Analytics is not a new concept in insurance, after all, actuaries have been using analytics in some form since forever. But advances in computing and digital data now means that analytics can be employed in applications that go far beyond actuarial science, yet the industry has not yet warmed up to the idea.
A survey taken among attendees at the recent Insurance Analytics Europe 2015 conference, found that underwriting is still seen as the most beneficial application of analytics, with 25% of respondents saying this is the best use case.
But not far behind, with 23%, was pricing, suggesting some form of data mining could be used to develop the price ceilings for policies. In a similar vein, marketing garnered 15% of the vote.
This fits with an industry trend that has been plagued by controversy, with 16 US states recently banning “price optimization” or “elasticity of demand” practices by insurers. The controversial practice gives insurance companies the ability to use a wide variety of non-cost based factors to increase premiums to the highest amount before a consumer would seek to shop around with other carriers. It’s a use of data analytics that regulators don’t like.
But what’s most interesting is that claims and fraud, arguably two areas ripe for technological innovation, only got 10% of the vote apiece in terms of key areas to apply analytics.
That said, analytics is clearly on the agenda. A total of 65% of respondents said that they feel that analytics will be the largest disruptor in the insurance industry in the next 12 months, with 52% saying it is already one of a number of key projects and 20% saying it is the most important investment for the future.
Indeed, almost 50% of respondents already see either significant ROI (22%) or are beginning to see ROI (26%), from insurance, although 31% do concede they will not see ROI for some time.
The three biggest challenges, standing in the way of widespread analytics adoption are, the quality of internal data, which 55% of respondent see as an issue; ways of applying analytics to a company’s overall strategy (42%); and the challenge of integrating different technology systems 35%.
When asked which companies would make the most disruptive use of analytics in the next 12 months, familiar names such as Allianz, AXA and AIG topped the list, but were joined by the likes of Google, which many believe have designs on the insurance sector.