As insurance executives seek to better manage customers, loss ratios and risk & compliance, while ensuring profitability, actionable analytics is emerging as a critical success factor contributing to industry differentiation. Despite the emergence of technologies and applications in business intelligence and analytics, many insurers still struggle with how to access, integrate and analyze data from a variety of legacy systems. Organizations that are able to leverage analytics will be positioned to achieve a sustainable competitive advantage. In the near future, analytics will play a vital role in helping insurance executives navigate the technical and operational complexities to accelerate time-tovalue from such investments. The impact of analytics on the insurance business varies according to the level of analytics used, as pointed out by Everest, shown in figure 1. From the very basic Reporting, to the moderately evolved Descriptive or the advanced Predictive and Prescriptive, analytics in all forms impacts business. The impact could range from being moderate to transformational. While Reporting provides reports on the current situation, the Descriptive form of analytics provides actionable insights on the current situation. The more advanced forms, Predictive and Prescriptive, help in predicting likely future 2 outcomes and prescribing action items required to deal with the future events, respectively, as described by Everest. In this paper, we explore the role of the advanced forms of analytics in helping insurers achieve higher ROI on marketing spends, improve customer satisfaction, make better pricing decisions and enhance operational efficiencies across a range of insurance business activities.
The Need for Analytics in Insurance
The need for analytics in insurance has been re-inforced due to a range of new challenges that have forced insurers to think and act differently. § Managing Costs Better – Cost efficiency is a key concern for all insurers. The major concern for any insurance organization would be the cost associated with claims processing, management and settlement. Analytics helps in risk assessment by predicting the expected cost of insurance (loss) associated with the coverage. Analytics also helps reduce losses by detecting and preventing fraudulent behavior. § Regulatory Challenges – A bevy of regulatory challenges has forced insurance companies to re-think their strategies to remain competitive. For instance, in the UK, the retail distribution review (RDR) has forced all financial agents to inform customers about the charges incurred upfront to ensure transparency in the way the customer is charged for financial advice. Industry estimates suggest that this would probably result in close to 30 million customers being orphaned without any advice on financial planning. While regulations of this nature create challenges for the industry, they also offer a great opportunity to build a strong point of differentiation and form stronger customer relations. The RDR for instance, forces insurers to build marketing strategy that has a multi-channel distribution strategy at its core. Analytics plays a crucial role in helping insurers identify the right channel and the next best product that can be offered to customers as part of their cross-sell strategy. § Increased Customer Awareness, Thanks to Social Media – Advent of social media and aggregator sites have increased awareness on product / pricing options available to customers. Analytics can help assess customer behavior and social brand equity, and thereby enhance Marketing ROI and customer satisfaction levels. § Financial Planner Attrition – Since a large section of the population still depends on financial planners to help them plan for their retirement and other long-/short-term financial goals, it is extremely important that the right set of agents be retained to ensure continuity in business. Analytics helps in identifying these planners based on their ‘Life Time Value’ and their performance to ensure that agents get sufficient support from the organization and are well-compensated.