Analytics in L&A: The Pace Accelerates and the Scope Expands

by 03 Dec 2014
The question for life and annuity insurers is not whether business intelligence (BI) and analytics are being used – they clearly are. In fact, 100% of respondents to a recent SMA survey are planning increased spending on BI/analytics. The more salient questions are concerned with what new data sources are being leveraged, how more sophisticated analytics tools are being used, and what new business areas are being explored. A new SMA research report, Data and Analytics in Insurance: L&A Insurer Strategic Priorities and Operational Plans Through 2016, investigates these questions and explores insurers plans through 2016.

The Pace is Accelerating

L&A insurers have been using technology tools to analyze data since the beginning of the information age. Actuaries and underwriters have always been experts at leveraging technologies to analyze data and inform their decisions. Now the world is changing rapidly – risks are changing, demographics are shifting, medical science is advancing, and financial instruments are continuing to evolve. Customers have new needs for protection and wealth accumulation. This all means that L&A insurers must capitalize on the new analytics tools, new approaches, and new data sources to improve their understanding of these changes and how they influence product, price, and service. One proof point demonstrating how insurers are more aggressively leveraging analytics to gain new insights in these areas relates to technology investments. In 2013, one-third of L&A insurers invested in building predictive models. That percent has jumped to 50% in 2014, according to SMA research. The same pattern is true for another set of advanced technologies – data and text mining, where the share of insurers investing in projects has also jumped from 33% to 50% in one year.

The Scope is Expanding

While the levels of investment and the pace of change are picking up, the business problems being addressed are also broader than in the past. Historically, actuaries and underwriters leveraged analytics to design products, establish pricing, and assess individual risks. More sophisticated analytics tools are now being used in these areas and new data sources are being included in the analysis. In fact, much of the new focus is on profit levers – using analytics to dig deeper into reasons and results regarding the profitability of products, channels, and geographic territories. At the same time, insurers are using analytics in many other areas across the enterprise. A great deal of analytics activity is now focused on customers and producers. More than two-thirds of L&A insurers are implementing or planning new projects to assess customer lifetime value and to create a single view of the customer. Approximately half are investing in new analytics projects to improve campaign performance, market segmentation, and customer relationship management (CRM).

The technology approaches and tools keep expanding, including evolving capabilities such as big data and cognitive computing. More data is available than ever before and will increase exponentially with wearable devices, social media, and other new sources. The insurance business is at a competitive crossroads, and the companies that successfully accelerate their analytics usage and act on differentiating insights will be the winners in this new age of analytics.  
For more information about insurers’ IT plans and priorities, read SMA’s new research report, Data and Analytics in Insurance: L&A Insurer Strategic Priorities and Operational Plans Through 2016.

Mark Breading, a Partner and Chief Research Officer at Strategy Meets Action, is a recognized expert in advanced technologies and their implications for the insurance industry. His specialty areas include the customer experience and analytics. He has exceptional knowledge and experience in many dimensions of the customer/producer experience, including omni-channel, customer communications, mobile technologies, CRM, digital content management, and contact centers. He has broad experience and insights in data and analytics, including business intelligence, advanced analytics, and big data.