Champions of Analytic Innovation

By Marty Ellingsworth

For the first time in ages, smaller companies in the property/casualty insurance market have taken back some ground.

Advanced analytics — including market research, web analytics, social networking, geocoding, vehicle telematics, graph mining, and much more — can enhance business intelligence to address persistent strategic challenges.

The top ten insurance companies continue to grow, the number of companies overall continues to diminish, and the list of billion-dollar-revenue companies is shorter today than it was five years ago. But there is a ray of hope that the small can survive and grow. Consolidation and scale are critical, but so are attracting and retaining customers. And that's a game not only for the large — because vendors can provide scale, and everyday workforce champions of growing companies can dramatically accelerate innovation and advancement.

There are innovative champions at each of today's 330 personal auto insurance companies, but in the last 15 years, more than 100 other companies have failed or been absorbed by larger enterprises. Modern-day workforce champions know that the survival of their organizations and retention of staff and customers are foremost when creating strategy. Meanwhile, they need to produce, sell, and serve like never before.

For all insurance business leaders, staying relevant is more difficult every day as the market devises new ways for customers to access insurance products and services. Consider that spending by a single company for its auto insurance advertising soared toward a billion dollars in just one year — more than the entire premium revenue of 90 percent of its competitors writing personal auto business in the United States. In that light, knowledgeable executives at many insurance companies realize it's essential to differentiate by customer segment to attract and retain policyholders.

They also understand that the overarching value of data lies in the knowledge it reveals about customers. And the purpose of that knowledge is to take forceful action. Consequently, companies require insight from disparate data sources to execute strategy across key market segments. Today's executives need to identify trends and best practices that drive success, and they must implement process and technology improvements to maximize results by customer segment and channel. They also need to guide top-performing product management and R&D teams, distributors, vendors, and internal departments to coordinate overall strategic efforts.

Data analytics is critical to move from risk selection to risk management and to transition from adverse selection to pricing every risk with the expectation of a long-term relationship. The ability to mine customer data is essential, and a company's analytics experts must work as close to real time as possible. Even the needs of on-the-go mobile constituents and agent channels should be addressed so operations can be seamless.

The smaller the operation, the more important for champions and their predictive analytics experts to concentrate on execution instead of research. In reality, building and supporting all systems and processes in-house is a luxury even the largest competitors seldom enjoy anymore. That's because there's little room for margins and surplus to erode before credit and financial security ratings are threatened. So help from vendors and consultants is a viable solution — especially for companies under a few billion dollars in premium, where technical guidance or a systematic push can unlock potential and overcome data, asset, or market limitations.

In building or sustaining market share, larger companies may have the advantage of economies of scale. But small companies can emphasize a customer-centric strategy by leveraging automated workflow, document management, and self-service.

Deriving value from data-driven process improvements is a new frontier in the analytically competitive insurance marketplace. At a practical level, insurers are increasingly aware that using predictive models to focus on meaningful claim outcomes can foster the creation of best practices in customer service.

Even then, maintaining customer loyalty requires solid management backed by discerning awareness of market conditions. Strong business leaders continually examine their customer portfolios and ask themselves where they are and how they got there. They consider the ramifications and results of geographic expansion into different markets, the introduction of new products, or the addition of alternative channels. They're also realizing very quickly that advanced analytics — including market research and competitive intelligence, web analytics, social networking, geocoding, vehicle telematics, graph mining, and much more — can enhance business intelligence to address persistent strategic challenges.

Figure 1
Market Share by Rank in Market: U.S. Personal Auto Direct Written Premium

COA Dashboard: Settled Date Trend

In this environment then, how do advanced analytics, quality databases, and refined decision support provide measurable value? Management can streamline operations for proper execution of strategies and goals. Underwriting staff gain point-of-service insight from diverse data sources and sophisticated pricing systems with geospatial precision. Marketing and agency experts can interact with customers and producers unhindered. Claims personnel become more mobile — even in severe weather — to verify coverage as quickly as possible. The company and the industry have the means to organize efficiently and effectively in the fight against fraud, waste, and abuse.

All business champions need to take personal risks to achieve success through day-to-day triumphs and marketplace victories. They must commit to the growth of the enterprise by ceaselessly innovating. Predictive analytics is at the leading edge of business innovation, be it in the domain of product pricing, underwriting, claims, marketing, distribution, customer lifetime value, portfolio optimization, or finance.

On this business front line, the mantle of the champion is the same now as it was in days of yore. Armed with the science and skills of analytics, even smaller insurers can achieve striking business outcomes — for the company, employees, shareholders, and customers alike.

Marty Ellingsworth is president of the ISO Innovative Analytics unit at ISO.