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

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

Advanced analytics

With the modernization of core systems, increasing affordability oflarge compute power and newer analytical tools such as machine learning, insurance carriers andbrokers are primed to do more than traditional risk analysis.Advanced analytics allow them to identify new revenueopportunities, enhance customer and agent experience, assessoperations for improvement and improve controls. Yet, our recentsurvey revealed that organizations are not fully realizing thebenefits of analytics — even though they inherently recognize thepotential to lift their businesses.

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

Few taking full advantage of data andanalytics

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

Property & Casualty representatives weremore likely to agree strongly that their organizations are takingfull advantage of advanced analytics. Given the additional touchpoints 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 andefficient loss control and prevention with behavioral incentives,and guide the introduction of new products and services, as well asdeepen customer relationships.

About a quarter (27 percent) of respondents cited improvedcustomer experience as the top potential benefit of employingadvanced analytics. This was particularly true among brokers, whoare under pressure to become stronger advisors as a counterpoint toproduct commoditization. Another 21 percent said they believeability to reduce claim costs is the biggest potential benefit,while 14 percent said the greatest potential lies in theopportunity to increase sales. P&C executives diverged fromother survey participants in citing improved product development asthe area of greatest potential.

Hurdles remain

Insurance executives acknowledge there are critical challenges andrisks associated with pursuing advanced analytics solutions. Nearlytwo-thirds (64 percent) cited data quality and accuracy as thegreatest challenge, and about half (51 percent) said inaccuratedata was the most critical risk. Although data accuracy was aconcern for P&C executives, they reported analysis paralysis asthe bigger risk associated with advanced analytics — reflecting thedifficulty of working with so much data.

Related: Insurance carriers say driverless car data is keyto rates

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

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

Data still an untapped businessasset

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

No analytics budgets

Thirty-eight percent of survey participants said their companydoesn’t have an advanced analytics budget, and another 18 percentwere unsure whether such a budget exists. This reflects continueduncertainty about demonstrating the return on investment from usinganalytics. About a third (31 percent) have a budget but it’s foldedinto a functional area such as operations, benefits or sales.

Moreover, the survey results reflected a lack of uniformity inownership for advanced analytics programs. One of the leadingresponses (17 percent) was “under the CIO,” which can perpetuate amindset that advanced analytics is about data cleansing andbusiness intelligence — a highly limited view of data’s potentialwithin customer and business partner relationships.

Related: Fully leveraging data analytics ininsurance

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

Areas of potential investment

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

Looking ahead

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

• Focus first on using analytics to solve a specific businessproblem. This is a good way to demonstrate the value of advancedanalytics and show return on investment, which participants flaggedas a near-term, significant challenge.
• Identify and correct data quality issues before advancinganalytics initiatives.
• Address data segmentation issues that stem from acquiredcompanies or disparate legacy systems.
• Make sure senior business leaders understand the full potentialof using advanced analytics and are prepared to drive behaviorchange resulting from data insights.
• Develop an analytics strategy that supports strategic businessobjectives.

Treat data as an asset

It’s easy to get excited about the potential of analytics — butmoving forward requires a thoughtful approach that recognizes andtreats data as a valuable corporate asset. The insurance industrymust embrace this mindset to remain competitive in an environmentthat is challenged by product commoditization, shrinking margins,disruptive startups, regulatory uncertainty andchanging consumer expectations. A company’s ability to use itswealth of data will be a key to navigating these challengessuccessfully and generating value in the future.

Lou Brothers ([email protected])is a senior manager in West Monroe Partners’ Insurance practice,based in New York City. He has more than 13 years of businessconsulting and deep technology experience in the insurance andfinancial services industries.

Carrie Camino ([email protected])is a director in the West Monroe Partners' Insurance practice basedin Chicago. She has more than 22 years of business consulting andtechnology experience leading large-scale business transformationand creating value for insurance organizations and clients in otherindustries.

Greg Layok ([email protected]),a senior director with West Monroe Partners, is the leader of thecompany’s Technology and Advanced Analytics practices. He has morethan 20 years of experience enabling business goals and performancethrough application of technology strategy, operationalimprovement, business intelligence and systemdevelopment.

Brad Ptasienski ([email protected])is a senior manager in West Monroe Partners’ Advanced Analyticspractice. He has more than 10 years of experience deliveringcomplex, strategic data-management and technical solutions thatenhance organizational decision making, performance andoperations.