Analytics as a Compass - Helping to navigate the challenging economic environment.
In today's uncertain economic environment, Insurance Carriers are faced with the escalating importance of mitigating risk, optimizing operations, and defending profitability. The utilization of business intelligence and analytics capabilities provides unique strategic opportunities that help inform better decision-making and serve as a compass to navigate the changing tides of the prevailing economic environment.
There is no better time than now to embrace the value that can be derived from a comprehensive business intelligence and analytics strategy. Analytics can be a powerful tool to help achieve organizational objectives and deliver meaningful insights into historical data, including the ability to effectively understand customer behaviours, product profitability and operational constraints. In this way, Analytics can also act as a shield to your organization by providing timely and actionable data insight. Our industry is and has always been, a diverse and data-rich environment and the ability to leverage analytics to liberate your firm’s data to yield insights that serve to reveal emerging trends are now more critical to organizations than ever.
The Importance of Alignment...
To gain the true value of analytics, it's important to ensure that the implementation is aligned with the organizational culture and strategic objectives. For example, if one of the business objectives is to improve customer retention in a specific geographic region, the analytics solution can provide meaningful insight into the factors that contribute to poor retention in that geographic region; however, without a sufficient level of alignment, the results might not be actionable or particularly relevant to the organization goal.
The Art and Science of Mitigating Insurance Risk...
Bringing next-level analytic insight to an entire insurance organization, which was once reserved for only specific groups, needs to be supported by a foundational cultural shift to achieve a data-driven decision process. For example, one methodology that provides a powerful analytic tool utilized by insurance carriers is the time-tested Claims Triangle. The Claims Triangle is a graphical representation of an insurance company's claims as they develop over time, delivering a mathematically sound process to help identify trends, estimate future losses, and set optimal loss reserves.
There are a great many other analytic tools that serve to provide deep insight for the business that extends far beyond the scope of this article. However, it's important to note that additional Best Practices can be applied in the form of geographical analysis that is integrated with the traditional policy count analysis. When combined, these two elements of reporting can offer new and valuable insight into assessing and managing risk. Geographical analysis can also help determine where the concentration of risks within a particular region can be found and provide opportunities to better understand the coverage distribution, loss experience, and evolving demographics. Each of these components represents important factors in determining growth opportunities as well as identifying areas of concern. This includes the identification of regions which have a high probability of specific natural concerns, such as floods, earthquakes, and other natural phenomena.
Geographic information, when overlayed with the more traditional policy/claim count analysis provides a powerful set of data that will help an insurer determine if the region represents a viable business opportunity. As a result, utilizing analytics and modelling techniques, an insurer can more accurately predict the likelihood of future losses in specific regions based on historical evidence as well as other relevant geographical factors to determine the most appropriate course of action.
Customer segmentation...
The ability to understand the distribution of risks (and the associated premiums and claims) is paramount to your firm’s pricing success. And having the “right” analytics platform is a key component to delivering actionable insights with respect to the data yielding an enhanced understanding of customer segmentation, distribution of premiums, and the claims experience across the various lines of business. Ultimately, these factors lead to more accurate pricing for a specific customer risk profile and serve to enhance profitability. The adage that states the “best defence is a good offence” is well applied in this specific case. Delivering an efficient pricing model combined with solid analytical risk assessment helps to ensure both high-quality risks and low-quality risks are priced at a level that is appropriate for both the organization and the customer. As has been proven time and time again, transparent pricing that accurately reflects the nature of the underlying risk and customer profile provides a much better experience that can improve retention.
In conclusion, Best Practice analytic solutions can help insurance companies mitigate risk, optimize loss reserves, and defend profitability during challenging economic times. By leveraging analytics along with historical data, insurers gain enhanced insights into the “true state” of profitability as well as their client’s claim experience. Analyzing behavioral characteristics and risk assessment can help insurers adapt to changing economic landscapes and make insightful decisions informed by evidence-based data. With the right data-driven decision-making processes in place, insurance companies can weather any economic storm and position their organizations for long-term success.