To win the information "arms race," insurers are being challenged to upgrade their data-management capabilities in underwriting, pricing, and claims, while grappling with a host of related technological and liability issues along the way.

Data, which is the lifeblood of insurance, is experiencing exponential growth. That should be a boon for the industry, but developing strategies to better integrate and leverage existing and emerging data sources is proving to be a daunting challenge for many insurers.

As more and more carriers look to execute strategies to drive performance and reduce risk through improved utilization of data and advanced analytics, insurers should be prepared to make the tradeoffs needed to develop capabilities they believe will provide them with a competitive advantage. In some cases this might lead to the need to revisit and modify traditional business and operating models.

Take the rapidly evolving field of telematics, for example. Pioneered over a decade ago, telematic offerings have been expanding rapidly in the personal-auto market, yet such initiatives don't take shape overnight. A lot of investment is required to realize the benefits of gathering real-time data on driver behavior. Smaller carriers are particularly challenged in terms of collecting a sufficient amount of historical data for underwriting and pricing purposes.

Large, national players with the in-house ability to gather and harness sufficient data to effectively manage usage-based auto programs may have a competitive advantage for the moment, but that edge might be short-lived. The emergence of centralized data aggregators may soon level the telematics playing field for smaller and regional competitors by offering such carriers the critical mass of information required to support such products.

Another potentially game-changing technological change may come to telematics in the form of mobile technology, as more insurers turn to smartphones to track driver behavior rather than ask consumers to install a piece of special monitoring hardware in their vehicle, or adapt to those already installed by auto manufacturers. A mobile app also offers real-time feedback to participating drivers, among other advantages.

In more general terms, while most insurers have migrated their desktop and laptop functions to mobile platforms, they usually only address basic transactions, such as filing a claim or checking for proof of insurance. To differentiate themselves and improve engagement with policyholders, carriers are going to look to develop more ambitious mobile applications that make insurers part of a consumer's everyday life. Telematics is one such option—and not just for auto insurance, as similar opportunities could be explored in other lines as well.

In any case, digital strategies that more closely engage policyholders and improve customer experience and retention are no longer aspirations, but likely necessities in a mobile-driven culture and economy.

In the meantime, as carriers overall accumulate more and more data, the threat of cybercrime and growing privacy exposures are likely to keep insurance company chief information officers up at night pondering more effective risk management techniques.

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

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