The Cost of Opportunity

By Doug Wing March 18, 2013

Last month, my colleague David Cummings and I contributed an article to CarrierManagement.com titled Analyzing Analytics: When Does Value of Predictive Modeling Outweigh Expense? It’s become clear that personal lines carriers, especially for personal auto, have a solid hold on the value of predictive modeling. And the volume of industry data continues to expand. This means greater opportunity for refinement and more accurate pricing.

For example, telematics creates a completely new dynamic for predictive analytics. And over time, that opportunity appears to offer a lot of growth potential. Take a look at just the top 5 of the 12 “axioms” in the “Insurance Telematics Study,” a global survey from consulting firm Ptolemus, issued last spring:

  1. After Italy, telematics-enabled insurance will gradually become mainstream in the US, the UK and all developed countries. Overall, telematics-enabled policies will generate more than €50 billion in premiums by the end of the decade.
  2. In most countries, first successful models will be launched by direct insurance start-ups or "natural born-innovators" of the insurance world. As in the US, leading insurers will increasingly have no other option than following these.
  3. In most markets, telematics will attract and retain the lowest risk drivers of each segment, offering them discounts of up to 50% on their premiums. Traditional offerings will increasingly be purchased by high-risk customers.
  4. Stimulated by the gender ruling and upcoming regulation, telematics will revolutionize the way insurers assess drivers' risks. It will also force insurers to reinvent their business, notably by building a regular relationship with their customers, thereby reducing churn.
  5. As seen in the US, governments and regulators will gradually turn positive towards telematics, notably to reduce the emissions of CO2 and other car pollutants.

But ultimately, at what price will such types of opportunity come? Predictive modeling can be a costly investment – in both time and money. In our article, we proposed a statistic called Value of Lift, or VoL, to quantify the value of predictive modeling. I encourage you to take a look at the article and share your thoughts with us. And if you haven’t done so already, take the time to peruse carriermanagement.com.  It’s a relatively new industry resource focused on C-suite issues that you might find valuable.


Doug Wing

Douglas Wing, assistant vice president of Analytic Products for ISO Insurance Programs and Analytic Services, is responsible for the ISO Risk Analyzer® suite of predictive analytic tools. He leads ISO’s initiatives to enhance its offerings through analytics and predictive modeling across all lines of insurance. Before joining Verisk, Doug was in actuarial research and development at Liberty Mutual.