How Insurers Can Tap into New Revenue Streams by Using ‘Data Exhaust’

The chief executive officer of Quandl is on a mission to let insurance companies know that their data is valuable and professional investors will pay them for it. But a lot of insurers are oblivious to that fact.

“We’d like to unlock the value of that data by creating a new source of revenues for insurers,” said Tammer Kamel, CEO of Quandl, a Toronto-based data platform that gathers financial, economic and alternative data for investment professionals.

“The revenue insurers can receive for data falls right to their bottom line. There is no cost to the insurance company. It’s just extra money for doing very little,” he said.

For more than five years, Quandl has taken “data exhaust” from a variety of industries and sold it to investors who are looking for market signals on which to trade. The company focuses on alternative data sourced from “the wilderness” — in other words, data that Wall Street doesn’t normally see.

“We find undiscovered data, package it in a way that investors can use, and sell it to them to generate revenue for us and our data partners.” Insurance companies’ data definitely falls within “my definition of data from the wilderness,” Kamel affirmed.

Auto Data From the Wilderness

Just over a year ago, Quandl first opened its doors to insurance industry data, beginning with a partnership with a U.S. auto insurer.

“The insurance company came to us and said, ‘We’re interested in learning how we can monetize our data through a partnership with you.'”

The two companies sat down together to discuss some ideas and came up with a plan. Now, a year later, this company provides daily reports to Quandl about how many auto policies it has written. The reports are repackaged and sent to investors who can use it for trading.

“This insurer is making money in an innovative way by taking their data exhaust and sending it through us and ultimately on to professional investors,” he explained.

The insurer doesn’t provide information about who is buying the cars. “They just report the number of policies written for various car manufacturers. That’s it — one number per day,” said Kamel, emphasizing that no customer information is revealed so the insurer’s business is not compromised in any way.

“It turns out that this is very interesting information for Wall Street because it correlates with new car sales in general,” he said. “When people buy a new car, the next thing they do is buy an insurance policy.” This creates a window into how many new policies are being sold each day.

This is powerful information for Wall Street, which typically gets such data on a monthly basis, Kamel explained.

“That’s an example of an insurance company taking its data exhaust and turning it into more revenue for the firm. They don’t have to do anything other than give us access to the data, and we send them a check,” he said.

Economic Indicators

“Any unique data that professional investors can access has the potential of giving them an advantage vis-à-vis their peers and vis-à-vis the market as a whole,” Kamel added. “If you know something about a company, a part of the economy or a commodity that others don’t know, you can profit from that by trading on that information.”

The number of new cars being sold in America is an important economic indicator as well as an indicator of the performance of auto or parts manufacturers, he said.

Homeowners Insurance

The housing market is another key economic indicator. “Insurers have a very good understanding of activity in the housing market because every house that is bought is ultimately insured, usually around the time that it changes ownership,” he said.

As a result, Quandl is currently looking in the “wilderness” to find an insurer with homeowners insurance data to sell. But it doesn’t have to stop at homeowners, Kamel said.

Anything that insurers cover provides interesting data for investors, he said, pointing to the example of coverage for luxury goods or commercial shipping. “There are probably things that could be done with their data that they haven’t even thought about,” he said.

And just because Quandl has one data partnership with an auto insurer doesn’t mean a second or third insurer couldn’t be introduced as partners. “More insurers provide more coverage, which increases the accuracy on anything you’re already tracking,” he said. “There is lots of room for growth.”

The potential for profit is huge as each investor will pay up to $1 million to Quandl for a powerful data set, which Quandl shares with the data partner. The portion varies with every partner, Kamel said.

While that may seem like a lot of money, Kamel explained that these investors manage billions of dollars, which means they need to make hundreds of millions of dollars in profits. “Spending $1 million to make $10 million can be a very sensible decision,” he said.

Kamel emphasized that no information about its insurance partners is ever revealed by Quandl. “The identity is protected so the information only can be used for its intended purpose and not to get an inside track on how any particular insurance company is doing,” he stated.

In line with this confidentiality, Quandl also doesn’t reveal how many insurers it works with, only that it’s “currently a small number.”