A great deal of attention is being paid to "big data," as muchof the unstructured data insurers compile is being called thesedays. Such data, amassed through tools such as telematics andsocial media, threatens to swamp companies thatdon't have theinfrastructure in place to handle it and the analytics to makesense of it all.

But one problem many insurers face is they are still trying toput some order in the data they already have compiled fromtraditional sources or purchased from third-party providers.

"Certainly the right order of things is to get a handle onlittle data first, which means get a handle on your enterprise dataand the kind of structured data sources you can use to improveunderwriting and claims," says Matt Josefowicz, partner andmanaging director of Novarica and the author of the new report:Analytics and Big Data at Insurers.

In preparing the report, Josefowicz reports he noticed that eventhough there is a split between the analytics capabilities seen inlarge firms and small firms, those capabilities currently are notas pronounced as some might expect them to be.

"But when you look at future plans, the large firms areuniformly more aggressive in terms of planning to build outanalytics capabilities over the next 18 months," he says. "There ismuch more variance in whether the smaller firms are going to beactive in that area or not. I think we're going to see a realanalytics gap between the companies that have made theseinvestments and are in a position to use data more effectively andthe companies that haven't [made the investments] and are going touse more traditional methods. Those insurers [in the second group]are going to be under more severe pressure."

A carrier's ability to deal with its own data is not necessarilya good indicator of any success that same insurer might experiencein dealing with unstructured data.

"It depends on what type of big data they are looking at," saysJosefowicz. "In the scaled and the unstructured data sources, thereare different technologies required. There are newer data analyticsand data management technologies that are designed to meet thechallenges of the traditional, relational databases and traditionalanalytics rules thatdon't perform at the scale of big data."

Josefowicz believes the good news for mid-tierand smaller carriers is a class of third-party solution providerswill evolve that will perform the analytics externally and providethe model and output to smaller insurers that won't have thecapability to develop the infrastructure themselves. However, thatsegment of the market might not be able to match the timeframe thatsome large carriers have already established.

"More large insurers are building out the technologyinfrastructure for big data over the next year or so," saysJosefowicz.

For certain large firms, preparing for big data needs to be apriority today, explains Josefowicz. For small firms, he maintainsit will become a priority when they see they are being adverselyselected again.

"If the larger firms are able to leverage new data sources andnew capabilities to price more effectively and to segment themarket more finely—cherry-pick the market through betterunderwriting, marketing and targeting—smaller firms are at risk ofseeing the quality of their customers erode," he says.

One of the most discussed areas of big data has been telematics.Josefowicz believes there is great potential for the technology,but maintains the question to be answered is how can insurers taketheir telematics data and turn it into a pricing differential or anexperience differential that's meaningful for the consumer.

"What's gotten lost in the telematics discussion is the pressurefrom the direct writers and the competitive environment among thedirect writers that has pushed the price of personal auto policiesway, way down," he says. "If I'm a personal auto consumer, how muchmore of a discount am I going to get by taking advantage of one ofthe telematics programs because the pricing is already socompetitive in the marketplace?"

Josefowicz believes telematics will improve underwritingcapabilities on the fleet side, but on the personal auto side theadditional complexity that big data is emblematic of needs to bemanaged behind the scenes and not pushed out to the customer.

"The trick for insurers will be to use big data and other newanalytics capabilities to simplify the customer experience, not tomake it more complex," he says.