The secret to successful underwriting

It is clear from many of the comments arising from this year’s Insurance Times Broker Service Survey that brokers value underwriters who are open-minded and willing to adapt wordings and terms where possible to accommodate clients’ individual needs. They also value a close dialogue and partnership with underwriters who are approachable.

It is the insurers with empowered and decisive underwriters, with the capability to consider complex or difficult-to-place risks, that are most successful in retaining renewal business and winning referrals. Those able to adapt to changes to risks mid-term are also valued, particularly by brokers with fast-growth clients.

The antithesis to this is also clear from verbatim comments in the survey. Underwriters who are difficult to approach and/or reluctant to deviate from a rigid set of underwriting criteria are those that received negative feedback.

Some comments indicate that a reduction of underwriting expertise and flexibility has occurred as a result of restructuring or M&A. Here, the loss of a dedicated underwriter or representative can have a profound impact on relationships within the broker channel. It is particularly important therefore to ensure continuity following such periods of change.

When Markerstudy acquired Zenith Insurance, SAS was able to work closely with the company to bring together over five disparate data systems into a single-user friendly platform. A clear data-quality strategy and auditable structure was also necessary to prepare for upcoming Solvency II regulations.

 

Startups deal with a myriad of data analysis issues.

By improving data quality and offering management a clearer view of the business, it meant that swift and informed underwriting decisions continued to be made as the two businesses integrated. Looking ahead, as the business expands, improved data quality will offer underwriters and other decision-makers a clear overview of how the different lines of business are performing at a group level.

Download our white paper on Data is King: the benefits of an insurance data model and find out more about how SAS Analytics can help you improve business performance through more efficient use of data at www.sas.com/uk/insurance.

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There’s a need for speed, but with an eye on fraud

42-25869075 (1)According to broker’s “best” and “worst” verbatim responses in this year’s Insurance Times Broker Service Survey, insurers who act quickly to verify and settle claims are their preferred partners. This year’s importance scores reveals brokers are placing a stronger emphasis on claims in comparison to previous surveys. Those instances where straightforward claims are processed quickly and a cheque is issued in a matter of days, without quibbling or delays, foster both customer and broker loyalty.

However, insurers ability to process and settle claims is frequently put to the test, not least as a result of the high levels of fraud prevalent in personal lines claims. The Association of British Insurers (ABI) estimates claims fraud costs the industry £2billon a year and within motor alone, £466million. The industry has been fighting back, sharing data via initiatives such as CIFAS (the UK's most comprehensive databases of confirmed fraud data) and the Insurance Fraud Register (IFR).

In the future, access to these fraud databases will help insurers and brokers flag suspect individuals at the point of quote. It will allow them to quickly identify individuals who may have been associated with previous claims fraud or who have been dishonest in other ways, e.g. committing application fraud. Research suggests that individuals who misrepresent themselves at the application stage are more likely to commit claims fraud.

Claims “triage” or decision-tree management is helpful in determining which claims can be approved speedily while isolating those that require further investigation (potentially because they have been made by an individual who misrepresented themselves during the application phase, for instance). As well as being used in fraud detection, such systems are also effective during peak claims periods, such as in the aftermath of winter storms and floods earlier this year.

Between December 1 and February 19, the wettest winter on record in the UK, brokers and insurers received £6.7million a day in insurance claims from customers hit by flooding. Sixty per cent of the 18,700 flood claims have now been fully settled, according to the most recent ABI figures.

SAS recently carried out research - Insurance Companies: Are You Equipped to Successfully Combat Fraud?” - which showed that, despite a rise in global fraud, two-thirds of European insurers saw the volume of detected fraud increase by less than four per cent. The online survey revealed that those insurers that do not use automated detection, or only use ‘business rules’, saw significantly lower levels of detected fraud than their peers using advanced analytics.

SAS Analytics offers insurance companies a suite of solutions to improve fraud detection and enable claims handlers to improve business performance throughout the claims lifecycle through the more efficient use of data. Find out more at www.sas.com/insurance.

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Can I Quote You on That? - 2014 in review

Earlier this year, I was speaking with an insurance executive and he said something that turned out to be my favorite quote of 2014: “Premium revenue is like heroin.” While this seems like an unlikely analogy  or simile?. The point this executive was trying to make an interesting argument.  Insurance companies are so focused on increasing revenue that they often neglect the fundamental principles for successful pricing – “the only badly priced risk is an underpriced risk”.  It’s better to decline the business than accept a bad risk.

Theoretically this statement makes sense.  However, in reality, it is rarely the case. If you promised an insurance CEO that you could double profits but revenue would fall by 25%, very few would accept the proposition. However one insurer that was willing to reject unprofitable new business for the long term gain was AIG. This case study details how they grew their executive liability business by $14m over an 18-month period by declining potential loss of $75m from certain executive liability accounts.

This wasn’t the only great quote I heard this year.  Here are a few of my favorites from 2014:

  • “Common sense is not so common.”
  • “Nothing is more dangerous than an executive who has read an airline magazine!”
  • “Data, at the end of the day, is just history.”
  • “Do not let perfect get in the way of very good.”
  • “What is telematics? – Where data meets the road.”
  • “It’s not about the amount of data.  It’s about the accuracy of the end result.”

As I look back on 2014, I am reminded of the infamous quote by baseball player, Yogi Berra: “It’s like déjà-vu, all over again.” Despite all the hype about the Internet of Things and big data, 2014 was a quiet year and not much has changed for insurance companies. However, as we look forward to 2015, there is considerable reform in the insurance industry with initiatives such as Solvency II and we are likely to see more change.  Or, as Yogi Berra would say:   “The future ain’t what it used to be.”

Finally, I would like to wish all my readers a Happy New Year and I am looking forward to spreading the word about analytical innovation in insurance in 2015.

I’m Stuart Rose, Global Insurance Marketing Principal at SAS. For further discussions, connect with me on LinkedIn and Twitter.

 

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Many Faces of Insurance Fraud

What do the following have in common?

  • A homeowner inflates the value of his home entertainment equipment stolen during a robbery.
  • A parent states they are the primary driver for their child’s car.
  • A doctor charges for a non-existent procedure.
  • A construction company underreports payroll or misclassifies an employee’s duties.

Answer: Insurance fraud

Insurance fraud comes in many shapes and sizes, and technology plays an important part in prevention. In fact, a recent study by Coalition Against Insurance Fraud found that 95% of insurers are using anti-fraud technology. However, most insurers have found that no single technology is sufficient. A combination of techniques is required to identify both opportunistic and organized fraud. The first line of defense continues to be automated red flags / business rules (81%). However, as fraud patterns and behavior become more sophisticated, insurers are deploying more advanced analytical techniques. The next top five technologies were link analysis (50%), anomaly detection (45%), predictive modeling (43%), text mining (43%) and data visualization (40%). The figure below shows the investment in these technologies compared  to the investment shown in a similar survey undertaken in 2012.

Fraud survey

Other key findings from the report included:

  • More than half surveyed indicated that suspicious activity had increased over the past three years.
  • Two-thirds of insurers responded that they use anti-fraud technology developed by a software vendor.
  • Most cited benefits of fraud-detection solutions including  receiving more and better referrals, uncovering organized fraud, and improving investigator efficiency.

Read the full report “The State of Insurance Fraud Technology” to understand how and to what extent insurers are using anti-fraud technology.

The full scale of insurance fraud is unknown. Since the crime is designed to go undetected, the fraud-fighting community can only guess at the extent of crimes committed and dollars lost. Whilst many policyholders still view insurance fraud as a victimless crime, it impacts not only every insurance company but every policyholder due to increased premium rates. The FBI estimates that insurance fraud costs more than $40 billion per year or between $400 and $700 annually in extra premiums for every American family.

CNA and Allianz are just two insurance companies who no longer view insurance fraud as cost of doing business. They have implemented SAS Fraud Framework for Insurance to increase detection rates resulting in reduced loss ratios, competitive edge and lower premium rates for policyholders.

I’m Stuart Rose, Global Insurance Marketing Principal at SAS. For further discussions, connect with me on LinkedIn and Twitter.

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Insurers Sharing Best Practice in Analytics

Last week, I was fortunate enough to attend the Insurance Networking News Analytics Symposium. This great event had several engaging speakers. As analytics becomes more prevalent within insurance, it was refreshing to see that many organizations discuss their successes and share best practices in this essential aspect of the business.

A common theme with the presentations was how data, analytics, technology and people are changing the insurance industry. Specifically three presentations caught my attention:

  •  Competing on Analytical Talent. In this session, Peter Hahn, Head of Predictive Analytics at Zurich North America, talked about how his organization was able to hire a team of 15 new data analysts despite intensive competition from other industries. While it is important that salary and benefits are competitive, specifically it came down to convincing the applicants that insurance is cool and detailing the type of exciting analytical projects like catastrophe modelling.
  •  Using Data and Analytics to Fight Claims Fraud. In this presentation, Tim Wolfe, AVP Special Investigation Unit, discusses how CNA was able to dramatically improve its fraud detection program by using analytics, thus saving the organization millions of dollars. Also, he spoke about the intangible benefits such as improving investigator efficiency and the reputation of CNA in the agency community by protecting its customers against the growth in claims fraud.
  •  Increasing Use and Leverage of Predictive Models for Mid-Sized Insurer. Mike Rowell, VP Business Analytics at Alfa Insurance, highlighted how his organization was able to compete with the tier 1 insurers by assessing the customer lifetime value of its policyholders. In particular, how Alfa Insurance improved persistency rates and influenced the profitability of its customer base. Interestingly, Mike Rowell, also shared with the audience that not everyone within his company had bought into the value of analytics. Rather than view analytics as complimenting their skill set, some knowledgeable employees saw it as competition even referring to as Voodoo Math or ass-alytics!

My take away from the conference is that analytics, despite a few naysayers, is now a strategic initiative of every insurer. Insurance companies of all shapes and sizes are finding innovative ways to use data to increase revenue or improve efficiency. To learn more about how analytics can help your organization download the Analytical P&C Insurer or Analytical Life Insurer white papers.

I’m Stuart Rose, Global Insurance Marketing Principal at SAS. For further discussions, connect with me on LinkedIn and Twitter.

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Decision Driven Marketing ..Real-time or No Time

People often talk about the customer experience and the engagement model. This is an easier task when a business has regular interactions with its customers like banks and retailers. However, for insurers, this is a challenge.

First of all, insurers have infrequent interactions with their customers.  When there is interaction, the insurance company is usually asking for money at renewal or dealing with a loss such as a car accident.
Secondly, insurance companies face a saturated market.  Honestly who needs a second car insurance policy!
Finally, in today’s hyper-connected world, it is real-time or no-time. Customers initiate and interact across multiple channels.

To overcome these challenges, the goal for insurers is to create an ideal customer engagement at each and every interaction. This means that insurers need to be able to provide relevant and insightful advice, recommendations, services and offers at exactly the right time with the right message.

To achieve effective, decision-driven marketing includes:

  • Data management – Supporting effectively real-time interactions and real-time decisions; data must be comprehensive and must provide a single-view customer profile
  • Predictive analytics –Having the ability to combine analytics and models with business processing is critical to success for deploying the decision-making insights into operational environments
  • Marketing tools – Planning, executing and monitoring inbound and outbound marketing strategies, campaigns and results
  • Channel management –  Having the ability to support and manage an ever-expanding number of diverse channels
  • Speed –  Managing customer interactions, data, sophisticated analytics, integration with core systems cohesively in real-time to provide “next best advice”.

While the bar for customer engagement excellence is largely being set by companies outside the insurance industry, the leading insurers of today and more importantly tomorrow, will be those that view real-time interaction and decision capabilities as fundamental to their future growth.

The benefits of real-time, decision-driven marketing capabilities are significant. To learn more either download the white paper or register for a webinar on October 2nd at 2pm EST with Deb Smallwood, Founder of Strategy Meet Action.

I’m Stuart Rose, Global Insurance Marketing Principal at SAS. For further discussions, connect with me on LinkedIn and Twitter.

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Back to the Future…

Let’s go back in time to the summer of 2007. The original iPhone had just been launched. Miley Cyrus was Hannah Montana. The San Antonio Spurs were NBA Champions, and LeBron James was the savior of Cleveland Cavaliers. Insurance Executives were only concerned about legacy replacement systems.

On the surface, the business outlook appeared positive. In reality, we were just weeks away from the collapse of Lehman Brothers and the financial crisis that came afterwards.

The summer of 2007 was also when Freedom Specialty decided to enter the Director and Officers Liability Insurance (D&O) market. Despite the impending financial crisis, Freedom Specialty committed to a multi-million dollar investments in an analytical underwriting system.  Now fast forward seven years, Freedom Specialty has grown its D&O business to over $300m in annual direct written premium while maintaining a loss ratio that outperforms the industry.

The key areas that resulted in this success are:

  • Data Sources – The underwriting accesses six distinct external sources and receives data from internal administration applications.
  • Data scrubbing – Significant emphasis was placed on veracity of the data. Multiple data quality processes were implemented to improve its usefulness.
  • Predictive model – Data is combined and fed into a model that uses multivariate analysis to determine pricing.
  • Risk selection analysis – A one-page analysis of recommendations is produced for the underwriter.
  • Integration with corporate systems – Once an underwriting decision is determined, statistical information is transmitted back to the administration and analytical underwriting systems.

To read more about the Freedom Specialty story, download the case study here.

As Freedom Specialty continues to innovate and prosper, the world has seen a lot of change during the past seven years. The iPhone, the iPad, and other mobile technology have transformed the business environment. Miley Cyrus is definitely NOT Hannah Montana , and today, Insurance Executives’ conversations revolve around Big Data, Hadoop and Analytics.

Of course in a sea of change, some things remain constant:  San Antonio Spurs are NBA Champions and LeBron James is once again the future of Cleveland Cavaliers.

I’m Stuart Rose, Global Insurance Marketing Principal at SAS. For further discussions, connect with me on LinkedIn and Twitter.

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Size Is Not The Problem

Lately, much has been written about Big Data and the exponential growth of data generated for insurance companies.  However, for most insurers size is not the problem when it comes to data. In a recent study by analyst firm, Strategy Meets Action, Big Data in Insurance found that insurers are more concerned about the variety, veracity and velocity than the volume of data being created in today’s digital environment.

  •  Variety – From PDF and Word documents to email to video to geospatial imagery to social media  and even prescription data, the variety of information being used by insurers today is significantly different than what it was 5 years ago. The variety may represent the biggest challenge for insurers but it is potentially the biggest game changer for the industry.
  • Veracity – It does not matter how many terabytes of data is stored in your data warehouse.  If the data is unreliable,  its’ useless. Hence, data quality and maintaining the accuracy of the data is essential.
  • Velocity – Telematics, social media, and other data is streaming into insurance companies in real-time. At the same time, insurance executive expect insights into the data almost simultaneously.
  • Volume – Whether its gigabytes, terabytes or petabytes of data, nearly all insurance companies are now finding it too costly to store all this new data. To overcome this problem insurers are taking advantage of commodity hardware like Hadoop. This was confirmed by the research that found over 50% of insurers are using or considering using Hadoop.

Big Data is no longer a fad.  Its usage has gone beyond the experimental stage. In fact, the research found that investment in Big Data initiatives by ALL insurance companies has dramatically increased in the past 12 months. Most notable, tier one insurers with revenue over $1bn, where investment has grown from 14% in 2013 to nearly 40% this year.

Despite all this investment, if insurers are going to achieve the strategic transformation and innovative potential of big data, they must start by determining how big data can add Value (AKA the 5th V) to their business. Ultimately, insurers should stop thinking of Big Data as a challenge and start seeing Big Data as an opportunity.

To learn more about “Big Data in Insurance” either download the White Paper or register for a webinar on August 28th at 11am EST.

I’m Stuart Rose, Global Insurance Marketing Principal at SAS. For further discussions, connect with me on LinkedIn and Twitter.

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What Is a Digital Insurer?

Over the past 12 months, there has been much discussion regarding the “Digital Insurer.”   The first question is:  What is a Digital Insurer?  In a recent webinar, UK insurance executives joined SAS and Marketforce for a lively debate on this subject.  Much of the discussion focused on how mobile technology is changing the customer engagement to create the digital insurer.

Paul Baxter, Head of Chaucer Direct, a small car (auto) insurance company, spoke about how his company was able to leverage the insurance aggregator websites to compete with  larger insurers. It is estimated that nearly 60% of the UK car insurance policies are sold via a price comparison website. However, for many insurance companies, the point of failure comes when the customer is transferred from the aggregator website to the insurer website which in many cases is not optimized for mobile technology.

Daniel Mines, International Business Development Manager at Admiral Insurance Group highlighted how customer engagement via the right channel is essential. Today’s millennial generation no longer use email because communication has to be faster, almost instantaneous. While Baby Boomers and Generation X are willing to perform simple transactions such as changing their address via the Internet,  they still prefer personal interaction via face-to-face meetings when it comes to buying insurance.

Mike Blanchard, SAS’ Head of Industry Marketing spoke about how many customers view insurance as an indirect tax, with little intangible benefit.  Insurance companies need to collaborate with third party partners to obtain and share data in order to provide value added services. The use of more data will enable greater predictability, which  for an industry built on uncertainty,  is essential.

If you are interested in hearing more from Chaucer Direct, Admiral Insurance and SAS on the Digital Insurer you can view the webinar at this link.

If insurance companies limit their digital investment into mobile technology and marketing, they are missing the bigger picture.  Today so much of the content, both structured and unstructured, is created in digitized form. The real “Digital Insurer” is the one that analyzes all this digital data using Analytics not only for marketing, but also to increase pricing accuracy, reduce fraud and improve operational inefficiencies.

I’m Stuart Rose, Global Insurance Marketing Principal at SAS. For further discussions connect with me on LinkedIn and Twitter.

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Return on Information – The new ROI.

Data is often seen as a competitive differentiator, however in today’s big data environment does having too much data become a problem? To overcome this problem, for a growing number of organizations, the answer lies in taking advantage of distributed processing technologies such as the Hadoop file system (HDFS). Hadoop is an open-source software framework for running applications on a large cluster of commodity hardware.  Since Hadoop runs on commodity hardware that scales out easily and quickly, organizations are now able to store and archive a lot more data at a much lower cost.

This is good news for IT departments, but it should also be music to the business professional’s ears. No longer does data need to be destroyed after its regulatory life to save on storage costs. No longer does the business analyst or data scientist need to limit his data analysis to the last three, five or seven years. Now insurers can store and analyze all their historical internal and external data.

Another advantage of capturing data in Hadoop is that it can be stored in its raw, native state. It does not need to be formatted upfront as with traditional, structured data stores; it can be formatted at the time of the data request.

Insurance companies need better application and tools to consume data and make it more meaningful, insightful and use.  Given how data is growing exponentially and while still relatively new and maturing a significant number of insurance companies are investing in big data technologies like Hadoop.

Data can be the difference between success and failure. Better data leads to better decisions, which ultimately leads to more profitable business. Today, the return on information is just as important as the return on investment. To learn more how insurers are getting value from data, download the white paper “Return on Information – The new ROI”

I’m Stuart Rose, Global Insurance Marketing Principal at SAS. For further discussions connect with me on LinkedIn and Twitter.

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