Risk Insider: Jack Hampton

Do You Know the Difference Between Business Intelligence and Business Analytics?

By: | July 16, 2018 • 3 min read
John (Jack) Hampton is a Professor of Business at St. Peter’s University and a former Executive Director of the Risk and Insurance Management Society (RIMS). His recent book deals with risk management in higher education: "Culture, Intricacies, and Obsessions in Higher Education — Why Colleges and Universities are Struggling to Deliver the Goods." His website is www.jackhampton.com.

People who drink three cups of coffee a day live longer. This finding is based on a 2017 study of 500,000 people from 10 European countries.

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In a recent period, the U.S. annual rate of inflation ranged from 2.5 to 4.0 percent. The data on annual rises in skin cancer in the same period was almost identical. Maybe inflation causes cancer.

Monmouth County, N.J., has 10 large shopping malls. A recent statistical assessment of its criminal activity showed the area to be one of the most-crime ridden places in New Jersey. Shoppers might be in danger.

Rob Wielgus, a Washington State University professor, published data showing a correlation between wolves and livestock. Killing wolves in one year may cause wolves to kill more livestock in the next year.

What do these statistics and their conclusions tell the risk manager? Drink coffee? Avoid cancer by moving to low inflation areas? Shop in New York? Do not annoy wolves.

Or perhaps they tell us something about risk when we try to make sense out of data and statistics.

Toys “R” Us was an iconic brand with a steady loyal customer base of parents and kids. It had access to tons of data on the desires and needs of customers but an inadequate understanding of how to respond to changing consumer preferences and market trends. It closed down in 2018.

Drinking coffee may help you live longer. Or it may reflect a habit of exercising and healthy eating by coffee-drinking Europeans. Linking inflation and skin cancer is nonsense. Monmouth County crime data mostly reflects shoplifting. The relationship between wolves and livestock may be complicated.

Misleading relationships in data and statistics, whether fallacies or lies, is old news. What is different is the growing risk when raw data is collected and used to make key business decisions.

In this context, we have growing amounts of data extracted from other data. Called “megadata,” an example occurs when thousands of people who post Facebook photos of family vacations are statistically correlated to the likelihood of them making other leisure purchases.

The danger arises when we fail to distinguish between business intelligence (BI) and business analytics (BA)

  • Business Intelligence (BI). Analysis concerned with measuring past performance and identifying things that worked and things that did not.
  • Business Analytics (BA). Analysis that extends BI so we convert data into actionable intelligence.

The risk management challenge is to create reliable and valid relationships from unreliable megadata. The question for risk managers, “Is your organization correctly distinguishing business intelligence (the past) and business analysis (the future)?”

In a nutshell, this is the problem. BI is often performed by bright young analysts without an understanding of the business of the organization. This can produce misleading conclusions.

Blockbuster and Netflix both had access to the same tools and data in 2004 when Blockbuster had 58,000 U.S. employees working in 4,500 stores. Netflix saw the future of streaming. Blockbuster did not and filed for bankruptcy in 2010.

Toys “R” Us was an iconic brand with a steady loyal customer base of parents and kids. It had access to tons of data on the desires and needs of customers but an inadequate understanding of how to respond to changing consumer preferences and market trends. It closed down in 2018.

Surely Blockbuster and Toys “R” Us had extensive business intelligence at work. Maybe the shortcoming was business analytics.

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Along with studies of Borders, Sports Authority, Kodak, and Circuit City, we can see the growing danger of misjudgments as we bring in data from all sides. The situation is becoming more complex as a result of the risk of the Internet of Things (IoT).

Done right, data and statistical analysis give us insight into key relationships in the past and can drive business planning. Done wrong, it can be a disaster.

We might conclude with a caution that not everyone likes correct business analytics. Ask Professor Rob Wielgus. Ranchers and politicians wanted to kill wolves so his statistics were scorned. His enemies even commissioned other analysts to present contradictory results using his own metadata. Wielgus was pushed out of WSU a few months ago.

Who can say business analytics isn’t dangerous?

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.