Leveraging Information to Drive Insurer Growth

In the highly competitive insurance industry, leveraging information has become a key focal point for driving insurer growth, and ultimately value, and is frequently referred to as “Information Monetization” or “Information Value Release.” Having a holistic view of the customer facilitates ease of doing business and improves agility, thereby increasing customer satisfaction, loyalty and revenue growth. By reducing information complexity, both property & casualty and life insurers can gain a competitive advantage by making better, and more timely, decisions across customer and risk selection, customer servicing and claims.

In this white paper, we will begin by introducing a current market perspective of the insurance industry and challenges to organic growth. From there, we explore new business capabilities that are emerging in the industry to address growth opportunities and their impact on the requirements for successful customer information management. We will then discuss how current information management needs are falling short of their intended objectives. Finally, we identify the transformation requirements for moving forward and discuss how maximizing the value of customer information can help insurers achieve their core goals for growth, market share and profitability.

Market Perspective:  Highly Competitive Insurance Industry

The U.S. insurance market began to show growth in 2010 and 2011 for the first time in several years within both the property & casualty (P&C) and life and annuities segments. In addition, due to the record high $105 billion in global insured catastrophe losses in 2011, P&C premium pricing appears to be finally emerging from the extended soft pricing environment. According to Towers Watson, commercial lines premium growth has been positive and accelerating for four consecutive quarters through the end of 2011, and that is the first time since 2004 with more than one quarter of sustained growth. The growth environment within life and annuities has also improved. Life insurance premiums began increasing in 2010 and annuities rebounded in 2011 with an 8% increase in sales.

In addition, the insurance industry continues to experience increased consolidation and concentration. According to data from A.M. Best, the Top 10 U.S. personal lines P&C insurers’ share of premiums has increased to 68% from 43% in 1985, while the 20 largest life insurers account for nearly 63% of the industry’s total admitted assets.

Given the above trends, the 2011 Celent U.S. Insurance CIO Survey identified three high priority business issues for IT to address as: growth, ease of doing business and agility. All of the aforementioned require a better understanding of the customer.

Key Business Issues

Source:  Celent 2011 US Insurance CIO Survey

Following the economic downturn, growth has emerged as the top priority issue for both life/health and P&C carriers. Profitable growth requires making better, faster and more informed decisions than competitors, and requires an integrated holistic view of the customer. Maximizing the value of customer information can help insurers achieve their business goals of driving growth and market share, identifying the most attractive customer segments, accelerating customer acquisition and retention, all while optimizing profitability, risk and expenses.

Market Perspective:  New Business Capabilities Are Emerging

Leading insurers have been building new business capabilities to enhance growth opportunities and the ease of doing business across a number of areas including: customer and agent portals, mobile platforms, social media and analytics. As these innovations and capabilities emerge, organizations need to evolve their ability to manage customer information profiles and new sources of data.

Portal and other web-based capabilities are being provided to customers and agents to improve growth, satisfaction and the ease of doing business.  The number of customers using direct channels to purchase insurance continues to increase.  JD Power and Associates’ 2011 U.S. Insurance Shopping Study found that 54% of auto insurance shoppers now report getting their quotes online, although the agent channel is still important in closing sales. On the life insurance side, LIMRA’s 2011 Insurance Barometer Study found that 26% of adults now prefer purchasing life insurance through direct channels, including the internet, phone and direct mail. On the agent front, insurers are improving the ease of doing business by enabling agents with portals and other tools to grow their book of business, close transactions faster and track their performance.

In addition, mobile platforms are increasingly integrated with back end systems to provide online transactional capabilities, agent and customer communication, and claims reporting and status functionality. Furthermore, emerging capabilities with tablets provide enhanced claims and risk management and enable life/health insurance agents to share needs analysis visualizations and product illustrations with customers.

Selected Technologies

Source: Celent Mobile Content Management Trends: Insurance Overview; June 2011

Insurers’ use of social media channels to interact with customers directly and through agents is widespread. According to The Customer Respect Group, ten insurers have more than 100,000 Facebook fans as calculated by the sum of fans from each of their active sponsored websites.

Insurer's Facebook Fans

Source: The Customer Respect Group: Insurance Facebook Fan Table, 2/20/12 and Knowledgent analysis

The opportunities for insurers using social media span a number of business objectives. A key trend to watch will be agents building and driving customer relationships through Facebook and other social media channels. State Farm on the P&C side and Guardian Life and New York Life on the life insurance side are among those insurers who are actively investing in this area. Furthermore, Celent’s “Using Social Data in Claims and Underwriting,” predicts that insurers will operationalize social data into core underwriting and claims processes over the next three years. In addition, text mining and sentiment analysis are emerging as tools to extract insight from social media channels to measure customer satisfaction and brand perception, address customer concerns and optimize future offers.

Furthermore, investments in analytics are demonstrating increased value as evidenced by Towers Watson’s 2011 and 2010 Predictive Analytics Surveys. Insurers responding to both surveys reported favorable impacts to bottom line performance in rate accuracy, loss ratio improvement and profitability. These insurers also reported that predictive modeling impacted top line growth areas such as underwriting appetite, renewal retention and market share. Over the next two years investments in predictive analytics are anticipated to increase in the areas of price optimization, telematics, competitive market analysis and claims. In addition, the importance of accurate fraud detection to reduce losses, claims leakage and retain profitability is increasing dramatically. In the life insurance industry, analytics are being used to increase producer revenue generation, customer sales and lifetime value, and improve customer interaction management.

Benefits of Predictive Modeling

Source:  Towers Watson’s Predictive Modeling Proving Its Worth Among P&C Insurers; February 2012 and Knowledgent analysis

Current Customer Information Management Capabilities Fall Short

The new business capabilities described above need to be accompanied by investments in customer centric information management. As the innovations and capabilities in customer and agent portals, mobility, social media and analytics emerge; organizations need to evolve their ability to manage customer profiles and new sources of data.

There is a big gap between current capabilities and those needed in the future. This limits the ability to address new customer or risk segments on a timely basis. The gap also prevents the handling of new data sources, many of which are live data streams rather than traditional historical data.

An integrated holistic view of the customer across the enterprise and new channels is critical to providing consistent and personalized service to customers. Despite significant efforts to date, insurers have not realized the benefits expected from customer information management. This is due to  disconnected legacy silos, redundant data sources, and new user defined applications (UDAs) that emerge in the business or actuarial areas, which  are disconnected from the enterprise-wide view.

Other challenges include analytical insights that are not linked to front-line business processes and the lack of a consistent view of customers and risk across lines of business. All of these factors play a significant role in hindering the full potential value of customer information management to drive organic growth.

Looking Ahead

The new business capabilities described above, mandate that insurers need to develop an effective information management strategy that is focused on building an enterprise view of the customer and maximizing the value of customer information to meet an insurer’s growth and profitability goals.

Executives need to ask themselves the following questions before embarking on an information management transformation:

  • What are the objectives and goals as well as the priorities and roadmap for moving forward?
  • What future capabilities are required to meet these objectives and expectations?
  • What impediments exist to achieve these goals from a leadership, organization, process and technology perspective?

The future state would start with a clear vision and require defined success criteria, which would unify goals across the enterprise. Maximizing the value of customer information requires an integrated holistic customer profile and driving client experience capabilities based on this profile.

Building a robust customer profiling capability has never been easy for insurers where organizational silos based on product, channel and technology inhibit a unified customer view across their enterprise-wide processes and customer interactions. In 2012, the traditional challenge is compounded by many new sources of information, much of it unstructured, from both internal and external sources.

In order to create a robust customer profile, an information management architecture is required that supports historical and real-time data, as well as both structured and unstructured information. Each piece of customer data can provide a more complete profile, enable better decision making and optimize customer offers. Transaction data, customer details, third party data, customer service interactions, emails, texts, clickstreams and social media should all be linked together in an integrated, holistic customer profile.

The customer profiling capability also needs to be linked to a real time analytical engine to provide an optimized client experience. Insurers have strived to incorporate personalization, convenience, simplification and attentiveness as part of their client experience capabilities. Today, the real challenges lay in building capabilities around rapid integration of data, real-time analytics, and user dashboards that provide suggested personalized service offers based on recent interactions and inquiries.

Customer Profiling and Client Experience

In this way, optimized client experience and value can be delivered to customers exactly when, where and how they need it. Service opportunities may arise to respond to a customer’s prior negative experience, or to reach out proactively to improve on a positive experience.

The new business capabilities described above demonstrate how forward thinking insurers are currently leveraging information in innovative ways to create value for both clients and the enterprise.  Information continues to be a key driver of enabling better decision making. By releasing information value, insurers can differentiate themselves from the competition, improve client satisfaction and loyalty and drive top line revenue growth.

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