Insurers Lag on Advanced Analytics—West Monroe Partners Survey

Only 11 percent report fully realizing the analytics opportunity—with soft ROI and concerns data quality concerns slowing progress—but insurers are on the verge of significant benefits.  

(Image credit: Adobe Stock.)

Recent acquisitions of advanced analytics companies by insurance core systems vendors is one clear sign of the critical role data is bound to play in the near future of the insurance industry. However, insurers are struggling to adopt these capabilities, according to a survey by business and technology West Monroe Partners (Chicago). The survey, which polled about 120 respondents, found that only 11 percent strongly agreed that their companies were fully realizing advanced analytics’ benefits, while only 46 percent agreed somewhat. Those who reported having implemented advanced analytics admitted that they were struggling to show a rMove to Trasheturn on their investment (ROI).

Carrie Camino, Director, Insurance Practice, West Monroe Partners. (Photo by Andrew Collings.)

Carrie Camino, Director, Insurance Practice, West Monroe Partners. (Photo by Andrew Collings.)

West Monroe’s respondents were drawn from three major groups: representatives from life insurance and annuities (L&A) companies, property/casualty (P&C) carriers, and brokers. Looking at adoption of advanced analytics from a high level, P&C representatives led (18 percent) as adopters of advanced analytics.

“That’s encouraging—and also logical,” West Monroe’s executive summary of the survey report says. “[P&C] companies have more touchpoints with customers through sales, renewals, claim, etc. L&A respondents, on the other hand, generally deal with customers at the point of sale and when the claim is realized, leading to low engagement.”

The overall picture provided by the survey is one of an industry struggling to position itself for significant benefits from emerging technology. “Improvements in customer experience have been tied to increased revenue, and insures have a market imperative to create highly impactful customer interactions via customized or personalized products and services,” comments Carrie Camino, director of West Monroe’s Insurance Practice. “Using a practical approach to focus analytics on enhancing the customer experience insurers can truly harness their data to increase market share.”

Improved Customer Experience

About a quarter (27 percent) of respondents identified improved customer experience as the greatest potential benefit of advanced analytics, with 21 percent saying they saw the greatest potential in reducing claims costs. Fourteen percent saw an opportunity for increased sales as the greatest benefit.

Respondents’ greatest current focus area for advanced analytics is claims modeling and cost reduction, with 51 percent reporting activities in this area. The finding is unsurprising, given that claims modeling and reduction was a pioneering area for data analytics, according to the survey’s executive summary.

Greg Layok, Senior Director, Technology and Advanced Analytics, West Monroe Partners. (Photo by Andrew Collings.)

Greg Layok, Senior Director, Technology and Advanced Analytics, West Monroe Partners. (Photo by Andrew Collings.)

Prescriptive marketing and sales also scored well among respondents as areas of adoption of advanced analytics. West Monroe reports that it was the top choice among L&A carriers, likely because they are seeking novel ways of selling more products through existing marketing channels. One respondent identified his company’s highest priority as “generational purchasing habits and buying behaviors,” as a means of addressing consumers increasing expectations for personalized experiences.

A ‘Significant Moment’ in the Adoption of Analytics

“With dramatic decreases in the cost of processing and storing data, the table is set for companies in the insurance industry to take full advantage of analytics,” comments Greg Layok, senior director and leader of West Monroe’s Technology and Advanced Analytics practices. “Smart executives understand how important this is—and the significance of this moment—as the industry faces a soft market in standard lines, increased bottom-up disruption from technology-enabled competitors and increasingly demanding customers.”

Among the reasons insurers are finding it difficult to seize this moment is concern about data quality, according to the survey’s findings. Nearly two-thirds of respondents said that data quality and accuracy was the greatest challenge associated with advanced analytics. About half identified inaccurate data as the greatest risk.

The Drag of Soft ROI

Another factor slowing down insurers’ adoption of advanced analytics is what West Monroe calls the stubborn difficulty of showing definitive ROI. “It may not be possible to directly correlate ROI with advanced analytics in our business,” commented one survey respondent. Another, a producer at a top-10 broker, noted that while advanced analytics is “baked into the cake” of his company’s fee structure and that there’s no doubt that the capability provides enormous value, “it is extremely difficult to measure that value and pass along the information to our customers.”

Insurers are also slow to invest in “disruptive” data sources, according to the survey. Seventy-six percent said they were not investing in disruptive data sources, though about half of those said they were considering making an investment in secondary sources that would augment their own data. Commenting on the potential of new sources of data for analysis, on respondent commented, “Everything will connect to the person, the house, the car, the job.” Others noted the potential value of health data from smartphones and fitness trackers.

Virtuous Revenue Cycle

West Monroe asserts that the findings of the survey show there is still great untapped potential for insurers to use analytics to inform a superior customer experience and drive revenue growth. The authors cite as corroboration Forrester’s Customer Experience research (June 21, 2016), noting that it positively correlates customer experience with revenue growth. “We recommend insurers place the highest priority on using data and analytics to enhance the customer relationship and accelerate product personalization, with resulting revenue lift providing the potential to fund additional data asset investments over time,” the authors say.

What is true in the shorter term of the value of data to customer experience will only increase, and potentially very dramatically, suggests West Monroe’s Camino. “The opportunity for customized products and services will only accelerate with the rapid growth of the Internet of Things and our increased ability to draw from that dataset,” she says. “We’ll be able to create rich predictive models around behaviors and environmental factors to shape customer interactions and purchasing decisions. It’s really a unique and exciting time—and we’re at its very beginning.”

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Anthony R. O’Donnell // Anthony O'Donnell is Executive Editor of Insurance Innovation Reporter. For nearly two decades, he has been an observer and commentator on the use of information technology in the insurance industry, following industry trends and writing about the use of IT across all sectors of the insurance industry. He can be reached at [email protected] or (503) 936-2803.

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