Big banks have big data advantage over insurance firms

Australian insurers expect a further slowdown in revenue growth as a result of aggressive competition for customers from banks and new entrants, such as the Berkshire Hathaway backed Steadfast.

This is one of the findings from research by investment bank analysts at JP Morgan and actuaries firm, Taylor Fry, unveiled at a media briefing yesterday. It outlines a continuation of the growth constraints foreshadowed in last year's report.

"Profitability peaked in the second half of 2014," said JP Morgan's lead insurance analyst, Siddharth Parameswaran.

Australian insurers could expect more competition from banks, premium rate pressures, low investment yields and difficulty expanding into new insurance classes, he warned.

In a separate interview, Sharanjit Paddam, an actuary at Taylor Fry, told Banking Day that, in an era when big data and analytics were coming to the fore, banks had an advantage over insurance companies.

"They have access to transactional data and credit card activity - they know exactly what their customers are buying on a day-to-day level," Paddam said.

"But most people don't claim insurance most of the time, so the only chance an insurance company gets to find out detailed information about those customers is the once a year renewal process," he said.

This means that large banks with reasonable sized insurance operations - Suncorp, CBA's Comminsure, Westpac and ANZ's Onepath, in particular - will have a very good cross-sell opportunities, especially for superannuation products.

"So banks are getting much better at selling superannuation products to their customers, and will have the edge when using big data when moving into insurance," Paddam said.

This will leave banks - or, more accurately, their bancassurance operations - better able to not only price risk but also to segment their customers more effectively and therefore make their insurance operations more profitable.

Paddam said he also expected banks to get better at marketing insurance through use of data analytics. In a market that is expected to show overall growth of one per cent in coming years, the ability to market in order to "steal" the most profitable customers from competitors would be crucial.