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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

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]