Insurers Must Manage Information Overload

Many organizations produce large quantities of data but are frustrated at the quality of information. The fact is that the majority of companies are ineffective when developing information metrics or measurements. Opportunity exists for great improvement.

We believe solutions begin with delving in at the transactional level to get the actionable information that will satisfy the business needs throughout the company.

A company's information can arguably be divided into three views: organizational information, divisional information and transactional information. Let's examine each in turn:

o Organizational information is higher level information used by shareholders, investors, rating agencies and management to view the progress of a company and compare it to others.

It includes periodic financial results, return on equity, underwriting income, operating income, combined ratios, premiums by segment, cash flow, number of customers, average premium, loss ratio by segment and other high-level financial statistics.

This level of information is descriptive and analytical, but not necessarily actionable when managing your business.

o Divisional information is focused on similar information, but brings it down to the division/profit center. It would include financial results of discrete business units.

Aside from high-level financial statistics of the individual profit center such as premiums, ceded reinsurance, loss ratio, expense ratio and cash flow, finer breakdowns are required to provide information so the profit center manager can manage the business.

Such information may include premium and loss information by territory, product, production source, class and other relevant statistics such as submissions, new business and retention activity, pricing and expenses.

This information could be actionable in part, but still does not get down to the level of detail needed to allow managers making decisions on the ground to accomplish their ultimate goals.

o Transactional information, which is the building blocks of all information, allows management to identify the attributes that are most meaningful in the decision-making process.

This represents the everyday capture of the relevant parts of the individual premium and loss transactions and includes items such as class code, territory, product, cause of loss, or other relevant identifiers in the underwriting, claims, reinsurance, actuarial, accounting or administrative processes.

Transactional data will create the organizational and divisional transactions. It is with this data in the right format that management can create the information necessary to influence the business.

WHAT DO I NEED TO KNOW?

To determine your information needs you must link transactional level details to divisional and organizational objectives.

For example, if your organization's net income is off, one can ask:

o Is it the automobile line that did not produce the expected results?

o Was it the European branch operation?

We would then focus further down. If the European branch had a poor quarter, we would look at the details below:

o Revenue was on track, but losses and expenses were higher. Why?

o Was it one line of business that produced a larger than expected claim?

o Were losses from third-party administrators out of line because of delayed reporting?

o Were commissions impacted by production of agency business which carried higher commission rates?

If you cannot easily answer these types of questions, then you cannot influence your business. Too many companies are simply reporting numbers and are thus not able to answer these questions. As a result, they will ultimately not be able to compete with companies in the current environment.

IS TECH YOUR DISADVANTAGE?

Today's technology is underutilized in most organizations.

Insurance organizations are split between newly formed companies and older, mature companies with legacy systems that can date back to the 1980s.

With rapid globalization, insurance companies are significantly spread across the globe, adding new lines of business and profit centers. As they grew, many lacked integration planning and added new financial and operational systems, therefore creating disparate data sources.

Data warehouses matched with business intelligence tools have helped tremendously. However, the efficiency of running multiple platforms causes significant additional cost and increases the risk of errors.

Newly formed organizations have the luxury of a fresh start with more advanced technology and less complications, but will they fall prey to growing rapidly without an integration plan as well?

Information systems serve many masters, including line underwriters, unit managers, profit center managers, divisional managers, senior management, as well as functional areas including reinsurance, actuarial, accounting, treasury and finance.

In an ideal world, the same management information system for each relevant area should be addressing the needs of all the constituent groups. You should have "one source of the truth."

Many companies are running more than one production system having several sources of premium, claims and reinsurance data. This causes confusion and paralyzes progress.

Technology must support the business. Good systems summarize transaction data and report useful information, enabling management insight for effective discussions.

LEADERSHP CRITICAL

Leadership drives the culture of the organization. Leadership's role is to understand how detailed transactions create the goals and objectives of the board of directors and management.

You cannot manage your company through high-level organizational metrics. You need to get into the details to influence results.

Leaders need to interpret the operational details quarterly, monthly or weekly to ensure compliance with processes.

The unfortunate reaction by managers and staff is to produce hundreds of reports to be in a hopeful position of answering leadership's questions. This myriad of reports is never enough to convert data from today's systems and processes into accurate actionable information.

How can you formulate a new game plan to ensure you're capturing and using the right information? We suggest these steps:

Step 1–Gain a better understanding of your business and how transactional detail connects to divisional and organizational objectives.

Step 2–Establish key reporting metrics driving down to detail transactions. Eliminate or at a minimum reduce non-essential data reporting.

Step 3–Make the investment in connecting your data and integrating systems. Eliminate manual work if you can. Technology must support the business, and better information will reduce the risk of poor management decisions.

Step 4–Communicate the business drivers. Create a culture that understands the key success drivers and produces actionable information.

Step 5–Impose minimum standards. For property and casualty companies these should include production of the following information, quickly and easily, for management:

o Agency management information, including new and renewal premium by producer, calendar year (and possibly accident year) loss ratio by producer, premium by product and class code, renewal retention by producer, submissions and hit rates by producer.

o Key operating statistics by territory, such as submission activity, hit rates, renewal retention, renewal pricing, average premium size, class code distribution and limit profiles.

o Loss ratio information, including accident year and calendar year loss ratios by profit center, by line of business (or product), by class, by territory, as well as claims frequency, average severity and claim counts (new reports, closing ratio, current inventory).

o Financial information, such as commissions and general expenses by profit center/line of business/product, reinsurance costs, accident year and calendar year underwriting profit, and combined ratios by profit center/line of business/product.

In today's competitive environment, sharing knowledge will enable companies to capitalize on opportunities. Management goals and objectives must be connected with actionable items. Having the right information timely will help drive success.

Michael Flagiello is a partner in WeiserMazars LLP's Insurance Services Group in New York. He may be reached at mflagiello@weisermazars.com. Marc Wolin is the chief operating officer of Seneca Insurance Company in New York. He may be reached at mwolin@senecainsurance.com.