To win the information "arms race," insurers are beingchallenged to upgrade their data-management capabilities inunderwriting, pricing, and claims, while grappling with a host ofrelated technological and liability issues along the way.

Data, which is the lifeblood of insurance, is experiencingexponential growth. That should be a boon for the industry, butdeveloping strategies to better integrate and leverage existing andemerging data sources is proving to be a daunting challenge formany insurers.

As more and more carriers look to execute strategies todrive performance and reduce riskthrough improved utilization of data and advancedanalytics, insurers should be prepared to makethe tradeoffs neededto develop capabilities they believewill provide them with acompetitive advantage. In some cases this might lead tothe needto revisit and modify traditionalbusiness and operating models.

Take the rapidly evolving field of telematics, for example.Pioneered over a decade ago, telematic offerings have beenexpanding rapidly in the personal-auto market, yet such initiativesdon't take shape overnight. A lot of investment is required torealize the benefits of gathering real-time data on driverbehavior. Smaller carriers are particularly challenged in terms ofcollecting a sufficient amount of historical data for underwritingand pricing purposes.

Large, national players with the in-house ability to gather andharness sufficient data to effectively manage usage-based autoprograms may have a competitive advantage for the moment, but thatedge might be short-lived. The emergence of centralized dataaggregators may soon level the telematics playing field for smallerand regional competitors by offering such carriers the criticalmass of information required to support such products.

Another potentially game-changing technological change may cometo telematics in the form of mobile technology, as more insurersturn to smartphones to track driver behavior rather than askconsumers to install a piece of special monitoring hardware intheir vehicle, or adapt to those already installed by automanufacturers. A mobile app also offers real-time feedback toparticipating drivers, among other advantages.

In more general terms, while most insurers have migrated theirdesktop and laptop functions to mobile platforms, they usually onlyaddress basic transactions, such as filing a claim or checking forproof of insurance. To differentiate themselves and improveengagement with policyholders, carriers are going to look todevelop more ambitious mobile applications that make insurers partof a consumer's everyday life. Telematics is one such option—andnot just for auto insurance, as similar opportunities could beexplored in other lines as well.

In any case, digital strategies that more closely engagepolicyholders and improve customer experience and retention are nolonger aspirations, but likely necessities in a mobile-drivenculture and economy.

In the meantime, as carriers overall accumulate more and moredata, the threat of cybercrime and growing privacy exposures arelikely to keep insurance company chief information officers up atnight pondering more effective risk management techniques.

As additional data sources pour into insurance carrier systems,security and privacy will become an even bigger enterprise riskmanagement challenge, rising on the agenda of senior management andboard members.

The threat landscape will continue to evolve, which meansinsurers will need to constantly update their defenses to reassureconsumers who are nervous about sharing too much data aboutthemselves with insurers or any other third party.