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The State of Analytics

Alex Vorro November 1, 2008

Predictive analytics play a prominent role in the insurance industry today, and the benefits to the organization from proper utilization are plentiful. But despite the relative importance of analytics, many carriers still ponder where it's best put to use, who is ideally suited to spearhead and maximize the success of the effort, what is the potential impact and what resources are being used to accomplish this. To answer these questions, Insurance Networking News teamed with Mark Gorman, principal, Mark B. Gorman & Associates LLC, Minneapolis, to conduct exclusive research that queried property/casualty and life insurance carriers to uncover how insurers are using predictive analytics and business intelligence to create a more holistic predictive analytics decisioning methodology.

The breadth of carriers' responses came from companies of all sizes, with 56% of P&C respondents having fewer than $500 million in net written premiums, and 33% of life companies under $100 million. This is telling to Gorman, as he believes that interest and involvement in predictive analytics runs much broader in terms of carrier size than many people currently believe.

Based on the results, a general level of consistency emerged between life and P&C carriers in terms of how they're utilizing predictive analytics, but at the same time, there also were discernable differences. For example, when predictive analytics are being used from a pricing, underwriting, new business and risk assessment standpoint, life and P&C insurers are similar in terms of the percentages of companies with initiatives either being utilized or in production (with the highest percentages being underwriting performance). The area with the highest percentage of initiatives under development for P&C carriers was business segmentation. For L&A carriers two areas are most under development, pricing precision and product innovation. "This is a very interesting impact, especially given what many people decry as the commoditization of the insurance market," Gorman says.

The survey revealed more predictive analytic solutions in production for fraud by life insurers than P&C carriers, but Gorman says that if you add in the initiatives under production for both life and P&C, they're relatively consistent in terms of their approach to fraud. When asked about use in claims processes, 67% of P&C companies said they're currently using predictive analytics, with the majority of those respondents citing salvage and subrogation (62%) and adjuster assignment (54%) as the most common claims processes that they currently have in production.

The results also indicated a great deal of development has been made in the area of governance, risk and compliance. "It's clear predictive analytics has made an impact on insurers' operational and transactional areas (claims and underwriting), but people have recognized - and are recognizing - the power of analytics in making better decisions," Gorman explains.

WHO'S IN CHARGE?

In more than 40% of responses (42% for life and 44% for P&C), the CEO is considered the champion of implementing and developing predictive analytics programs. Gorman says this is key, as it shows organizations are approaching predictive analytics adoption in a centralized manner, and that predictive analytic resources are an enterprise-level asset. Line-of-business management was considered the second-largest driver of analytics organizationally, and the CFO ranked third. "CFO involvement tells me that insurance companies are clearly seeing this as a strategic capability that has financial impact and drives financial involvement," says Gorman.

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