For the past few weeks, I have been discussing some of the findings from Accenture’s 2013 North American Commercial Insurance Underwriting Survey. Today, we will be exploring the high importance underwriters are placing on analytics and Big Data to improve the way they evaluate and price risk (figure 1).

FIGURE 1. Where will your company invest in the next three years to improve the effectiveness of its underwriting organization?

Underwriting Survey 2013: The digital divide and importance of analytics in commercial underwriting
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It is a reasonable market response, particularly to two of the underwriters’ top six challenges: lack of quality underwriting information (47%), and lack of management information and reports to analyze the business (33%). Additionally, 81% of respondents said that lack of data integration is a major reason why technology increased their workload.

While analytics is viewed as a high priority across all sizes of carriers, there is a gap in the level of analytics investments between middle to smaller carriers and larger carriers. For example, 42% of small carriers (less than US$100 million) plan to increase their use of predictive models for risk evaluation and pricing compared to 59% of large carriers (USD $1 billion and up). Larger carriers clearly recognize the significant impact that data-oriented capabilities can have in helping management to control their business and to enable underwriters with analytical insights for pricing and risk evaluation.

Why now?

From pains of the last economic crisis, large insurers realized the value of having better insights into all of their businesses to enable better management decisions.  Similarly, compliance with new and expected global regulatory requirements commands more thorough data and analytics. With keen eyes on competitive advantage, large carriers took action.  They began investing in basic management information capabilities, and then quickly moved to developing broader analytics know-how.  These included:

  • Advanced book management capabilities in pricing, distribution, and risk aggregation.
  • Predictive modeling for all lines.
  • Marketing analytics.
  • “Big Data” analytical capabilities, such as telematics, social media and crowd knowledge.
  • Integration of analytical capabilities back into the Underwriting Process

The real risk to small and middle carriers is that these investments will pay off.  The scale, which has not been a major source of competitive advantage in the industry to date, could become transformative as a digital knowledge gap expands.  We saw this happen in Personal Lines where better pricing from analytics drove more concentration with larger carriers.

Here’s what I think insurers can do:

If you are a…. Then…
Large carrier (US$1 billion and up) Keep—and even boost—investing; that is what your competitors are doing.  Continue to build out your analytical capabilities and look for clear expansions in the types of analysis you are able to do and in driving those insights back to line underwriters and managers.
Middle or Small Carrier (less than US$1 billion) Don’t fear.  Thanks to new technology, the costs to engage analytics is decreasing and beckoning more insurers into the analytics game. Understand where you are today in terms of analytics and Big Data, define a core strategy and get started.

Insurance has always been about information and insights even with initial maritime insurance based on sailing routes, ships, and captains. Today, with the convergence of data availability and analytical capability information and insight is even more critical. In Personal Lines we have already seen the effects of an information war. In Commercial the early scrimmages and armament had begun. The key is getting started, and keeping up. Why wait?

Over the next few weeks, I will be examining other survey findings and they may help insurers make wise investments. I hope you’ll revisit the blog regularly.

Download North American Commercial Insurance Underwriting Survey 2013: Voice of the Underwriter – driving improvement at the frontline.

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