Business Intelligence for Insurance
The recent economic downturn and the market change to a customer-centric approach have altered the market dynamics. The ecstatic expectation of a never ending pipeline of new customers with unlimited dollars has given way to harsh realities brought on by tightening of budgets and reduction in consumer spending. Also, the product-focused approach to selling insurance products that was used for the last 50 or more years is no longer holding up in a customer-driven marketplace. Customers are now demanding a portfolio of products from a single source that will meet all their needs.
Secondly, in last one decade, Insurance companies markets that had limited competition saw an explosion in the number of new entrants. The once friendly financial services firms and banks with their vast network of branches and agents posed a new competitive threat. On the flip side there has never been a better time for insurers to grow top line revenue by selling new products to an already established customer base.
Sweeping changes like consolidation and new competitors, globalization, product convergence, channel proliferation, new approaches to customer relationship management generates significant big-data problems for large insurance companies. Leveraging customer data is the key as insurers rapidly shift their attention to differentiation based on customer acquisition and retention rather than product offerings. Integrating the e-business channel into existing legacy applications and achieving operational efficiencies are also important imperatives for large insurers, especially those who want to integrate offerings across product lines or business units as a strategic business goal.
How to control the Data in Insurance industry for taking Informed Decisions and thereby business success
In order to overcome the above challenges, Insurance companies are looking for new ways to drive positive results to their bottom line. Their strategic business objectives are to:
- Gain a better understanding of the market and customers’ needs
- Reduce operating costs through increased efficiency
- Reduce customer churn and improve retention through better loyalty programs and customer service
- Reduce and control risk
- Identify opportunities to increase revenue by cross-selling and up-selling
The value that BI provides is that it transcends intra-organizational boundaries thereby providing its users with an enterprise perspective. In a customer-driven market place, BI correlates information from the multiple divisions of an organization to reveal opportunities that would not have been unearthed using the traditional lines of business reporting. The data is maintained at a granular level for access to facts as well as summarized to allow for discovery of patterns and trends over time.
Insurers have large amounts of data on their policy holders and claim or event information. This information is typically stored in databases that are organized by line of business such as home, life, auto, health plans, etc., resulting in data silos, i.e. data available only to employees in that line of business or division. Often within a division, information is further fragmented across multiple databases making it a nightmare for anyone trying to gather information for decision-making. Without BI technology, the process usually involves querying multiple databases and pulling the resulting information into a spreadsheet to produce the metrics required for the decision. This approach runs into two major issues.
First is the amount of time and resources it takes to gather and process the information. The larger the data volume, the more resources are required thereby increasing the cost of the effort. Second, due to the inherent limitation of humans to collect and accurately process large amounts of data, there is a great risk of errors. Decisions are then made on very limited data which could potentially have a high incidence of errors. When extrapolated across the enterprise, this issue presents a troublesome picture, especially when a bad decision can result in the loss of millions of dollars, lost jobs and even bankruptcy. Senior executives must question if they are running the business based on sound information or anecdotal advice.
Insurance managers need to make decisions about critically important questions, such as:
1. Where do I need to focus my management attention?
2. Where can my team affect the greatest amount of positive change?
3. How do I benchmark my performance vs. my peers, and my suppliers or channels vs. their peers?
4. Can I get all the information I need on any issue or opportunity?
It’s not enough to get basic data. While making decisions, business users need to analyze insurance information along any relevant dimension, so they can understand factors, such as the causality of loss ratio changes, the implications of late-payment trends, or the materiality of adverse loss development.
They need to access the information needed to guide decisions when it’s most valuable. They require auto alerts and notifications when operational performance measures deviate from norms or expected results.
Unfortunately, many insurance executives and managers still have to pore over stacks of paper to compile the information they need. Time intensive, manual efforts make time-sensitive issues difficult to handle, and they make it almost impossible to get advanced warning of issues before they become operational problems.
Secondly, it’s hard to improve your decisions when you don’t trust the data you’re using. So how can you get away from the stacks of paper, leverage information as a key product, and bring trust in the quality of the information you’re producing?
The insurance business is data driven and people powered. People who manage the business need the right data or actionable information to make informed decisions at all levels both operational and strategic. Senior executives require access to Key Performance Indicators (KPIs) which allow them to understand how their company is performing and make strategic decisions. Operational staff requires access to facts that allow them to take the appropriate action at a tactical level.
As per the board member of a Tariff Advisory Committee, wing under Insurance Regulatory Development Authority of India (IRDA) the use of BI solutions to determine general and life insurance policies can result in 10-15 per cent improvement in the bottom line of the insurance companies.
Besides better tariffs, BI can also reduce the churn in customers. The insurance industry has a high rate of customer churn where in the third year of business it loses the complete first year business. BI solutions can help companies address the behavioral pattern issues of clients & reduce this churn.
BI plays a crucial role in almost every aspect of the insurance value chain like:
• It can help identify the right customers for target marketing and analyze the reasons for customer attrition.
• It can help the insurer better manage its agents and sales force and improve the effectiveness of actuarial and underwriting functions.
• BI forms the most critical component of claims management, helping in fraud selection and claims estimation.
• On the asset management side, it can lower the insurer’s risk through sophisticated risk models developed using data mining tools.
• And most importantly, BI tools can help insurers provide crucial information to corporate clients, which can go a long way in cementing the insurer’s relations with the clients.
So how can you get away from the stacks of paper, leverage information as a key product, and engender trust in the quality of the information you’re producing?
First, design data quality directly into the information-handling process. This involves moving to real-time decision-making, creating an environment where the company puts the best information in front of each user, in a format ready to address their business issues, with a clear audit trail directly to the source system.
• Getting timely business-ready information consistent with data sources means that the current state of the company can be determined with less guesswork, fewer spreadsheets, and reduced manual reconciliation
• Enabling people to get information consistent with the most accurate sources and reconciled with industry standard calculations eliminates competing explanations of the numbers
• Getting timely and accurate information to a few analysts doesn’t really help overall decision making. The information has to go out to every decision-maker – which can mean hundreds or thousands of people – at the point of decision
Finally, ensure that everyone looks at the same information. This will help focus all efforts on a shared understanding of the business, rather than on debates about what the numbers mean or whose numbers are correct. Data mastery involves making sure that information used by actuarial, underwriting, claims, executives, and regulators is always the same by design. Using two or more official data sets is no more acceptable than using two sets of accounting books.
Improving the information-handling process will raise confidence levels, improve productivity, and even bring about the agility that insurance executives often seek. In short, it will help employees at every level manage their part of the company’s business better.
Insurers should be equipped to understand their business in terms of Marketing and sales, pricing and segmentation, product definition, and service which leads to constant demands for additional granularity and agility such as discovering profitable business segments, creating strategies to target these segments, out-competing other providers, and staying on the right side of the regulators.
Good understanding requires good business instincts. The success in the business requires that instincts be informed and challenged by the intelligent use of information. Since most competitors can copy insurance products, the speed and consistency of execution becomes paramount to business strategy. Information needs to be available immediately, and it needs to drive action. That’s why competitive companies in the industry are striving to achieve data mastery, and why those who don’t will be left behind.
Understanding the risks of product offerings and the practices that surrounded them is important. Insurers face complex, decentralized regulatory requirements and review by many different stakeholders. A lack of understanding could prove disastrous. Insurers today need to know that appropriate processes are being followed and that there are no renegade managers putting policyholders, shareholders, and company performance at risk.
All insurers have some current information in policy systems and some accounting views in a general ledger. However, investors and the public focus on overall transparency, business conduct, and client-centered behavior, which requires a more comprehensive perspective placed in a longer-term context.
Many insurers fall far short of being able to provide this level of data coverage. A comprehensive perspective includes a consistent, standard way to capture, store, and distribute intelligence on core information types:
• Operational information like premiums, claims, and expenses
• Risk information like exposure and loss development
• Cycle-time information like lag days and late payments
• Channel information and commissions
Creating this perspective allows insurers to highlight anomalies, understand causes, and take action. It provides for early detection that allows for agile adjustment to improve strategy, competitive positioning, practices, and pricing. It also provides the basis for discovering fraud and potential fraud.
Delivering a single confident view of all this information to the business is no longer optional for insurers; it is a core business requirement, the underpinning for how we manage our business, our strategy, and governance.
The data confidence question raised earlier also has implications for governance. Decisions are made every day, yet how many of these decisions are auditable?
• Do we have summary information with all supporting details behind it?
• Do we have an audit trail from the source system to any reported number, even for ad-hoc questions?
• Is the information generated and delivered in real time?
Insurers cannot afford the time and distraction to chase down numbers and build up business answers manually. It would make them less profitable. They require a cost effective way to deliver better-quality answers to their business users, stakeholders, supply chain partners, and regulators. When a user has an immediate need for a number, the system must provide the best number first, clarify what it means, show how it was calculated, and provide an audit trail – automatically – without any extra user effort.
Few of the reports Insurance companies can derive with the help of BI:
• Customer Relationship Management (CRM)
o Customer Profitability Analysis
o Customer Lifetime value Analysis
o Customer Segmentation Analysis
o Attrition Analysis
o Affinity Analysis
o Target Marketing Analysis
o Campaign Analysis
o Cross Selling Analysis
o Lag days & Late Payment Analysis
o Premium Lapse Analysis
o Market Basket Analysis
• Channel Management
o Agent & Sales Force Deployment Analysis
o Channel Analysis
o Business Development Analysis
o Commission Analysis
o Risk Modeling
o Profitability Analysis
o Product Performance Analysis
• Underwriting and Policy Management
o Premium Analysis
o Loss Analysis
• Claims Management
o Claims Analysis
o Fraud Detection
o Claims Estimation
• Finance and Asset Management
o Asset Liability Management
o Financial Ratio Analysis
o Web Reporting and Analysis
• Human Resources
o Human Resource Reporting / Analytics
o Manpower Allocation
• Corporate Reporting
o Dashboard Reporting
o Statutory Reporting
o Financial Consolidation Management
BI can no longer be restricted to a chosen few within an organization or just be a good-to-have tool. It has become a core component of a successful business strategy. Given the changes in the marketplace, insurance companies stand to benefit tremendously by using BI. However, as time and experience have shown, in order to be successful with BI and get the value expected, one must approach BI with an enterprise view and identify individual initiatives to meet more immediate goals. 1KEY BI can be a strategic weapon going into the 21st century to drive significant benefits to the bottom line.