How leveraging data is revolutionizing the insurance industry and what it means for event organizers
In recent years, data has become a bit of a dirty word. Privacy concerns, elevated by the recent hacks and breaches by some big name companies (*cough* Facebook), have left people feeling extremely wary when this little, 4-letter word is uttered, especially when paired with the words “collection” or “sharing”. Despite the negative connotation, data is the most valuable commodity in the world. An article in The Economist back in 2017 made the bold statement that “the world’s most valuable resource is no longer oil, but data”.
But, why is data important for the insurance industry and by extension, the events industry? The benefit for insurers is that it helps them get to bits of the market that they’ve not been able to fully understand before. The benefit to you is that you can be more informed about your risks, get the cover you actually need and potentially even reduce possible threats through mitigation. Data can also provide the insights needed to sidestep obstacles that arise during the event lifecycle and may ultimately help avoid a cancellation. Let’s start with the bits of the market that are missing.
Closing the gap
We talked about the protection gap in the introduction, but in case you missed it or need a quick refresher:
In the insurance industry, there is a gap between the amount of potential losses (i.e. money spent and lost revenue) and insured losses (i.e. the maximum paid out for a claim), aptly called the “protection gap”. In other words, many items are not insured that really should be, either because no one has insured them or the insured amount is too low.
Just in case this is still a little too abstract, let’s put it into perspective with something you use every day...your smartphone. Did you opt for the insurance when you bought it? If not, there’s a really big protection gap because if you lose it, you’ll be paying out of pocket to replace it (i.e. the purple piece of the pie in the below diagram). Now if you sway more to the risk averse, you likely purchased insurance. Good for you, but do you know the maximum liability (the amount of money you can expect your insurance to give you)? For the sake of simplicity, let’s assume you lost your phone the same day you bought it (we’ve seen it happen). You just shelled out $1,200 but your insurance only covers $1,000; your phone was underinsured (the blue slice) and there is a protection gap of $200. Capeesh?
Great, moving on. Through the collection of all sorts of different types of data (be it prior events at a venue and historic weather at that location or the type of event and crowd behaviors), insurtechs are capable of more accurately evaluating the level of risk for a given event. Not only does this mean better pricing, but being better informed about possible risk reduces your likelihood of being underinsured.
Additionally, this data helps insurers better understand the types of risks that may present themselves in the future. Better detection of emerging risks, like climate change or epidemics (wouldn’t that have come in handy?), help reduce their threat, as well as the havoc they cause. To put it differently, understanding your need for specific types of cover and allowing insurers to create models for future risks will reduce your likelihood of not being covered.
Using the insights provided by good data, individuals can ensure they take out insurance when they need it and that it's for the right amount, which could make the picture look a bit more like this. Seems better, right?
Why does this matter to you? Well, not only can you feel more confident in knowing what and how much risk you should actually be insured for, but the pricing should be more transparent.
You’re actually getting what you pay for
We’re going to let you in on a little secret, currently the price of event cancellation insurance is actually determined using a few, very simple questions: who, what, when and where?
- Who being you, the organizer.
- What being the type of event (concert, football game, etc).
- When being...when.
- Where being the physical location and venue.
- Oh, and how much cover you’re looking for.
For the less cut and dry aspects of an event evaluation, the level of risk is largely determined by instinct and generally uses very little (if any) data to support the decision. These gut reactions can be extremely unreliable, made all the more so because event insurers often have no expertise when it comes to the events industry (weird, right?). They don’t really know what happens on the ground at your event. And worse, they lack the intimate knowledge of the risk factors that are likely to cause an event to cancel, leaving them to price policies according to the simplest of criteria.
Consider this, if you’re hosting a 3-day EDM festival, outside, in London, you’re looking at a pretty high level of risk - case closed. (By the way, if it wasn’t obvious…more risk = higher prices.) But why? The reality is that even though you may have an outstanding safety record and every contingency plan in place, the bulk of the perceived risk is focused on the fact that the UK is a rainy place and you’re hosting an event outside. Doesn’t quite add up, right?
Mitigating your risk
Let’s talk about the biggest benefit of all to leveraging data. Nobody wants to see events being cancelled (especially after this past year)...not you, not the talent, not your sponsors, certainly not your customers, not the economy, no one...although we haven’t checked with Sue in accounts yet, we’re pretty sure she doesn’t either.
What if you could be notified in advance of the possible banana peels in your path, say something isn’t quite right with your chosen venue or there’s a potential weather disruption on your chosen dates? What if that little bit of insight could help alleviate the stress of dealing with last minute disasters or even avoid a cancellation? (Psst...that's what we do at eve.)
Using data to help inform, advise and dodge pitfalls is the future of event insurance. Experience helps you better understand the root cause of event cancellation, which in turn allows you to devise mitigation techniques and procedures that reduce the likelihood of history repeating. Not every risk is foreseeable or preventable, but the more access you have to resources and experience, the better chance you have of predicting and preventing things from going wrong.
And the best news of all…
Insurtechs are making the collection and usage of data easier than it’s ever been. You can reap the benefits without having to make massive changes to your day to day operations. Insurtechs aren’t just trying to improve their processes by adopting new technology or going digital with their services, they are the new technology, the new way of offering insurance. Traditional companies are expending considerable effort and resources to modernize and more often than not, not quite getting it right. Good businesses know they need to put you, the customer, at the center of every decision. Good tech businesses know they need to build products to make your lives less complicated, not more. Unfortunately, the insurance industry is a bit behind the curve.
However, now that all this data is in one place and you can actually use it to enhance the event experience and reduce your risk, what else could it be used for? Well, you’ve seen event cancellation insurance forms, 50 questions (and wanting to know exactly how many toilets you may have...). What if that could be reduced to a fraction of that amount because of the information already captured through smart data collection? Alternatively, what if something is going wrong? You’re too busy putting out fires to even consider reaching out for help. What if someone could come to the rescue the moment you encountered trouble and provide predictive insights and solutions? Ultimately, if the worst case scenario does occur, the data collected can be used to paint an extremely accurate picture of what happened with little extra work on your part, speeding up any claims, getting you back in action and working on your next event ASAP.
Let’s take it one step further. What if your insurance policy was linked to all this data? Stay on the lookout for Chapter 2 where we’ll talk about parametrics - the concept that certain predetermined (safety) thresholds could, if triggered, automatically let you halt your event with confidence that you’ll be covered.