Banking, retail and technology now far outpace insurance in terms of their analytics capabilities.

Hello, and welcome to my new blog. I lead Accenture’s Insurance practice in Ireland, and over the coming months I’ll be sharing my thoughts on how new technologies can help address some of the particular challenges facing our industry. We’ll take a look at the benefits this could bring to both Irish insurers and their customers.

In today’s blog post I focus on analytics, and what this evolving discipline could mean for our industry. It’s a topic Ireland’s motor insurers, and others, are increasingly asking me about.

Our recent report on Advanced Analytics for Insurers made the point that, while insurance has always been a data-driven business, the industry’s prolonged focus on traditional, actuarial capabilities has resulted in a partial failure to exploit the maturity of advanced analytics. The result? Other industries – including banking, retail and technology – now far outpace insurance in terms of their analytics capabilities. It’s also clear that any insurers wanting to get back up-to-speed will need to make some changes when it comes to data, technology and teams.

But why should Irish insurers bother? Top reasons include winning new customers, retaining existing ones and, perhaps most importantly, reducing the cost of claims and litigation.

Over the past two years, relations between Ireland’s non-life insurers and the customers they serve have been troubled. The seemingly relentless escalation in the cost of motor cover – typically amounting to 30% or even 40% over a two-year period – has contributed to significant declines in the levels of consumer trust and satisfaction. As a result, Irish insurers now need to work even harder to win and retain increasingly price-sensitive customers.

Analytics can really help here. The biggest trend in analytics today is the evolution from predictive analytics to prescriptive analytics: whereas predictive models just evaluate the probability of an event occurring, prescriptive models can identify the actions which are most likely to optimise a result.

These new analytical models permit a deeper level of customer segmentation and an enhanced understanding of risk. They also let insurers identify which customers can safely be offered a more competitive quote or renewal offer. Not only can prescriptive analytics recommend the next best actions for winning new business – in terms of a tailored marketing approach and personalised product enhancements – but it can also outline how best to serve each customer in the future.

The overall cost of claims and litigation within Ireland’s non-life sector has been rising. It is now undeniably one of the biggest problems facing our industry. The particular challenge for insurers is how best to tackle this issue without further damaging relations with policyholders and claimants.

In this respect, one of the biggest concerns among Irish insurers is that the judgments – and the level of awards – in litigated cases can no longer be confidently predicted. Better then to prevent those cases going to court in the first place. Analytics can identify which cases are most likely to end up in litigation and help stop them getting there. This would replace human judges with data-driven outcomes – and avoid two sets of legal fees along the way. Analytics can also help tackle the underlying cost of claims, by rooting out fraudulent behaviour early on, and by identifying genuine claims and paying them immediately. 

There’s more good news. The shift from predictive to prescriptive models is well-placed to support another key trend in insurance – the desire to create better real-world outcomes for customers and underwriters alike. This evolution ‘from reaction to prevention’ requires two key ingredients to make it work: the Internet of Things to generate the various datafeeds; and the right analytics to make sense of it all, increasingly in near-real time. The number of connected devices in the world is growing by 5.5 million items per day, and is forecast to exceed 21 billion devices by 2020. Insurers’ ability to capture and harness that data is not growing anywhere nearly that quickly, but some providers are now moving in the right direction. 

And machine learning itself is getting smarter, with technologies like artificial intelligence (AI) having the potential to change the game significantly. With that in mind, in my next post, I’ll be taking a look at what AI could mean for Ireland’s insurance industry – and for the people working in it.

Thanks for reading.

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