Trusting your technology partner is important in any software deal. However, that trust is even more critical in predictive analytics solutions because carriers are placing their rating and underwriting future--the lifeblood of the company--into the hands of a third party. Insurers must have faith in their vendor and need to connect with their partner on a cultural level, according to Karen Pauli, research director in the insurance practice at TowerGroup. "Does the vendor really understand what you want to be doing?" she asks. "You need to look for someone with prior experience in the same market segment you are in and someone to help walk you through the process and give you some business experience."

Island Insurance Companies is just getting started in the process of predictive analytics, relates Jeff Fabry, vice president and CIO. The carrier has been working on a personal auto project with its vendor, Fair Isaac. The situation Island finds itself in is it has three different companies that write personal auto coverage in Hawaii, and each one has a single rate, explains Fabry. When competing with national carriers, Island finds the competition has a much wider range of rating possibilities. "Right now, we have only three slots, and we're trying to increase that to six or 10 slots so people who have worse loss ratios have a little higher rate and the people with better loss ratios get a better rate," he says. "You are able to be more competitive on the better risks."

Pinnacol Assurance performed extensive due diligence before selecting Valen Technologies to perform its predictive analytics. One of the steps in that process involved sharing confidential data with the vendor to see what the technology and modeling capabilities could do for Pinnacol from a business perspective. "That was crucial for us to test drive predictive analytics because it was all new to us," says Mark Isakson, associate vice president and pricing committee chair for Pinnacol. He admits there were difficult moments in the process. "At the end of the day, because it's so new, how do you get your arms around [analytics] and absorb it before you jump all the way in? It can be a scary thing, especially for an insurance company," he says, adding Pinnacol saw the possibilities during the proof-of-concept process.