December 22, 2011

Insurance technology professionals have been used to slow, incremental change in the industry, but things are speeding up on several fronts. Consumer adoption of anytime/anywhere computing has forced rapid evolution of mobility and service related technology, and the rapid evolution of cloud technology is hitting the industry like a second wave of outsourcing, introducing new efficiencies that give insurers a competitive edge. However, the rapidly evolving technology area wherein we're going to see the most profound changes to the industry is data analytics, and the data infrastructure that supports it.

Insurance has always been driven by data, and advances in the circulation and analysis of data will start showing their potential to change the industry by leaps and bounds. Over the coming year we'll start to see more companies institute enterprise departments to drive data analysis and we'll see a more coordinated approach to leveraging both the huge repositories of data within insurance companies and increasingly diverse external sources. Here is a short list of areas where we'll see leaps and bounds in data analysis:

Underwriting: When analytics came on the scene, the argument was about whether underwriting was more art than science. The answer then was "both" and it's still true. As insurers become more comfortable with analytics as a core competency, they are enabled to use the art of underwriting to uncover opportunities to apply analytics to opportunities both in specialty P&C and in new niches in personal lines. For example, Narragansett Bay Insurance made an analytics play to underwrite homeowners' insurance near but not on the coast, and the carrier has enjoyed a spectacular growth spurt as a result. We'll see many more carriers stealing their more traditional competitors' lunch through the artful application of analytics to underwriting.

Claims: More sophisticated nalytical approaches are making rapid headway in the handling of potentially fraudulent claims, both at first notice of loss and in the detection of suspicious patterns across insurers' claims portfolio and indeed beyond individual carriers through analysis of shared data. As important -- and rapid -- as the application of these advancements will be, potentially even more significant is the adoption of analytics to govern the claims cycle. The old predictive model of claims management is obsolescent, suggested Accenture's Michael Costonis in a recent conversation we had.

"The new paradigm is grab onto dig data streams, multiple sources, online behavior," Costonis commented. "Carriers can marry that with claims transactions to come up with highly differentiated treatment pattern for the person making the claim."

Risk Management: This may be a more slowly moving trend, but potentially an enormously important one. Insurers continue to struggle with complex data environments to meet compliance requirements. However, technology is making it easier (though by no means easy) to rationalize data environments and enable more rapid and transparent reporting. This is important for compliance reasons, as a Solvency II deadline approaches and as the NAIC pursues its domestic Solvency Modernization Initiative.

However, new domestic solvency-related requirements will take some time to arrive; what is more important is that insurers begin to act on the potential of data mastery for competitive decision-support rather than defensive compliance purposes. We're seeing significant advances in how insurers can rationalize their portfolio management capabilities and free-up their experts for more value added work. Insurers who achieve transparent, near-real time reporting will be able to better analyze their books of business, assess underwriting opportunities and allocate capital more effectively than their competitors.

"Global competition and increasingly complex regulatory requirements are driving insurers to develop transformational 'big data' strategies that integrate finance, risk management and compliance," notes Hugh Anderson, Insurance Industry Principal, SAP. "Our customers are already leveraging a single source of the truth across these functions, and using in-memory technology innovation to gain real-time actionable insight on enterprise performance."

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek ...