The fundamental principle of insurance is risk assessment and pricing. Traditionally these have been the areas where actuaries and insurance companies have used analytics to gain competitive advantage.
Today, the challenge for many insurance companies is how to apply analytics to solve broader business problems. How do you get business units, like underwriting, to adopt this technology? In a recent panel at a SAS event, two insurance leaders discussed some successful tactics that you can use get your organization on board.
1. Sow the seeds of innovation
If you want to expand analytics within your company, set up an environment where new ideas can flourish, according to Kimberly Holmes, Head of Strategic Analytics at XL Group.
When it comes to innovation, "there are no bad ideas," she said. "We need to think of innovation as ideas that go into an incubator. Some ideas germinate and grow while others stay stagnant for a long time." It's easy to find reasons on why you can't do something. Instead, focus on what you can do. Look for what is possible, Holmes said.
Paul Friedmann, Divisional Senior Vice President at Great American Insurance Company, said his company creates innovation labs. One person from six departments in the organization meet for six weeks to solve a particular business problem using data and technology.
2. Federate your data
Analytics is only as good as the data it runs on. "We recognized federation of data was critical to us," Friedmann said. Great American knew early on it needed a platform to support large external data sets and navigation across both structured and unstructured data. This includes the underwriter notes and all of the documents underwriters pull into their evaluation.
3. Keep an eye open for new data sources
In addition according to Friedmann, it is important to look beyond traditional data to find and evaluate new, untried data sources.
His company has a research team dedicated to investigating new opportunities. "We leveraged that team to become part of our underwriting and claims organization to help us find new data sources and provide information on the validity of that data," Friedman said.
[Previously from Rose: The New ROI in Insurance]
Once a new source is found, the company brings in technology teams to help make that data accessible to analysts, actuaries, claims adjusters, underwriters and even agents. "We don't want our analysts in business divisions to discuss different data marts," he said. "We want them to think in terms of, 'I've got a problem to solve and which information to best resolve that business problem.'"
4. Involve your underwriters
Underwriters are essential to the success of any insurance company and if you want your underwriters to embrace analytics as part of the daily process, Holmes suggests letting them own the project.
"We involve our underwriters in every decision that goes into creating and implementing predictive models," she said. "It is their model. We don't tell them how to adopt the model. They create the business rules." She emphasizes that she gets underwriters to commit to a loss-ratio improvement at the start of the project. This way, implementation doesn't just confirm what underwriters already know – rather, it should provide a competitive advantage.
5. Focus on short-term successes for a big win
Implementing an enterprise-wide analytics program can be initially overwhelming. But small rewards along the way lead to a big payoff at the project's end. Those incremental changes lead to huge improvements, Holmes said. For example, bringing one or two new data sources into your risk analysis can have a significant impact on predicting risk.
"You'll be shocked at the benefits you can get from something simple," she said. The early successes at XL Group have encouraged broader adoption of the technology within the organization.
The adoption of analytics is on the rise within the insurance industry. No longer is it viewed simply as a back office function used by actuaries for risk and pricing. By following these five steps, insurers can embrace analytics to drive innovation throughout their organization.
About the Author: Stuart Rose is global insurance marketing manager at Cary, N.C.-based SAS. Rose, a 20-year veteran of the insurance industry, began his career as an actuary. He has worked for a global insurance carrier in both its life and property divisions and has worked for several software vendors, where he was responsible for marketing, product management and application development. He has driven successful development and implementation of enterprise systems with insurance companies in the U.S., the U.K., South Africa and Continental Europe.