A key question to ask as part of the transformation process is: How do we optimize the experiences for insureds, agents, employees and vendors to create the best outcome for our company? (Photo: TippaPatt/Shutterstock)
While many people understand pieces of various initiatives they are working on, when you ask them what the overall goal is, the very generic answer becomes, "to make our business better." The more complete answer is that better understanding your data provides you with significant competitive advantages.
The future for the insurance business process and profit optimization is based on large data sets as well as personalized experiences. For example, a large carrier recently determined that smokers show a direct correlation that equates to elevated homeowner property risk and has adjusted their pricing accordingly.
Increasing your competitive advantage
Harvard Business Review published the book, "Competing on Analytics: The New Science in Winning," back in 2007. This ground-breaking book set the stage for many of the transformation moves we see today. The basic premise of the book is that as your degree of intelligence about your own organization increases, so does your competitive advantage. What people need to understand is that several steps must be taken to achieve this lofty goal. These steps include:
- Optimization: What's the best that can happen?
- Predictive modeling: What will happen next?
- Forecasting/exploration: What if these trends continue?
- Statistical analysis: Why is this happening?
- Alerts: What actions are needed?
- Query/drill down
- Ad hoc reports
- Standard reports
Only because of cloud computing technology are we now able to realize all these data benefits and start to turn them into usable information. Many carriers have been slow in their move to the cloud, which means they lag behind in this particular arena. Twenty years ago, people said, "you're crazy if you put your CRM data in the cloud," but that has proven to be a fallacy.
Predictive modeling improves
Some carriers have been able to get much better at predictive modeling because they aggregate large data sets together. We now see extensive predictive modeling, for example, in the underwriting space by using telematics to determine auto insurance rates. We are starting to understand that neither gender nor credit score has significant validity for use for determining auto insurance rates. For those with 16-year old new drivers, there is an incredible benefit to real-time telematics tools that monitor driving habits and dynamically adjust rates accordingly, not to mention the obvious enhanced parenting opportunity.
A key issue is that every insurance company has a system of record. They record transactions in either a single system or in multiple systems. What many have been lacking to this point is a system of engagement. Historically, that part of the process has been allocated to brokers/agents.
One thing we know for sure is that systems of record are not systems of engagement. Insurers are now hyper-focused on building out systems of engagement. While they are incredibly helpful, they don't completely replace the broker/independent agent channel. Current research indicates that while people are willing to shop for auto and life insurance online, they are generally much more comfortable with a trusted advisor for the protection of larger assets.
The top of the pyramid is "optimization." The last and hardest question to solve is: How do we optimize the experiences for insureds, agents, employees and vendor partners to create the best outcome for our company?
Meeting the needs of insurers and partners
For the claims side of the house, there are multiple use cases. Imagine having a call center that uses a dynamic script prompter for the service representative. Based upon a more complete information set of that person and their preferences, artificial intelligence (AI) can provide a fluid series of questions and prompts based upon the customer's responses, tonality, inflection and the like.
Imagine, as the manager of that same call center, being alerted in real-time when a customer service representative is not handling a customer well. A supervisor can immediately jump into that conversation and hopefully turn that customer experience into a highly positive one.
The ability to bring those extra data sets in and dynamically update that call center script means you are now empowering your lowest cost resources to do more of the work that your higher cost adjusters used to do. Perhaps you integrate your FNOL call centers with a dedicated inside adjusting team, who takes over for more complex issues but is still able to resolve much of the issue with an initial phone call. Hundreds of millions of dollars in LAE savings are ripe for the taking, along with the enhanced customer experience.
The next wave for data and analytics transformation projects will be insurers taking advantage of point-specific solutions and "customizing" their technology infrastructure to provide them better systems of engagement with their customers, enhance their internal speed and efficiency, and continually identify areas of profit improvement. It also remains to be seen if the InsurTech insurers, such as Lemonade, Root and others can build profitable underwriting models and quickly move from early adopter clients to early majority clients without the significant data sets of traditional insurers.
In all likelihood, we will spend several years in the forecasting and predictive modeling steps mentioned earlier. However, the significant profit opportunity is for those carriers that can accelerate to the optimization phase and then work to further refine their workflows to capture another few percentage points of customer acquisition, lower customer churn, improve underwriting profitability, and lower the total cost of claims.
Tim Christ is the vice president of Claimatic, a leading SaaS intelligent decisioning software that serves several P&C insurers. He is the author of two books on insurance, business, and technology, a frequent speaker at industry events, and a frequent contributor to various insurance publications. He can be reached at tchrist@claimatic.com.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.