September 02, 2008

More than a few insurers these days are beginning to think about their businesses in a fundamentally different way. Technology advances outside the industry have not only changed the way people shop for insurance and other financial products, but also raised the bar in terms of service and support. Customers are expecting more from their insurers than they might have even five or 10 years ago.

Jeff SilverConcurrently, many carriers have been turned on to the value of analytics tools, which can allow organizations to leverage their massive depositories of data -- historical and otherwise -- to make better decisions going forward. In many cases, insurers first used analytics in an underwriting capacity, by utilizing those mounds of data to develop more-sophisticated and more-accurate underwriting practices. "Traditional analytics in the insurance space [has been] loss modeling-based for the most part," suggests Murli Buluswar, vice president, insight and innovation, at Los Angeles-based Farmers Insurance ($15 billion in 2006 written premium).

And while there certainly still is value in using analytics in the actuarial and underwriting areas, a shift is taking place. As carriers continue to become less product-focused and more customer-focused, their analytics initiatives are following suit. "If you look at most insurance companies, I think the areas that are most ripe for more science-driven thinking are distribution strategy, claims management, product and pricing, marketing, branding and consumer research, and customer experience," Buluswar explains.

"It's become the competitive position," adds Jon Walheim, a senior executive in Accenture's insurance practice that is responsible for marketing, sales and service work in North America.

"We saw over the last two years or so that every insurer in the U.S. marketplace had growth expectations and projections above the historical growth curve of the industry itself," Walheim details. For example, he says, it was expected that the P&C industry would grow about 5 percent over the past few years, but most P&C companies were, individually, projecting 10 percent growth. "They weren't going to get that from product differentiation," Walheim explains. "What everyone focused on was being better in the marketplace from a customer perspective. That was the only competitive weapon left to them in that market."

In many cases today, it is a carrier's marketers and claims departments that are driving adoption rates in predictive modeling and data analytics technologies. Surveys and analytics have been developed in the industry around understanding how customers want to buy products, as well as how they want those products to be managed, says John Lucker, a Hartford-based principal and national practice leader for advanced quantitative solutions with Deloitte Consulting.

"There are not just analytics around how they prefer these things, but how it makes the most sense from a streamlining perspective," Lucker says. "If insurers have a pretty straightforward claim, they're looking to streamline that interaction. Not only will carriers be able to make payments quicker and cheaper for the insured, but there are operational benefits as well. That's in addition to ultimately creating a better customer experience and creating that retention stickiness that carriers strive for."

Knowing the Customer

Price optimization and underwriting discipline will always be integral to a carrier's success. But now, more than ever, knowing the customer is critical. "There's an opportunity in the insurance vertical to be more strategic about how we leverage analytics," Farmers' Buluswar says. "We traditionally consider it to be exclusive to the pricing arena, but I don't think it needs to be that way."

Leveraging analytics technology in areas outside the realms of underwriting and actuarial science is an inevitable and desirable trend, Buluswar adds. But he doesn't believe that insurers are consistently thinking analytically in these areas: "I would venture to guess that the industry is in the nascent stages of thinking about how to manage its customer base."

Jeff Silver, director of marketing at Unitrin Direct, says that the Chicago-based auto insurer uses analytics to optimize several different points in the life cycle of a customer relationship to improve customer retention levels. That starts, he says, when the customer submits a quote online. "The first part of keeping a customer is getting a customer," Silver says.

Unitrin Direct uses Web analytics solutions from San Francisco-based Tealeaf and other sources to monitor how customers interact with the carrier's Web site. While Silver and his team utilize the software, the adoption of predictive and analytic tools was driven by the IT department.