No one likes to think of their company as being behind thetechnology curve, but those insurers operating without benefit ofan advanced analytics system are doing exactly that.

Scott Diekmann has a simple explanation for why his company,Premier Prizm, is currently in the process of installing ananalytics system it licensed from Innovation Group.

"We are changing our analytics approach from putting numberstogether and passing them to someone to figure out what theproblems are and how to fix them—to this system that will tell[business users] where a problem is that needs to be fixed. Thisaligns with the industry moving from a reactive to a proactivemindset," says Diekmann, business analyst for Premier Prizm.

The number of insurers behind the curve appears to be shrinking,though—at least in the mind of Jose Trasancos, who recently joinedUtica National Insurance as senior vice president and seniorpersonal lines officer.

"It typically starts out in the pricing or product developmentareas, with modeling applied to product design," he says."Organizations also have started to apply analytics to processimprovement in areas like claims and underwriting. The pace ofadoption has increased in the past five or six years."

Trasancos, who recently left a position with Narragansett BayInsurance Company, has been working in analytics in the insuranceindustry for about 25 years, cutting his teeth during a stint atProgressive, which he describes as "a wonderful environment. It wasa learning organization, principally interested in making everyeffort to find out why things behave the way they do."

Karen Pauli, research director for TowerGroup, believes theadoption of analytics software has been creeping along over thepast decade, but she maintains that once an organization sees thevalue of the software it begins to create a force unto itself.

Pauli adds that carriers need to understand the differencesbetween analytics and predictive analytics.

"Carriers are using analytics to look at their operations andonce they get comfortable with that toolset, the providers of theanalytics software also have excellent competencies aroundpredictive analytics," she says. "Now you get business people whoare hungry for more business value with more accurate pricing anddecisioning. An analytics-driven business organization is where youhave to be. Predictive analytics is a high art form of that."

MATURITY LEVEL: SOFTWARE

Frank Petersmark, CIO advocate for X by 2, believes the softwareproviders that offer predictive modeling and predictive analyticshave products that are maturing.

"By maturing, I mean the vendors are coming up with solutionpackages—configurable-type platforms—that are going to allowcarriers to mine some of that gold," he says.

Trasancos maintains that to the extent that analytics areapplied today by more insurance companies, much of the industry'ssuccess has to do with software packages that are easier forinsurers to use and relate to.

"Things have changed dramatically," he says. "Today there aremuch more intuitive packages available for users who perhaps aren'tas technical, but analytically very capable. They find [thesoftware] much easier to use and apply. Packages like SASEnterprise Guide and others have brought analytics to the desktopof people that aren't necessarily programmers."

Breadth of capability made the SAS products stand out forTrasancos. "Not only are they quite strong in terms of statisticalprocedures, but they are end-to-end ETL tools that allow you to dothe extraction, translate, and execute the outcome from oneplatform," he says.

MATURITY LEVEL: INSURERS

On the carrier side, the maturity level is another story, pointsout Petersmark.

"If you game me a scale, I'd say the maturity level for vendorsis medium to high, but if you ask for the maturity level ofinsurers I'd say low edging toward medium," he says. "There aresome issues there, not the least of which is the quality of data.It was true 20 years ago; it's still true today. The quality ofyour data and the way it is organized, its accessibility, and theability of carriers to make it actionable remain big issues."

Pauli agrees that insurers have yet to reach a maturity level intheir use of analytics, but she adds that often depends on acarrier's product line.

"When we look at personal auto and homeowners, there definitelyis maturity there. They have straight-through processing usinganalytics that don't involve underwriters looking at anything—withjust a few exceptions," she says.

From TowerGroup's perspective, Pauli sees adoption of analyticsfollowing the same road as the adoption of core systems.

"We've had some strong policy administration system adoption forpersonal lines and behind that comes the analytics," she says. "Itwill follow the same pattern in the claims area. We have theadoption of some new claims systems and once this happens companieswill begin to see the power of their information."

LEARNING

Trasancos believes every time he recalibrates a pricing model helearns something new.

"Natural systems do change their behavior, but they do sogradually," he says. "This has to do with being disciplined aboutrecalibrating models you've already deployed. There are alwaysthings to learn."

Trasancos feels there are points that are intuitively obvious,but nonetheless he finds it gratifying to see those points in thedata once an analysis has been executed. For example, in thecontext of homeowners' coverage, something seemingly as innocuousas the number of bathrooms in a home turns out to be predictive offuture loss.

"Most household disasters have to do with a plumbing failure ofsome sort and those plumbing failures tend to happen in bathrooms,"he says. "If you use the number of bathrooms as a proxy for thenumber of potential failure points and you analyze the data andintroduce that variable into an existing model, you suddenly startto see an improvement in pricing accuracy."

When discussing results such as these objectively, Trasancosfinds there is a great deal of acceptance among business users, buthe adds that within the context of an organization, change controlbecomes a component.

"The development of tiering mechanisms and more capable pricingmodels has forced a level of change onto the insurance industrythat's required some management—particularly in areas ofunderwriting," he says. "There can be some organizationalskepticism, but it's typically related to change control."

"It's fair to say a lot of companies are still going through themodernization cycle," says Petersmark. "It could be the case thatcompanies either have already bought an analytics system so theydon't need more investment, or they don't quite understand thepotential competitive differentiation that analytics holds forthem."

Petersmark agrees that using analytics can be a cultural changewithin an insurance company because insurers are askingemployees—who are used to doing things in a certain way—to dothings differently.

"They probably do [their jobs] pretty well, but you upset theapple cart when you say they need to look at this worlddifferently, particularly when there is a potential to automatetasks that haven't been done that way before," he says. "A lot ofwork is still done manually even in big insurance companies. Throwall those points in a bucket and shake things up and maybe that'swhat's holding some people back."

Premier Prizm is a medical management company that providesmedical administrative services for insurance carriers. The companyhouses data from industry-leading companies and Diekmann reportsPremier Prizm's wants to pull that data to analyze and identifyemerging trends.

What initially led Premier Prizm to look atanalytics tools was the detailed work involved in a report PremierPrizm presents annually to its clients that involves what Diekmanncalls "a significant amount of our IT resources internally toprogram different, specific queries to get the data."

Diekmann reports Premier Prizm sought a solution that reducedthe time and involvement of the company's IT department and put thepower with the business users.

"We had a choice: program it internally or look for an outsidesolution," says Diekmann. "We pitted ourselves as a competitoragainst analytics products and when we did the numbers we found wecouldn't come close to the number of features and the capitalexpenditure to get the basics, compared to what [InnovationGroup's] Insurer Analytics offered at half the cost. It was an easydecision to go with them for the needs we have."

Premier Prizm believes it is important to get the data questionsout of IT's hands and into those of the business users.

"Let [business users] ask the questions and get the data theywant instantly," he says.

Premier Prizm is in the process of building an internal datacube so that at any point in time the company can analyze andidentify trends within the industry.

Premier Prizm first became aware of Insurer Analytics in a demoand the company was able to use the application within 15 minutestime. Business users were creating their own KPIs and seeing thepossibilities of what those numbers were and what that meant toPremier Prizm's bottom line.

"It will give you answers then and there," he says. "You don'thave to wait for IT to put a project together, write, test, andrelease the code. You are talking three months before that flushesthrough [under the manual system]. That's a totally differentmindset."

Premier Prizm expects to have the system in place by the middleof this year. The project plan includes requirements documents,data gathering, and building out the cube.

"It will be specific toward what our usersneed to know," he says. "It will be the same application with ourdata within it. I would be comfortable with [business users] usingthe system] with a basic manual [for instruction]."

The company plans to migrate all of its reporting needs to thesoftware over the course of the next year.

"We will be getting out of Microsoft Reporting Services intoInsurer Analytics for all the reporting needs we need to dointernally," says Diekmann. "On a weekly basis every manager doesabout eight hours of data gathering. Once we go live we willreplace those eight hours with driven reports and the managerswon't have to dig for the numbers. [The change] will remind themwhat is outside their normal and what they should take a lookat."

BUSINESS DRIVERS

Petersmark believes analytics in the insurance industrypredominantly focuses on underwriting and claims.

"If a carrier's business strategy is more aggressive growth—newmarkets, new products—the reason to use advanced analytics is tohelp that cause," he says.

"Think of the world of product or customization; analytics donewell could go a long way in identifying new market opportunities orpotentials."

On the other hand, if a carrier is more focused on an expenseratio or expense model, Petersmark maintains that is where you seethe focus on claims because insurers are able to get an earlyidentification of what potentially could amount to fraudulentclaims.

"Analytics can even stretch the claims side into reserving,"says Petersmark. "If you can identify claims better, you can do abetter job of reserving so you have capital available for otherinvestments. The mistake some carriers make is they acquire theseplatforms without having thought through some of the things theywant to accomplish."

Adoption does track with certain insurance products, accordingto Pauli.

"From a personal lines perspective, you are almost in theposition of adverse selection if you don't have analytics tosupport your decision processes and there is an older, manualdecision-making process in place. You can get quick decisions whenyou are using analytics."

Pauli believes claims is coming along in second place behindunderwriting, particularly with discovering fraud. She cites thenumber of fraud solutions on the market as a reason for this.

"That's kind of an intuitive use of predictiveanalytics," says Pauli of fraud detection. "Most claims executiveswould say they need it for fraud because it is hard to find fraudhidden among all the claims data bytes. Now the carriers arelooking for other purposes for its use in claims with anunderstanding that it can help in areas such as subrogation,litigation management, and vendor management. It definitely is awork in progress."

For effective claims management, analytics can make that area aprofit center if insurers are able to improve the life cycle of theclaims, according to Ray Dowling, vice president, sales, forInnovation Group.

"If [an insurance carrier] can shave off a mere one percent,from a direct written premium aspect that goes right to the bottomline" he says.

Carriers also can track new products, their performance, andwhether the products are driving profitable business. The systemsalso allow carriers to track profitable business lines—whether itis on renewals or other areas.

"The challenge is how to garner actionable information from thedata," Dowling says. "Often, the pain points are because the datais fragmented or siloed. How do you get that one enterprise look?You have to bring in data from disparate sources into one datarepository and place the analytics on top of that."

OLD VS. NEW

As with most technology issues, legacy systems continue to be astumbling block, points out Pauli.

"There's been a perception over the last 10 years that unlessyou have your data in perfect order—and we know there's no suchthing as that—you can't use analytics," she says. "That absolutelyis not the case."

Carriers find themselves in an evolutionary process with theircore systems and data initiatives, explains Pauli. The goodproviders of analytics have the capability to bring industrystandard data to insurers while the carriers are seeking to createsome sense out of their own data so it still provides value.

"It gets you down the road, provides some support, and moves youfurther along with decisioning and customer issues," she says. "Weknow carriers that are wrapping their old legacy systems with someintegration technology so they can use analytics sooner than theycan accomplish a core system replacement."

Pauli points out some analytics vendors have createdpartnerships with policy administration vendors to provide carrierswith an analytics capability.

"Most of the vendors that are really good at core systems knowthat analytics isn't their bread and butter," she says. "[Policyadministration vendors] have created an open architecture with thecapability to integrate their systems with an analyticsproduct."

That's another example of how technology ispacing at this point in time, according to Pauli.

"A lot of the pure data players are now getting predictiveanalytics capabilities," she says. "Most technology providersunderstand that analytics—particularly predictive analytics—iswhere the industry is going and where it needs to be so theredefinitely is maturity. TowerGroup sees data-driven decisioning asa strategic initiative. We are seeing the leading carriers treatingit that way."

Petersmark feels another issue facing carriers is the expertiseof the analysts who use the software.

"The software vendors have done a nice job of hiring smartactuaries and developers who have this stuff down cold," saysPetersmark. "Insurers don't have a lot of that yet. You may find aperson or two in the actuarial department. We're certainly aware ofcarriers that have bought [analytics] solutions, but some of themare still struggling to get some value out of the software."

Petersmark brings up the old axiom among insurance companies:They all do the same things, just in slightly different ways.

Insurers can hire actuaries or a data management administrator,but the real issue is the data is a little bit different.

"Based on the edits in the systems they've used for years, databecomes specific to that carrier and even more importantly it isusually in specific repositories," he says.

"Who knows the most about your data? Even with big companiesthere isn't always a good answer to that," says Petersmark. "Peoplemay know certain things, but that isn't always valuable enough topull information."

Petersmark believes there is a "sweet spot" with institutionaldata and those who can translate that data for analytics platformsallow business users to do what they need to do with it.

"That's not a readily available skill set," he says.

PAIN POINTS

The pain points within any insurance organization are differentamong competitors; therefore the analysis of data is different.Priorities also can change quickly, according to Denise Garth,senior vice president strategic marketing and industry relationsfor Innovation Group.

"Last year, low interest rates and challengesof the soft market performance were big issues because combinedratios were high," she says. "In the spring, we started getting hitby catastrophes and all of a sudden claims became a top priority.On a dime, priorities can change because of events that are goingon and the dynamics in the marketplace. Having a solution that hasan insurance specific data model and the capability of handlingpolicy and claims gives you the ability to quickly get new reportsout and respond to the marketplace."

If carriers are not careful about what they want to accomplish,Petersmark feels the whole purpose of an analytics project can bedefeated.

"You might bulk up the staff along with spending plenty on theplatforms and then find yourself a year later realizing you didn'tget much out of it," he says. "That's when the tough questionsstart coming. A lot of companies end up creating a small sandbox.Give [the tools] to the actuaries to start and then see if it gainstraction and build it out from there."