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Jim Goodnight: Analytics Revolutionary

Jim Goodnight's company, SAS, has been at the forefront of helping carriers compete through the use of analytics across the insurance enterprise.

Jim Goodnight was onto a good thing several decades ago when he and North Carolina State University colleagues built software to analyze agricultural-research data. That work led to the founding of leading analytics software provider SAS. The Cary, N.C.-based company has had a long relationship with the insurance industry, initially supporting functions such as basic reporting and state filing in the late 1970s and providing data mining and rate-making capabilities for innovative carriers in the 1980s and 1990s. During the 2000s, however, SAS led a revolution that would sweep the entire industry and begin to inject analytics into virtually every aspect of insurance information processing.

The use of analytics and predictive models has exploded across the insurance industry over the past 10 years, starting with underwriting and quickly moving into claims, distribution, workforce and risk, according to Mark Charron, Deloitte's (New York) actuarial practice leader. "Insurers have been aggressive adopters of analytics during the past decade, and the reason is pretty clear: It has made a big difference in their operational results," Charron comments.

"What started as an R&D effort at many organizations has now been transformed into a capability that many consider core to their operation," he continues. "This trend will continue as greater sophistication will ultimately be a key differentiator in the industry."

Enterprisewide Ambitions

What happened during the 2000s with regard to insurers' use of analytics could be characterized as the extraction of advanced statistical methods outside the realm of actuaries and applying them to a broad range of activities and decisions that insurance companies have to make, suggests Donald Light, a San Francisco-based analyst with Celent. "Today the methods of statistical analysis and techniques are being brought to bear on almost every part of an insurer's operations," he says.

The application of advanced analytics to more parts of the insurance value chain is attributable to increasing sophistication of techniques, the sheer number of solutions now on the market and, perhaps most important, the ease of use for typical end users, remarks Jim Dean, VP, Robert E. Nolan Company (Dallas). "The impact of analytics has been magnified by dramatic growth in the availability of massive volumes of data, both proprietary data from within a company and data available from information brokers and the Internet," Dean says.

Insurers that have adopted advanced analytics as a core business function will be able to make higher-quality decisions about risk, pricing and consumer triggers at a rate faster than their competition, Dean predicts. "We are already seeing regional and smaller carriers exploring and adopting analytics in specific lines of business due to competitive or financial pressures," he adds. "The combination of increased availability of quality third-party data, new comprehensive tools available for data cleansing and editing, and the ongoing replacement of legacy systems is eliminating traditional adoption hurdles for analytics."

Celent's Light notes the P&C industry's shift during the 2000s to underwriting profitability, as manifested in improving combined ratio. "You could explain this as insurance companies learning not to shoot themselves in the foot by aggressive pricing. But I think the best explanation for the outbreak of profitable underwriting in the past five years is increased use of analytics for pricing and underwriting," he says.

The uptake of analytics in the insurance industry and elsewhere has certainly been profitable for Goodnight and SAS. In fact, since its incorporation in 1976, SAS has seen revenue growth every year, according to Goodnight. And in 2010, he adds, the firm reinvested 24 percent of its total revenue back into R&D -- a figure nearly double the industry average.

In addition to reinvesting, Goodnight attributes a focus on workplace conditions as a driver of creativity at his company. "Creativity is especially important to SAS because software is a product of the mind," he comments. "As such, 95 percent of my assets drive out the gate every evening. It's my job to maintain a work environment that keeps those people coming back every morning. The creativity they bring to SAS is a competitive advantage for us."

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