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.

Post a Comment

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.

Post a Comment

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.

Post a Comment

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.

Post a Comment

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.

Post a Comment

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.

Post a Comment

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.

Post a Comment

What Do Insurance Companies and the English Soccer Team Have in Common?

As one of the most exciting World Cup draws to a close and having watched most of the games, I have come to the conclusion that England’s soccer team and the insurance industry have a lot in common.

England World Cup Champions

The English invented the game of soccer in the 1800’s. For a long time, they were seen as the champions of this sport peaking with their World Cup victory in 1966.  However, since that date, many other countries have vastly improved their techniques and overtaken them in terms of skill level and performance which is obvious because of England’s early exit from Brazil.

As for the insurance industry, it can be argued that they invented analytics. Since the 17th century insurance companies and underwriters have used historical data to predict or forecast future losses, whether in the early days of marine insurance or the first mortality tables. Despite this head start, the insurance industry is often seen as laggards in the usage of data and analytics when compared to other industries like retail, banking, hospitality etc.

Fortunately, insurance companies have a great opportunity to reverse this trend and become leaders in the analytical space. Today big data and analytics is transforming the insurance market. Telematics and crash-avoidance systems  are revolutionizing auto insurance. Carriers are using information from personal fitness bands to more accurately price life and health insurance. CNA is using analytics to prevent claims fraud saving them millions of dollars a year. Specialty insurers are using weather pattern data to analyze crop insurance. Finally in just six years AIG have dramatically improved their profitability using analytics.

Insurers no longer view analytics as a back-office function. It is now a strategic initiative with many carriers employing a Chief Analytics Officer or Chief Data Officer. By using data proactively, carriers can better understand their business and again become leaders in analytics.

Now, how can England’s soccer team improve and become World Cup champions again? This is an entirely different and certainly more difficult proposition to resolve. Being the eternal optimist, I cannot wait until 2018 when England will (hopefully) once again be pronounced World Champions.

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

PS – My editor told me to use the term soccer even though it’s really called football.

Post a Comment

Testing…123…What, why and how of A/B testing

What is better to ‘Purchase’ or ‘Buy’ a product? These are questions that retailers are asking themselves especially in regards to online marketing. As insurance companies embrace digital technology they are facing similar questions as they try to maximize their marketing efficiency. To help improve response rates many insurance companies are using A/B testing.

The “What?”
The concept of A/B testing is really as simple as it sounds. It’s a method of comparing two or more different versions of something (e.g. a website, campaign, product etc.) to determine which version of the more effective.

The “Why?”
The most basic reason for doing A/B testing is that you do not know what you don’t know.

The “How?”
There are a lot of different A/B testing tools out there. The most useful ones, however are part of a campaign management solution. Let’s say you’re designing a campaign and you need to decide which offer you should include. By incorporating A/B testing into your campaign design process, you can determine which offer should go to which segments to produce the desired results, or which channel or combination of channels you should use etc.

A/B Testing often starts with a champion versus challenger group. The champion group is the control group. All challenger groups are compared with the champion group, with the goal to outperform that group.

The bottom line is that A/B testing can give you more confidence in your marketing because it provides an analytical way to choose the right message for the right customers at the right time using the right channels.

To learn more download a point of view paper that explains in greater detail the power of A/B testing.

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

Post a Comment

Five keys to marketing analytics excellence

Marketing is all about finding the most profitable growth opportunities in your data, knowing where to place your bets, taking the best marketing action and ultimately maximizing the cross-business influence of every dollar you spend. It’s not easy to do. But insurance company, USAA, has proven when marketing analytics used wisely can return impressive results.  Doug Mowen, Executive Director, USAA, shares his five keys to marketing excellence.

Key Insight 1 – Define success: Which insights would promote data-driven decision-making?
It’s critical for key stakeholders to clearly define “What is that you are trying to accomplish?” and “What is success?”. For example, number of expected responses from a specific marketing campaign.

Key Insight 2 – Target carefully: Understand your customers and what drives their behavior.
Demographic variables give you a good idea of what the customers look like, but USAA has found that behavioral data is a much better predictor. For example, event-driven data such as marriage, moving house or having a baby.

Key Insight 3 – Align resources: Understand who and what is available and know the limitations.
It’s important to assess budgets and determine if you want to create a comprehensive campaign using all marketing channels, or for a limited budget just focus on a few customers via one channel.

Key Insight 4 – Measure carefully: Determine the incremental benefits of your initiatives.
While first key to marketing excellence focused on defining success, the fourth key, measure the success and is essential. USAA uses a control versus exposed approach to measure the incremental value of its marketing analytics.

Key Insight 5 – Build creditability: Certify and clearly communicate your results.
If you can clearly support and share your analytics results, you will be much more successful at building a business culture that relies on facts to make decisions.

In a recent survey by analyst firm, Strategy Meets Action found that 56% of insurers are initiating marketing analytics projects. To help improve your chances of success with these new initiatives download the conclusion paper “Five keys to marketing excellence” detailing USAA marketing success.

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

Post a Comment