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Learn how for many Insurers, the focus of the last few years has been to keep pace in a declining market. Insurers must solve two key problems in order to secure their future: getting meaningful products to market fast and improving customer service.
Ride the Storm: Navigating Through Unstable Periods / Katerina Rudko (Belka G...
Using business intelligence and optimization to secure the future in the global Insurance market
1. IBM Global Business Services Financial Services
White Paper
Using business intelligence and
optimization to secure the future
in the global Insurance market
2. As the gates of recovery inch open, the race to capture market share and mitigate risk
continues to intensify – only the most agile Insurers will pull ahead of the competition.
Post-crisis, belts are tighter, regulations are stiffer and customers are shrewder.
Customer expectations are newly galvanized around trust, transparency and value.
In fact, 80 percent of consumers rate trust and transparency as critical to their choice of
an Insurer, yet 60 percent of consumers state that they do not currently have that trust.1
New market entrants and new delivery channels are threatening to edge out legacy
offerings, as younger investors are considering alternative products such as annuities.
Regulatory controls have become exceedingly more rigorous and demanding – quickly
climbing to top the list of Insurers (and shareholders) greatest concerns.
To secure the future, Insurers must close these gaps. They will need to effectively leverage
information and technology to create customer trust and transparency – speeding
competitively priced new product offerings to market in a multi-channel environment,
and successfully mitigating fraud risks. Most Insurers already have much of the
information they need to accomplish this, but not yet the analytics and processes to
unlock its power.
Winners in the recovery insurance market will balance business intelligence and
optimization efforts to focus on customers and distributors, financials, risk and
regulatory requirements, and core processes to create growth and savings opportunities,
and differentiate from the competition. In our work with leading Insurers around
the globe, we have implemented winning business analytics optimization strategies
that prepare Insurers for long-term success in a changing marketplace.
3. IBM Global Business Services 3
The new agility – Information, analytics said they frequently lack information necessary to make critical
and optimization decisions. One half said they did not have access to the
Pressured by industry drivers, Insurers are seeking new models information required to do their jobs, or close information
to capture revenue growth and increased profits. While most gaps to reach business objectives.2
are at the beginning of their journey, the trajectory from
current state to future “best in class” position is clear – it is According to a recent study, many Insurers have planned
inextricably linked to how Insurers are organized and equipped investments in business intelligence and/or analytics over the
to leverage timely, accurate information to ensure informed next 12 months. Why are Insurers undertaking these
business decisions and actions. investments, even in a time of uncertain economic stability?
They understand the need for faster, more informed decision-
We believe insurers can make progress in terms of market making, and the need to ensure and track alignment to
share and profitability by moving in line with the maturity path corporate goals. Further, Insurers need to meet tighter
we have defined (see Figure 1). However, executives regulatory compliance requirements and manage information
responding to a recent IBM survey acknowledged that when it better in a real-time, increasingly self-service environment.
comes to data, they have significant blind spots – one in three
Fig.1. Insurance Industry Maturity Path
Profitability
Margin
Societal
Agile Predictive
Insurer Insurer
P&C: 7 pts better combined ratio
Life: 1.5 times higher profit
Optimized
Insurer Best in-class agile insurers
leverage information for:
- better focus on the customer
- transforming processes
Aligned - leveraging new business models
Insurer
Market Impact/Growth
Aligned Insurer Optimized Insurer Agile insurer Societal Predictive insurer
Consistent market approaches by Ability to embrace and implement Capability to enter new markets Creation of new business
multiple business lines with modest holistic strategies leveraging successfully, build new models based on statistical and
level of integration. Business / IT synergies that will increase distribution channels and launch analytical techniques that
alignment is a desired state to operational efficiency while new products quickly. Ability to predict future events or behaviors
capture more corporate efficiencies minimizing losses and monitor and adapt quickly based across the broader society.
maximizing profits. on market responses to retain and
grow market share.
4. 4 Using business intelligence and optimization to secure the future in the global Insurance market
Fig.2. Drivers for Business Intelligence (BI) Investments among Insurers
To better manage a specific operational
10.7
process in a more timely fashion
To better align with and track against
50.0
corporate strategies and objectives
To ensure regulatory compliance 35.7
To speed up and improve the
71.4
organization’s decision-making ability
To respond to user needs for data
on a timely basis
39.3
To move users toward a self-service
39.3
model of information delivery
To share information with customers,
suppliers and partners 7.1
To decrease business costs and
25.0
improve operational efficiency
To increase the organization’s revenue 14.3
0 10 20 30 40 50 60 70 80
Percentage of Respondents
Question “What were the three most significant reasons in your organization to invest, if planning to use BI or to consider? Source: Gartner (February 2009)
We believe winning Insurers will focus investments specifically but at the expense of margins. Industry winners are focusing on
on putting the customer first, enabling agents to sell and serve, consumer segmentation, building trusted brands and offering
increasing transparency and risk control and finally, building convenient multi-channel customer access to win new business.
IT-enabled organizations where automation creates efficiency The fact is that insurance will one day be viewed as one of
and feeds predictive analytics for the future. many choices – instead of as a must-have product.
Putting the customer first At the same time competition is increasing, consumer trust is
Due to direct services and new industry entrants with slick at an all time low. So is the ability to predict customer behavior
business models and lower price points, insurance customers to identify new revenue, reduce servicing costs, and reduce risk
have more choice than ever before. They want transparency – which will make ensuring customer satisfaction to build
and are becoming more demanding in how they interact with much needed relationships – near to impossible?
their Insurers, the products they want and the premiums they
are willing to pay.3 This reality rings even more true in The reality is that most customers may seek interaction and
emerging markets – where widespread need and customers’ information across several channels, based on their household
sophisticated use of online and mobile technology are creating demographic. Seamlessness, responsiveness, transparency and
significant competition and opportunity. convenience – in addition to safety and fair price for value
delivered – translate into customer trust. Post-crisis, trust and
Pricing strategies are still predominant, but are not sufficient transparency are table stakes for Insurers. Insurers that work to
to create long-term value – they may maintain market share, close the trust gap will tap into new opportunities to create value.
5. IBM Global Business Services 5
Applying business analytics and optimization can help Insurers adjusting sales tools, pricing, products, and other attributes to
acquire a deeper understanding of customer requirements, to target the best opportunities to acquire, retain and grow
rapidly identify and adjust price as appropriate, target market customer relationships.
their products to specific demographic segments, and
ultimately increase cross selling. Even with limited historical We partnered with a U.S. based P&C Insurer experiencing a
data, Insurers can use business intelligence to simulate risk dynamic shift in their business – while selling insurance products
profiles and optimize price-driven demand. All of this through agency owners and independent exclusive agents was
contributes to potentially higher product and service once seen as one of its biggest strengths, changes in consumer
penetration and a higher retention rate. buying habits required the company to enhance its channel
strategy. It became critical for the company to present a single
Case in point, one of our US Insurance partners was operating face to the customer, regardless of their choice of channel.
day-to-day on gut-instinct, rather than data-driven decision
making. We helped them launch a customer focused business Working across enterprise silos, we helped the Insurer develop
intelligence program to transform the company’s ability to a clear multi-channel distribution strategy. By aligning the
improve overall business performance, and ensure a stronger culture, technology, metrics, processes and incentives, the
customer service experience in order to drive revenue growth. Insurer successfully arranged a model that supports the way
They now have a roadmap to help them focus on achieving their customers want to be serviced. This type of multichannel
value. In addition, they have operationalized business approach reflects the thinking that 79% of consumers will
intelligence through a center of competency and data commit to a deeper product or service relationship with a
governance program responsible for creating and maintaining brand after a satisfying experience.4 With this approach the
consistent, contextual and accurate business data. By linking the Insurer exceeded sales targets in year one and customers
program to the overall improved performance of the company, started over 2.5M quotes 2009.
the Insurer drove a measurable cultural change focused on the
availability and improvement of both corporate information and Increasing transparency, controlling risk
BI skills and now has formed mature BI solution development Dealing with a growing focus on regulatory compliance is the
capabilities to the point of self-sustainability. second largest concern of Insurers (52% of responders in a
recent study).5 “Insurance regulation is being re-examined in
Empowering agents to sell and serve the light of the bailout of prominent US insurers, with
There is a growing need to empower agents to sell and serve international risk management standards likely to emerge.
customers more effectively. But the inability to identify, recruit, Eighty-three percent of Insurers expect to increase spending
equip, and provide incentives to retain the best agents, as well on risk management activities by more than 10 percent
as integrate and optimize agent information into Insurer annually, over the next five years. The Solvency II guidelines
operations makes the customer relationship focus all the more are already weighing on European Insurers, and the financial
difficult to sustain. crisis has resulted in increased regulation across the globe.
Business intelligence and optimization efforts can help Insurers Winning insurers are using these events as a burning platform
strengthen distributor relationships through modeling and in the drive to enhance enterprise control. Investments are
optimizing agent profiles for recruiting, retention, and required in underlying data management processes,
compensation of “A Players.” In addition, Insurers can employ infrastructures and capabilities to enable sustainable
business intelligence efforts to enable success with customers transparency. A focus on financial and regulatory analytics can
by automatically identifying potential new segments and help Insurers significantly improve risk aversion through
6. 6 Using business intelligence and optimization to secure the future in the global Insurance market
understanding risk posed by new products, globalization and Predicting the future
regulatory controls. In addition, Insurers can employ business Today, Insurers must make sense of the unwieldy amount and
intelligence to reduce surprises in financial results and different types of information available in and outside of the
proactively manage market changes. organization. Now many companies are applying analytics and
optimizing the bottom line focused on consolidated reporting,
External stakeholders demand transparent quantitative cost and expense management, performance management, and
disclosure of all risks and reporting or accounting on fair value fraud management. But soon early movers will emerge from
principles (IFRS, MCEV and Solvency II). We partnered with these exercises with strategies that focus on the top line - using
a leading European Insurer to improve the management and advanced analytics to pro-actively manage the pipeline,
compliance to regulations through a holistic program focused offers and promotions, brand perception, customer care
on standardized, accurate, auditable and transparent data and effectively sense market twists and turns before their
management. As a result, enterprise data will be extracted from competitors.6
100+ systems, uniformed, enriched and stored to be used in
calculations and accounting. The end-goal for many insurers will be the ability to reduce
lost costs and improve customer service with the use of
This proactive approach enabled more awareness and advanced analytics. Predictive modeling can help Insurers
responsiveness to regulatory actions, better risk aversions improve organizational flexibility to react quickly to market
through integrated enterprise risk management, improved conditions and scale to address customer needs (in the case of
efficiency and performance through shared systems and catastrophe or other significant market change), analyze claims
processes across financial services. Today this Insurer benefits risk to decrease cost from losses or improve customer service
from better knowledge sharing through internal and external based on known indicators. We are starting to see insurers use
transparency with external partners, and is able to better predictive modeling to better serve their customers with
respond to market changes. No matter what the regulatory “customized products” based on individual wants-and-needs
requirements end up becoming, they will now be prepared to analysis and to deliver improved medical care management
meet them. targeted to “at-risk” groups.
Fig.3. Analytics and optimization areas of focus over the next 24 months
Project scope Tactic
• Pricing and offer strategies
• Branding and reputation management Increase focus
• Product/services market selection
Next 24 months top 10 • Lead generation and pipeline management
• Promotion and offer management
• Logistics and distribution management
• Customer segmentation and profitability
• Demand forecasting and management
Maintain focus
• Enterprise goal setting and alignment
• Budgeting and resource allocation
Current top 10 • Reporting and performance measurement
Re-assess focus
• Cost/expense management
• Career path and succession management
• Fraud and financial risk management
• Leadership development
• Channel performance
7. IBM Global Business Services 7
Healthcare Insurers are leading the way in analytics and risk
management by creating medical management predictive
“The pressure to gain share in a
models. IBM is helping US health insurers use advanced sharpening market will not ebb.
analytical tools to risk stratify their member population and
ensure appropriate and preventative care is coordinated and New regulations loom on the horizon.
designed to assure good outcomes. Predictive modeling is
used to identify “at risk” groups and to risk stratify them. The
There will be no going back to
insurer can then match interventional programs with the level business as usual.”
of risk and deliver them consistently and cost-effectively. As an
example, members at risk for coronary artery disease, can
receive education and preventative care in an attempt to avoid a
catastrophic event like a heart attack. These new approaches to However, competitive business analytics and optimization
promoting health and delivering care allow members to make capabilities require deep skills in business intelligence and
better health and wellness choices and allow the Insurer to information management – which most Insurers lack today.
deliver significant value and avoid subsequent costly health care. Strong business intelligence capabilities must also be backed by
streamlined data governance processes that pervade the
Conclusion organization. In addition, Insurers must continue their focus
For many Insurers, the focus of the last few years has been to on smart streamlining, integration and consolidation across the
keep pace in a declining market. It now looks like things could organization – and well considered cost take out measures – to
be turning upward. But whether the benefits of the recovery fund differentiating analytics and optimization efforts.
are felt earlier or later than analysts predict, the financial crisis
has set in motion a “lean years” perspective that global leaders Though the customer must be the ultimate focus of business
and consumers won’t yield for some time. Trust has been analytics efforts, many insurers are finding that it is increasing
threatened. The pressure to gain share in a sharpening market regulatory issues which provide the perfect entry for driving
will not ebb. New regulations loom on the horizon. There will buy-in for a focused business intelligence effort. These efforts
be no going back to business as usual. must top the chief executives’ (CEO, CFO and CIO) agendas
to achieve full benefits. By starting small, generating short-
Insurers must solve two key problems in order to secure their term proof of concept successes and scaling fast, leaders can be
future: getting meaningful products to market fast and successful in linking these efforts to their organization’s
improving customer service. Their ability to leverage strategic business agenda, and catapulting their Insurers to
technology and information to drive business intelligence will front-runner status. For more information on pursuing a more
be a defining factor in their success. Some insurers will pull proactive approach to securing your company’s future, please
away from the pack by focusing on the customer, through contact Lee-Han Tjioe, tjioelee@cn.ibm.com.
employing a business analytics and optimization lens to drive
value and aligning business with IT to turn out meaningful
products, achieve more transparency, and improve service
efficiently.
