The use of predictive analytics in insurance is becoming increasingly widespread as companies realize how the power of insight can impact business growth, risk management, and loss control. The number of insurers using these sophisticated models is growing daily and, there are more business capability areas that are reaping the benefits. Recent SMA research indicates that over one-third of insurers are currently investing in predictive analytics and models.

Most insurers started using predictive analytics in the underwriting area. Those that are staying ahead of the curve are continually introducing new external data sources in their efforts to glean additional insightful information about the risks they are underwriting. As the available data becomes more robust and more plentiful, there are even more opportunities to view risks from varying vantage points—gaining insights that were not previously possible.

Insurers are telling SMA about a major concern that keeps them awake at night. It is not about losing a specific risk to a competitor, but rather about a case when that same risk returns to their book of business. This is the most troubling of all situations. When you don't understand why you lost the opportunity to write the risk initially, then you most likely do not have a full picture of why another company let it go and it has ended up on your books. The key question an insurer wants answered is, “What does another company know about this risk that we are not seeing?” This demonstrates why predictive analytics are so important.