth trends. A recent study showed that one in every four auto accidents led to bodily injury liability claims in 2003. Another study of auto accidents showed that one in every five bodily injury claims exhibited signs of intentional inflation of what seemed like a legitimate claim. Insurance research helps insurers minimise fraud and identify segments which are risky. Needless to say, insurers collect higher premiums from risky customers.

However, where insurance research is really making a big difference is product design and revenue improvement. Insurers are using knowledge gleaned from insurance research and information technology to design insurance products. Tata Consultancy Services, an Indian software services company, has developed a software package called ‘Product Designer Workbench’ to create insurance products. Insurers are also using insurance research and analytic technologies to cross-sell a range of insurance products to existing customers.