Carriers are aiming BI initiatives at various areas of the insurance enterprise. Not surprisingly the two key areas that get attention are underwriting and claims, the two most significant profit levers in an insurance company.

In the underwriting area BI is being used to analyze and score risks more accurately and to support the development of pricing methods. These focus areas tend to interact and to feed off each other. As carriers get more sophisticated at risk segmentation they also can get more sophisticated at pricing. As they know more about their own profit profile across business segments they can more finely adjust their position in the marketplace, in response to market pressures, regulatory changes, and company values.

BI may be more widely used in claims than in any other part of the business operation. Given that claims spends, roughly, seventy cents of every carrier dollar it is not surprising that carriers have focused on this important area, particularly on causes of "leakage" including fraud, abuse, and inefficiency.

There are significant areas of claims that offer major savings without touching the sensitive area of indemnification, which is, after all, the "delivery of the insurance promise." Fraud, in all its diverse manifestations, is estimated to cost the industry between $20 billion and $30 billion annually. For certain carriers, e.g. workers' comp and (nonstandard) auto, fraud is a major issue to be constantly monitored and identified.

The identification of various patterns in the claims data universe can indicate fraud—multiple claimants on different losses with the same home address; the high frequency appearance of the same medical provider across numerous claims—can indicate areas of SIU focus.

Another area of claims leakage is subrogation. Often carriers have only poor information concerning the circumstances of a loss, the degree of negligence across involved parties and the extent to which recovery is available, or is pursued against another carrier. Estimates of subrogation recovery range across carriers, but in general are in the high teens and low twenties as a percentage. Given that subrogation recoveries are "found money" it is an area ripe for the application of more data and some analysis.

A similar case can be made for salvage and reinsurance. Tracking the application of reinsurance across losses and aggregating recoveries across multiple reinsurance treaties is usually a "spreadsheet function" that happens somewhat mysteriously in the accounting department. Some carriers have extended the BI capabilities to identify and take action in certain indemnity areas.

For example, one carrier undertook an analysis of the time it took to schedule damaged vehicles for repair and concluded that major savings could be made in rental reimbursement coverage—with an attendant increase in customer satisfaction—by getting vehicles to approved body shops and therefore back to their owners more quickly.

Other claims-related uses of BI include claim intake and adjustor assignment, litigation management, and settlement tracking and analysis.

All this activity has both attracted and been stimulated by various vendor offerings. As with other vendor segments there are solutions that come from outside the industry and those that have grown up within it. Several well known and long established names date back to the days of 4GL horizontal solutions and now play strongly in the insurance space, emphasizing their deep roots in BI and their technology capabilities.

Then there are vertical market vendors that tout their industry knowledge first and their BI technology second. The appropriateness of one vendor over anther, as always, depends on the needs and wants of any specific carrier. Some carriers are looking for tools to build a BI capability, while others are looking for advice and guidance as to what should be in a warehouse and what kinds of reporting can be done.

The vendor market segments into those solutions that provide both insurance repository data models and reporting tools, or those that provide a framework for creating both data structures and reporting logic. Industry analyst Novarica segments the market into three offerings:

• Platforms that provide tools for reporting and data analytics, and data storage and mapping. Platforms don't necessarily provide insurance content such as data models, standard reports or dashboards. Rather they enable carriers to develop their own bespoke BI environment. Platforms are for carriers that for one reason or another want or feel the need to "build rather than buy" their BI solution.

• Models provide pre-build insurance data content, ETL capabilities that extract insurance data from the operational systems environment and consolidate it into their pre-defined warehouse schemas, which are in turn reported on and analyzed by pre-build applications. This option is more appropriate for the carrier that is looking for significant guidance, and a tailoring project rather than a build project in order to create their final BI capability.

• Solution suites are a combination of the platform and model offerings. The solution suite provides a comprehensive pre-built BI capability where the model and platform may be tightly coupled and pre-integrated by one vendor, or maybe more loosely coupled.

Regardless of how much the carrier buys rather than builds the end result ends up structurally similar. The key components of a BI environment are:

• The ETL layer, which forms the bridge between the various underlying operational systems with all their differences and vagaries and a single centralized data store that represents a "single version of the truth." As the mnemonic reminds us ETL programs extract data from operational and legacy systems, transform it according to mapping rules into consumable formats and load it into a consolidated data structure, which may or may not have been largely defined by a purchased insurance-specific model.

• The consolidated data store comes in at least two flavors. One flavor is a two stage implementation where the first data store is an operational data store (ODS), which is intended to replace operational systems as the system of record and mask the remainder of the IT environment from changes in underlying systems; and the second data store is the data warehouse, which is a version of the ODS optimized for reporting and analytical work. The second flavor eliminates the ODS and has individual operational systems feeding it directly.

The Reporting Layer usually consists of several capabilities including:

• Canned reports developed to meet regular data reporting requirements.

• Ad hoc reporting facilities where "power users" manipulate data cubes or Excel pivot tables to generate their own detailed business insights.

• Higher level dashboards and gauges that provide visual and graphical representations of key business metrics and high level measures.

Taken together these capabilities are creating intelligent companies and fostering a culture of enquiry and insight. A common theme among companies that have made a significant commitment to the BI world is that it creates its own demand. Business users become more curious as they become more insightful and educated about the aspects of the business they are involved in.

New insights create new questions and new answers create greater accuracy and efficiency. And like the competitive imperative created by the move to new core operational systems, the rise of BI has created competitive capabilities that carriers have to match in order to continue to compete. The days of running with the lights off and the dashboard blank are over; which is only appropriate for an industry that is in the data business.

George Grieve is CEO for CastleBay Consulting. Previously a CIO and still an acting consultant, he has spent much of the past 25 years with property/casualty insurers, assisting them in the search, selection, negotiation, and implementation of mission-critical, core insurance processing systems. He can be reached at 210-887-6423.

The content of "Shop Talk" is the responsibility of the author. Views and opinions are those of the author and do not necessarily represent those of Tech Decisions.