Coles, Woolworths, and Big Data: Could your choice of cereal affect your insurance premium?

‘What we've been able to do is take our insurer's car crash database and overlay it with our Woolworth's Rewards database. I rarely see actuaries get excited but they were very excited about what we found because it was so statistically significant…’
 
‘Because you see, customers who drink lots of milk and eat lots of red meat are very, very, very good car insurance risks versus those who eat lots of pasta and rice, fills up their petrol at night, and drink spirits. What that means is we're able to tailor an insurance offer that targets those really good insurance risk customers and give them a good deal via direct channels instead of above-the-line [advertising]. And it helps to avoid the bad insurance risks.’

Applying the databases to finance opens a whole host of possibilities. The data lets supermarkets filter out the safest (perceived) customers and offer them insurance or credit cards, while ignoring the high-risk – a potentially massive competitive advantage. Traditional bank metrics like age, income and credit history are useful but lack the depth of information that someone’s typical grocery spend or home energy usage might reveal.

The ACCC has highlighted the benefits to consumers – personalised offers with potentially lower interest rates or insurance premiums. Consumer rights groups such as Choice, on the other hand, have flagged a range of privacy issues. How comfortable would you feel if an unhealthy shopping list affected your ability to obtain credit? Or if the purchase of, say, medicine or maternity wear increased your insurance premium?

Richard Wormald, Coles’ GM of Financial Services, told the ABC’s 7:30 Report that they don’t yet change their insurance premiums based on shopping habits, but noted ‘…as technology changes, we will re-assess that’. But trends in British supermarkets show that those technological changes will be here sooner than you might think. The best example is Tesco, the world’s second-largest supermarket, and the undisputed champion of innovative data use.

Through a frequent shopper program, online stores, and partnerships with Coca-Cola and Macy’s, Tesco collects information on an estimated one billion shoppers, a database of unprecedented scale. Tesco shoppers are categorised based on what they buy, then sent custom magazines full of targeted articles, ads and coupons. The Economist noted that ‘when a household starts buying nappies, signalling the arrival of a new baby, Tesco usually sends discount vouchers for beer, knowing that the new father will have less opportunity to go to the pub.’ Their petrol stations have even introduced camera scanners that sense a customer’s age and gender, displaying the most effective ad on digital signs at the counter.

Targeted marketing isn’t new; KordaMentha Forensic has helped companies apply data analytics to their customer retention and pricing strategy, along with areas like fraud detection. What is new are these supermarkets’ data-driven forays into personal finance. Through its subsidiaries like Tesco Bank, Tesco is applying the same data-crunching ideas to personal insurance and banking. For example, their ‘Box’ car insurance service uses a telematic sensor installed in cars to assess customers’ driving ability, and adjusts premiums on renewal. 

In May, marketing director Chris Pitt discussed Tesco’s new banking service on its corporate blog:

‘Tesco serves tens of millions of customers every week. We have 17 million Clubcard customers. We understand how people shop, how they live, the pressures and the perks… Does that sound like a good basis for a bank?’

And they’re not slowing down – in April, Tesco acquired data analytics and social media firm Sociomantic for an estimated GBP 175 to 200 million. Meanwhile back in Australia, Woolworths have purchased a 50% stake in local data firm Quantium for AUD 20 million, suggesting the Australian giants are looking to follow Tesco’s lead. Watch this space! 

http://www.abc.net.au/news/2014-08-06/coles-woolworths-preparing-to-enter-home-loans-market/5653288
http://www.economist.com/node/21554743 
http://www.bbc.com/news/technology-24803378
http://kordamentha.com/forensic/forensic-spotlight-with-kordamentha/posts/forensic-spotlight/2012/03/11/knows-too-much-011112