Analytics

Leveraging a Big Data Approach

Insurers need an enterprisewide data and analytics approach to products and customer service that includes social media.
By: | August 14, 2014 • 4 min read

Insurance companies will be able to capitalize new market opportunities and avoid costly exposures when they can better analyze and act on lessons from Big Data.

That’s one of the main findings from two recent industry reports highlighting the need for enterprisewide management of big data, including unstructured data from social media and mobile devices.

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Very few insurers have an enterprisewide data and analytics approach. Most focus on targeted business functions such as pricing, underwriting and financial management, according to a survey of 72 P&C insurance professionals by Strategy Meets Action, an insurance strategic advisory firm in Boston.

“But [a siloed approach] is not going to be enough to differentiate and compete in this fast-changing marketplace,” said SMA partner Denise Garth. “Data analytics needs to take an enterprisewide approach that includes external telematics, [and] social and mobile data, so they can really leverage the power of analytics.”

Only about half of P&C insurers report that they have advanced reporting (12 percent enterprisewide and 36 percent in key areas).

Social Media and Mobile

Leveraging unstructured data from social and mobile is particularly important in designing products that customers want, according to a study by IBM’s Institute of Business Value.

Senior executives from 80 insurers surveyed by IBM said they are leveraging the cloud, big data, analytics and social technologies to “leapfrog the competition” in this way.

And nearly three-fourths (72 percent) of the insurers identified by IBM as market leaders in the study said they use social media to communicate with customers “to a considerable degree” — almost twice as much as non-leaders.

“Structures don’t make a lot of sense if insurers are building them in a vacuum — they need to reflect how insurers are targeting certain customer sets.” — Christian Bieck, global insurance leader, IBM Institute of Business Value

Big data analytics should incorporate four dimensions — customers, interactions, services and structure, said Christian Bieck, IBM Institute’s global insurance leader who is based in Stuttgart, Germany.

“The combination of those dimensions is very important, because insurers can only build new products and services in a sensible way if they have insight into what the customer actually wants,” he said.

“Structures don’t make a lot of sense if insurers are building them in a vacuum — they need to reflect how insurers are targeting certain customer sets,” Bieck said.

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Strategies like these enable insurers to transition from the more traditional “organization-centric,” product-driven model to one that reflects the emerging “everyone-to-everyone (E2E) economy,” based on higher levels of collaboration between companies and their customers, Bieck said.

Insurers need to bring their historically strong analytical capabilities for predicting exposures to the marketing arena, particularly to cross-sell and up-sell to existing customers, said Sharad Sachdev, a managing director at Accenture in New York.

As part of this, insurers should follow the lead of the banking industry and analyze internal data of past marketing successes as well as competitor data and unstructured data from social and mobile to develop “propensity scores” — to determine which customers are more likely than others to accept certain offers.

“Consumers have many choices, so insurers can’t make offers in a vacuum, and that’s where social media comes into play,” Sachdev said.

Focus on Core Business

John Lucker a principal at Deloitte Consulting LLP in Hartford, Conn., who is the firm’s global advanced analytics and modeling market leader, said that most insurers are still struggling with how to best gain insights from past and current events, and are just beginning to adequately use predictive analytics for future events.

However, he said, “I think emerging technologies and analytics should be more R&D and exploratory, while companies should spend the bulk of their time getting good at the core of their business.”

If an insurer’s underlying organizational structure is not profitable, going after more customers isn’t going to make them more profitable; in fact, it might actually raise their expense ratio and make them less profitable, he said.

“They need to first be really good at pricing and understanding exposures, before they focus on getting more customers,” Lucker said. “I would suggest once an insurer has a combined ratio well below 100, maybe that’s something to talk about.”

The SMA report indicated that P/C insurers will spend more on predictive analytics, with nearly two in five (38 percent) planning budget increases of at least 6 percent per year over the next three years.

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But, the bulk of the spend will be on claims recovery, and fraud prevention and detection, with almost half of the respondents piloting projects or planning future investments.

Insurers are beginning to evolve analytics for marketing and distributions, with survey respondents reporting new projects in customer segmentation, “single view” of the customer, and customer “lifetime value.”

Customer segmentation is the top area for new projects over the next three years, with 43 percent of insurers planning efforts in that area, and another 10 percent piloting or evaluating today, according to SMA.

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

As a professor of business, Jack Hampton knows firsthand the positive impact education has on risk managers as they tackle growing risks.
By: | April 9, 2018 • 4 min read

R&I: Who is your mentor and why?

Ellen Thrower, president (retired), The College of Insurance, introduced me to the importance of insurance as a component of risk management. Further, she encouraged me to explore strategic and operational risk as foundation topics shaping the role of the modern risk manager.

Chris Mandel, former president of RIMS and Risk Manager of the Year, introduced me to the emerging area of enterprise risk management. He helped me recognize the need to align hazard, strategic, operational and financial risk into a single framework. He gave me the perspective of ERM in a high-tech environment, using USAA as a model program that later won an excellence award for innovation.

Bob Morrell, founder and former CEO of Riskonnect, showed me how technology could be applied to solving serious risk management and governance problems. He created a platform that made some of my ideas practical and extended them into a highly-successful enterprise that served risk and governance management needs of major corporations.

R&I: How did you come to work in this industry?

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From a background in corporate finance and commercial banking, I accepted the position of provost of The College of Insurance. Recognizing my limited prior knowledge in the field, I became a student of insurance and risk management leading to authorship of books on hazard and financial risk. This led to industry consulting, as well as to the development of graduate-level courses and concentrations in MBA programs.

R&I: What was your first job?

The provost position was the first job I had in the industry, after serving as dean of the Seton Hall University School of Business and founding The Princeton Consulting Group. Earlier positions were in business development with Marine Transport Lines, consulting in commercial banking and college professorships.

R&I: What have you accomplished that you are proudest of?

Creating a risk management concentration in the MBA program at Saint Peter’s, co-founding the Russian Risk Management Society (RUSRISK), and writing “Fundamentals of Enterprise Risk Management” and the “AMA Handbook of Financial Risk Management.”

A few years ago, I expanded into risk management in higher education. From 2017 into 2018, Rowman and Littlefield published my four books that address risks facing colleges and universities, professors, students and parents.

Jack Hampton, Professor of Business, St. Peter’s University

R&I: What is your favorite book or movie?

The Godfather. I see it as a story of managing risk, even as the behavior of its leading characters create risk for others.

R&I: What is your favorite drink?

Jameson’s Irish whiskey. Mixed with a little ice, it is a serious rival for Johnny Walker Gold scotch and Jack Daniel’s Tennessee whiskey.

R&I: What is the most unusual/interesting place you have ever visited?

Mount Etna, Taormina, and Agrigento, Sicily. I actually supervised an MBA program in Siracusa and learned about risk from a new perspective.

R&I: What is the riskiest activity you ever engaged in?

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Army Airborne training and jumping out of an airplane. Fortunately, I never had to do it in combat even though I served in Vietnam.

R&I: If the world has a modern hero, who is it and why?

George C. Marshall, one of the most decorated military leaders in American history, architect of the economic recovery program for Europe after World War II, and recipient of the 1953 Nobel Peace Prize. For Marshall, it was not just about winning the war. It was also about winning the peace.

R&I: What about this work do you find the most fulfilling or rewarding?

Sharing lessons with colleagues and students by writing, publishing and teaching. A professor with a knowledge of risk management does not only share lessons. The professor is also a student when MBA candidates talk about the risks they manage every day.

R&I: What is the risk management community doing right?

Sensitizing for-profit, nonprofit and governmental agencies to the exposures and complexities facing their organizations. Sometimes we focus too much on strategies that sound good but do not withstand closer examination. Risk managers help organizations make better decisions.

R&I: What could the risk management community be doing a better job of?

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Developing executive training programs to help risk managers assume C-suite positions in organizations. Insurance may be a good place to start but so is an MBA degree. The Risk and Insurance Management Society recognizes the importance of a wide range of risk knowledge. Colleges and universities need to catch up with RIMS.

R&I: What emerging commercial risk most concerns you?

Cyber risk and its impact on hazard, operational and financial strategies. A terrorist can take down a building. A cyber-criminal can take down much more.

R&I: What does your family think you do?

My family members think I’m a professor. They do not seem to be too interested in my views on risk management.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]