Companies in the insurance industry have always possessed a great deal of data, primarily from policy, billing and claims systems.

New real-time data sources — such as wearables, connected devices and social media streams — are increasingly available to add behavioral and contextual data for deeper assessment.

Advanced analytics

With the modernization of core systems, increasing affordability of large compute power and newer analytical tools such as machine learning, insurance carriers and brokers are primed to do more than traditional risk analysis. Advanced analytics allow them to identify new revenue opportunities, enhance customer and agent experience, assess operations for improvement and improve controls. Yet, our recent survey revealed that organizations are not fully realizing the benefits of analytics — even though they inherently recognize the potential to lift their businesses.

This article highlights some key findings from the online survey, conducted in the Fall of 2016, and published in the report, "Data Driven Insurance: Harness Disruption and Lead the Way." Executives from 122 companies representing brokers and carriers in the property and casualty and life and annuity sectors completed the survey.

Few taking full advantage of data and analytics

Just 11 percent of survey respondents agreed strongly that their organization is realizing the full benefits of advanced analytics. Just under half (46 percent) agreed somewhat.

Property & Casualty representatives were more likely to agree strongly that their organizations are taking full advantage of advanced analytics. Given the additional touch points they have with customers through sales, renewals and claims, this is a reasonable difference from life and annuity insurers.

Many ways to benefit

Advanced analytics can improve pricing accuracy, enable timely and efficient loss control and prevention with behavioral incentives, and guide the introduction of new products and services, as well as deepen customer relationships.

About a quarter (27 percent) of respondents cited improved customer experience as the top potential benefit of employing advanced analytics. This was particularly true among brokers, who are under pressure to become stronger advisors as a counterpoint to product commoditization. Another 21 percent said they believe ability to reduce claim costs is the biggest potential benefit, while 14 percent said the greatest potential lies in the opportunity to increase sales. P&C executives diverged from other survey participants in citing improved product development as the area of greatest potential.

Hurdles remain

Insurance executives acknowledge there are critical challenges and risks associated with pursuing advanced analytics solutions. Nearly two-thirds (64 percent) cited data quality and accuracy as the greatest challenge, and about half (51 percent) said inaccurate data was the most critical risk. Although data accuracy was a concern for P&C executives, they reported analysis paralysis as the bigger risk associated with advanced analytics — reflecting the difficulty of working with so much data.

Another common challenge (27 percent) was segmentation of data across across systems, likely the result of limited integration after acquisitions and a lack of consolidated policy and claims systems. Other leading risks were data security (33 percent) and privacy concerns (25 percent).

Data being viewed on a tablet

Survey results suggest there is significant untapped potential for using data and analytics to drive the customer experience and revenue growth in the insurance industry. (Photo: Bigstock)

Data still an untapped business asset

Just over half (51 percent) of companies surveyed use advanced analytics for claims modeling and reduction, while 42 percent use analytics for actuarial model testing. Thirty-five percent use analytics for prescriptive marketing and sales. These analytical capabilities will be critical to the future of all industries, and insurers are making some progress. Nevertheless, the findings suggest there is significant untapped potential for using data and analytics to drive customer experience and revenue growth.

No analytics budgets

Thirty-eight percent of survey participants said their company doesn’t have an advanced analytics budget, and another 18 percent were unsure whether such a budget exists. This reflects continued uncertainty about demonstrating the return on investment from using analytics. About a third (31 percent) have a budget but it’s folded into a functional area such as operations, benefits or sales.

Moreover, the survey results reflected a lack of uniformity in ownership for advanced analytics programs. One of the leading responses (17 percent) was “under the CIO,” which can perpetuate a mindset that advanced analytics is about data cleansing and business intelligence — a highly limited view of data’s potential within customer and business partner relationships.

Overall, insurance companies have work to do to position advanced analytics most effectively within their organizations and to fund it adequately to realize the benefits it can produce.

Areas of potential investment

Nearly two thirds (60 percent) of respondents said they are currently or are considering investing in disruptive data sources, partnering with a technology company, or developing capabilities internally to augment existing data sources. Disruptive data sources include telematics, connected devices and active monitoring devices such as wearables.

Looking ahead

For carriers and brokers ready to increase their use of advanced analytics, the survey results point to steps that can help set them on a productive path:

Focus first on using analytics to solve a specific business problem. This is a good way to demonstrate the value of advanced analytics and show return on investment, which participants flagged as a near-term, significant challenge.
Identify and correct data quality issues before advancing analytics initiatives.
Address data segmentation issues that stem from acquired companies or disparate legacy systems.
Make sure senior business leaders understand the full potential of using advanced analytics and are prepared to drive behavior change resulting from data insights.
Develop an analytics strategy that supports strategic business objectives.

Treat data as an asset

It’s easy to get excited about the potential of analytics — but moving forward requires a thoughtful approach that recognizes and treats data as a valuable corporate asset. The insurance industry must embrace this mindset to remain competitive in an environment that is challenged by product commoditization, shrinking margins, disruptive startups, regulatory uncertainty and changing consumer expectations. A company’s ability to use its wealth of data will be a key to navigating these challenges successfully and generating value in the future.

Lou Brothers (lbrothers@westmonroepartners.com) is a senior manager in West Monroe Partners’ Insurance practice, based in New York City. He has more than 13 years of business consulting and deep technology experience in the insurance and financial services industries.

Carrie Camino (ccamino@westmonroepartners.com) is a director in the West Monroe Partners' Insurance practice based in Chicago. She has more than 22 years of business consulting and technology experience leading large-scale business transformation and creating value for insurance organizations and clients in other industries.

Greg Layok (glayok@westmonroepartners.com), a senior director with West Monroe Partners, is the leader of the company’s Technology and Advanced Analytics practices. He has more than 20 years of experience enabling business goals and performance through application of technology strategy, operational improvement, business intelligence and system development.

Brad Ptasienski (bptasienski@westmonroepartners.com) is a senior manager in West Monroe Partners’ Advanced Analytics practice. He has more than 10 years of experience delivering complex, strategic data-management and technical solutions that enhance organizational decision making, performance and operations.

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Survey finds insurers not fully realizing benefits of analytics

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