Property/casualty insurers have long been engaged in a fierce battle for market share across all lines of insurance — from personal and commercial auto and property policies to workers' compensation and general liability, to name a few. The evolution of technology, especially in the area of predictive analytics, has only heightened the battle for a meaningful competitive advantage — effectively creating an analytics arms race in the industry.
How important is advanced analytics to insurers? Consider a September 2012 report by Novarica that says more than 30 percent of insurer CIOs would spend more on data and analytics if they had additional budget.
Advanced analytics has certainly influenced the industry, particularly in personal auto, as I’ve noted before. Insurers need to understand the benefits of employing these sophisticated tools to ensure an optimized return on investment.
A successful analytics program in any line of insurance requires business knowledge, data availability, computational resources, and analytical talent, not to mention a significant investment of money and time.
Before taking on an analytical investment, insurers should consider more than just the costs of implementation. They should also consider the “costs of doing nothing” in a competitive marketplace. Failure to consider the true benefits of analytics will not only lead to the loss of a real competitive advantage but could also doom an insurer to the vicious cycle of adverse selection.