How the insurance industry is embracing advanced analytics

Emerging data sources and advanced analytics have swiftly become new frontiers for modernizing insurance company operations and customer experiences. Insurers are planning for the future by improving customer experience and transforming claims management, which is expected to more heavily influence pricing, customer selection and product design.

Insurance innovation also has wider applications, from customer behavior modification to claims triage and loss control. “Insurers are striving to replicate the more rapid and personalized user experience implemented by retail and other online environments and apps that have raised consumers’ expectations,” says Willis Towers Watson Director Ben Williams. “There’s ambition out there and interest to improve claims management, customer service and pricing accuracy.”

Williams leads Willis Towers Watson’s Property & Casualty pricing, product, claims and underwriting team in the Americas. He noted that adopting a customer-centric approach is of value to companies.

“While customer-centricity itself isn’t new, it’s increasingly improving the customer experience,” Williams says. “The nature of the insurance buying decision is very personal. Companies that personalize customer interactions to make doing business more convenient are more likely to keep their business and potentially grow their book.”

According to Willis Towers Watson’s “2017/2018 P&C Insurance Advanced Analytics Survey Report, “improving customer-centricity is top of mind for insurers. Big leaps in the number of insurers that plan to capitalize on customer data — from 49% to 76% — are seen as the main facilitators of faster, smoother and more personalized customer experiences over the next two years.

“Increasing customer-centricity makes it easier for potential clients to purchase insurance; it also allows insurers to price more accurately, meaning that it’s easier to reduce large price changes at renewal,” Williams says.

The survey also found that insurers see huge potential for advanced analytics in the claims area. Fraud prevention (82%) and triage to identify complex claims (80%), together with the evaluation of claims for both litigation and subrogation potential, are key applications for development over the next two years.

Is bigger, better?

How does a smaller company compete effectively against the larger companies when it comes to analytics? Williams believes smaller companies can be nimbler and change easier.

“You’re not necessarily at a disadvantage because you’re a smaller business,” he said. “Some big companies are their own worst enemies when it comes to change.”

Williams noted that big ambitions can require important organizational changes to align capabilities and capacity. “Insurers that previously have had only underwriters are now developing analytics teams. New technology is bringing additional insights to the underwriting process and the industry is embracing this.”

A culture of innovation

“If analytics are going to be a priority, it is important to have buy-in throughout the organization,” said Williams. “To get the most out of analytics, it is important to effectively implement them and collaborate with the people doing the business. It’s not enough to provide people with new tools. They also have to be trained to use them effectively.”

Results from the Willis Towers Watson survey show few insurers have started to adopt artificial intelligence and machine learning, with the biggest application to date an effort to better understand risk drivers (20%). Within two years, though, many more insurers plan to use these techniques to reduce time spent on tasks by employees (49%), to identify high-risk cases (45%), and to build risk models for better decision-making (45%).

There’s been an explosion of data over the last five to seven years, according to Williams. “Companies are still figuring out the best ways to leverage these new data sources to gain a competitive advantage,” he says. “The raw materials are there, but how do we use them to change the business?”

Findings from the survey show the dominant measure of success is improved loss ratio (81%). Encouragingly, more than one-third of the companies surveyed said that advanced analytics have already had a strong positive impact on their bottom line, with a further 54% citing a positive impact. Nearly three-quarters said advanced analytics also positively supports top-line growth through stronger renewals, expansion of underwriting appetite and improved market share.

“There are critical next steps insurers should take to prepare for the future,” Williams says. “They need to arm themselves with data and learn new techniques. They need to develop a plan to integrate these into their organizations. If our survey is reflective of the industry’s thinking, the desire to improve underwriting and pricing through analytics and customer-centricity is there.”

Loretta L. Worters (lorettaworters2932@gmail.com) has nearly 30 years’ experience helping insurers achieve their communications goals.