North America's life insurance industry will increase its investment in predictive analytics capabilities over the coming years, according to a survey by Willis Towers Watson.
In a statement, Willis Towers Watson said that the survey found that life insurers recognized that they needed to invest in predictive analytics to address earnings and profitability pressures, and the survey suggested that those that did so would be well-positioned to transform the core functions of their business.
The survey found that large carriers were leading the way in predictive analytics investment, yet midsize and small insurers intended to allocate more budget to the application of data and analysis techniques over the next two years. Respondents ranked the competitive landscape (78 percent) and fortifying customer relations (67 percent) as the top factors driving predictive analytics investment, and said that they expected to expand the use of it across all their core functions: pricing, underwriting, mortality risk, and claim management.
“It's no secret that life insurers face financial pressures and their traditional business model confronts a myriad of challenges,” said Kimberly Steiner, senior director of Willis Towers Watson. “Many life carriers have been slow to adjust to this reality. However, our survey results illustrate a building momentum for a solution in the form of future operational investment around predictive analytics due, in part, to growing competitive demands and changing customer expectations.”
By deploying predictive analytics, life insurers said that they planned to enhance their customer experience in several ways, such as offering faster service (84 percent), more personalized experiences (71 percent), easier access to policy details (64 percent) and more mobile-friendly interactions (58 percent).
“Consumers are becoming more digitally dependent by the day, and many, especially millennials, demand a digital experience,” said Ms. Steiner. “It's really important for life insurers to innovate around data analytics in order to capitalize on improving customer engagement.”
Life insurers that already had deployed predictive analytics said that they have realized productivity gains. Over two-thirds (67 percent) reported that predictive analytics already had helped reduce underwriting expenses, while 60 percent credited the additional insights for increases in both sales and profitability.
Survey respondents said internal customer data (55 percent) and customer interactions (55 percent) were the top data sources they used to improve customer centricity. The use of data from wearables was expected to increase from five percent among life insurers now to 42 percent in five years. “More products are incentivizing healthier lifestyles, wellbeing, and condition prevention, so it's understandable that life insurers are among those most interested in wearables,” said Ms. Steiner.
Willis Towers Watson pointed out that challenges in optimizing predictive analytics existed. Merely 13 percent of respondents said their predictive models were understood by those outside the data science and actuarial teams. In addition, many carriers' in-house IT facilities were stretched by large volumes of data, which required greater processing power to handle associated analysis. According to the survey, life insurers said that they were exploring solutions to address this, such as moving to cloud-based environments and Hadoop, a framework for managing and using big data.
“The findings demonstrate that while some insurers are making progress with their predictive analytics capabilities, most carriers still have work to do,” added Ms. Steiner. “It's imperative for carriers to help stakeholders across their business – underwriters, claims and customer services teams, and marketers – to understand that enhanced predictive models will shape their competitive future and transform them into more efficient organizations.”
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].