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June 18 2014 | Mark Breading

Mark Breading, Partner, SMA
Mark Breading
Partner, SMA

It's no secret that many insurers view analytics as a critical tool for improving profitability and driving growth. There is already widespread usage of traditional business intelligence and advanced analytics, and a flurry of new projects that are underway or on the horizon for most insurers. A new SMA research report, Data and Analytics in Insurance: P&C Insurer Strategic Priorities and Operational Plans for 2014 and Beyond, investigates the current state of analytics and identifies exactly where insurers are investing and finding value in analytics. Some of the key questions this report answers are:

  1. Where are insurers investing today? What are the top project areas?
  2. What is the scope of analytics initiatives? For example, are analytics initiatives managed in silos or across the enterprise?

These questions highlight two very important areas, but the research report itself covers a broader spectrum of priorities, plans, and investments for data, BI, and analytics.

Top Projects for Analytics Today

The top two areas in which analytics is leveraged by insurers today are pricing and catastrophe models. Both of these areas require analysis of many variables, complex calculations, and ongoing iterations to analyze a variety of individual or aggregate risks, so it is not surprising that analytics tools are heavily used. Other key project areas today include financial management, underwriting profitability analysis, and product profitability analysis. While these top five areas are not surprising – perhaps they are even predictable – it is also telling that none of the top five include any analytics related to customers, such as market segmentation, prospect identification, customer lifetime value, or marketing campaign effectiveness. 

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Scope of Analytics Initiatives

We’ve grouped analytics initiatives into four broad areas:

  • Risk – Actuarial, product development, and underwriting make up the broad group where analytics has been most heavily used to date. Insurers are doubling down on analytics in these areas to attain more precision and more real-time capabilities.
  • Customer – Analytics has been used less extensively for customers, marketing, and distribution, but this is changing rapidly due to the customer experience trend in the industry.
  • Service – In the service areas of policy, billing, and claims, many new projects are being piloted or evaluated today, or planned for the next three years. Fraud detection/prevention is the top investment area in this domain, with other projects such as claims recovery, policy in-force analysis, and lapse/cancel root cause analysis also receiving significant attention.
  • Enterprise – Usage of analytics has traditionally been concentrated on key areas such as financial management and investment management. Today, the new investment is flowing toward projects to enhance enterprise risk management and executive dashboards.

Another measure of the scope of analytics projects is the degree to which BI and analytics are managed enterprise-wide. Our research shows that only a small percentage of insurers deem their BI capabilities to be advanced enterprise-wide. As one example, only 5% of P&C insurers believe they have advanced enterprise-wide usage of dashboards. However, the industry is now beginning to move into the era of enterprise-wide BI and analytics. The emergence of Chief Data Officer and Chief Analytics Officer roles, along with other new professional roles in this area, signals a shift toward managing data/BI/analytics at the enterprise level – almost as a discipline in its own right that is comparable to human resource management, financial management, or other cross-enterprise functions.

Clearly, analytics has moved out of the risk-centric areas and now touches all parts of the business. The net is that the investments, initiatives, and impact of analytics will continue to increase over the next several years.

For more information about insurers’ IT plans and priorities, read SMA’s new research report, Data and Analytics in Insurance: P&C Insurer Strategic Priorities and Operational Plans for 2014 and Beyond. Contact Mark Breading for further information at mbreading@strategymeetsaction.com.

 


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To learn more, please contact:
Mark Breading
Partner
Strategy Meets Action
614.562.8310