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.
