Insurers need to focus on creative initiatives that draw data from alternative sources including social media, third parties and machine-to-machine communications, or else risk their competitive position, Ovum has warned.
The independent global analyst said the insurance industry must prepare for future challenges like the quickening pace of customer-driven commerce and the continuing spread of the digital economy.
According to the analyst's report, by concentrating predictive analytics on key areas of the business - namely business operations, marketing and customer relations - insurers will be able to determine which markets to enter or leave, shape target market initiatives and estimate potential losses for the book of business as each customer is added.
Barry Rabkin, principal analyst of insurance financial service technology at Ovum, said: "Insurers are already well aware of the impending threats/challenges including tightening regulation, demanding customers, an ageing population and weakened economies.
"The critical differentiator for insurers will be minimising future risk thorough predictive analytics by tapping into the vast amounts of rich data."
Ovum has reported a growing trend of insurance companies creating new departments of quantitatively skilled professionals, also known as data scientist roles.
Rabkin said: "These role will take a deeper approach to research and generate recommendations that are scalable down to individual lines of insurance business."
Ovum expected data scientists and data miners to work closely together to discuss "what if" questions regarding predictive analytics initiatives.
Roger Edwards, managing director of Bright Grey and Scottish Provident, said it was all very well to say the insurance industry needed to catch up with fast-paced digital economy development, but insurers that sold through intermediaries meant there was a finite source of data to use.
He said: "The growth of digital channels like social media has definitiely made marketing initiatives much more accessible. In the past you were a bit limited to expensive paper mailing lists for example. But if your distribution is a relatively finite number of people, as we are with advisers, then growing that database is limited.
"I do not know what goes on in other companies so it is hard to say how much the industry gets involved in the digital world. But it feels more experimental at the moment rather than full-on."
