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Analytics: A Cross- Functional Solution to Information Overload Presented by: Steve Callahan, CMC Practice Director Robert E. Nolan Company Presented to: 2012 NAMIC Operations Seminar Charleston, S.C. August 23, 2012
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201208 NAMIC Operations: Analytics: A Cross-Functional Solution to Information Overload

May 12, 2015

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Economy & Finance

Steven Callahan

Predictive analytics and business intelligence tools and management practices are rapidly being adopted and evolved across the insurance industry. High-profile results are often touted within specific functional areas. Yet there remains a broader ROI that can be achieved through integrated analytical modeling of information from finance, sales, marketing, pricing, underwriting, and claims. Rapid advances in analytics are enabling companies to translate their wealth of enterprise-wide information into cohesive, actionable strategies directly targeting profitable growth.
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Page 1: 201208 NAMIC Operations: Analytics: A Cross-Functional Solution to Information Overload

Analytics: A Cross-Functional Solution to Information Overload

Presented by:

Steve Callahan, CMCPractice Director

Robert E. Nolan Company

Presented to:

2012 NAMIC Operations SeminarCharleston, S.C.

August 23, 2012

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© Robert E. Nolan Company | Page 2Analytics: A Cross-Functional Solution to Information Overload

Today’s Discussion

Why Analytics

Recent Survey Results

Case Studies

Final Thoughts

Questions

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Analytics One of Top 5 Technology Topics

Analytics: A Cross-Functional Solution to Information Overload

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How Do the Top 5 Compare Today

Analytics: A Cross-Functional Solution to Information Overload

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Business Results Driven Priorities

Admin / Legacy System Functional, Flexible, Supportable, Reliable

Analytics / BI Optimal Information Driven Decisions

Mobile Computing Service Delivered in Customer’s Hands

Big Data Incorporate All Data into Decisions

Cloud Computing Evaluate Universal Access / Variable Cost

Most Companies Have or Are Addressing Legacy SystemsNext Step is Analyzing Discrete Data and Focusing Decisions

Analytics: A Cross-Functional Solution to Information Overload

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2011 Survey: Most Decisions Rely on Experience and “Gut”

June 20126Robert E Nolan Company Executive Survey, 2011

60%82%

Analytics: A Cross-Functional Solution to Information Overload

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Retrospective Based on Experience versus Predictive

June 20127

MY REAL-TIME ANALYSIS TELLS ME IT’S SMOOTH SAILING

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Leveraging the Foundations of Wisdom:The Financial Impact of Business Analytics (© IDC)

IDC Research showed tremendous gains –

10 Years Ago(2002)

Median ROI:Predictive: 145%NonPredictive 89%

30%

25%

20%

15%

10%

5%

0%1-50% 51-100% 101-500% 501-1000% >1,000%

More Informed Decisions Improves ROI

Analytics: A Cross-Functional Solution to Information Overload

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2011 Survey: Leadership Decisions Moving To Data Driven

Analytics: A Cross-Functional Solution to Information Overload

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2011 Survey: Analytics Used Across Wider Variety of Areas

Analytics: A Cross-Functional Solution to Information Overload

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Analytics Capability Maturity Evolution

Tools and data rapidly evolvingContinuous improvement loop

Direct Link to Decision MakingApplied Across the Organization

Advanced Analytics ToolsIntegrated DataLimited Link to Decision Making

QA Standards AppliedBasic Analytical ToolsLimited Data Integration

Basic DataMinimal QA

1

5

4

3

2

Most Companies Here

Analytics: A Cross-Functional Solution to Information Overload

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A Different View: From Reporting to Data Innovation

Analytics: A Cross-Functional Solution to Information Overload

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Relative Adoption by LOB

Analytics: A Cross-Functional Solution to Information Overload

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Predictive

Retrospective

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Top Line Revenue is Improved As Well

Analytics: A Cross-Functional Solution to Information Overload

Carriers effectively using predictive analytics achieved:•1% improvement in profit margin•6% improvement in year on year customer retention

Carriers not fully using predictive analytics:•Dropped 2% in profit margins•Decreased 1% in year on year customer retention

Higher on the Capability Maturity Curve = Better Results:•Top 20% : 27% Year on Year Growth in Revenue•Middle 50% : 12% Year on Year Growth in Revenue•Bottom 30% : 1% Year on Year Growth in Revenue

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Summary Key Benefits of Analytics

Gain deeper, more relevant business insights to inform decisions

Bring predictive analysis and regression modeling to entire organization

Use analytics to identify and determine options for industry challenges

Effectively and proactively manage risks

Strengthen data governance at each level of the organization

Reduce costs through more accurate, data-driven decision-making

Use analytic capabilities and outcomes for change management

Create a culture that thrives on fact-based decisions versus “gut”

15Analytics: A Cross-Functional Solution to Information Overload

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Yet Companies Struggle to Implement

June 201216

Most frequent reasons companies struggle with analytic initiatives:

•Too much management, not enough leadership

•Limited support and buy-in at multiple levels within the organization

•No guiding purpose or vision for people to rally around

•Overemphasis on technology implementation/success criteria

•Business benefits are too fuzzy to articulate and communicate clearly

•No consistent communication or messaging to stakeholders

•Poor identification of stakeholders and influencing factors

•Compensation structures and incentives not aligned

Robert E Nolan Company Executive Survey, 2011Analytics: A Cross-Functional Solution to Information Overload

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And the Barriers Are Diverse

June 201217

Survey Comments on Barriers to Growth in Use of Analytics

“Resistance comes from most experienced, those requiring 100% accuracy”

“Access to critical data that is not captured in the system but is on paper”

“Getting away from tribalism, managing by anecdote and subjective decisions”

“Availability of resources and the money necessary to do it right”

“Data is spread all over and difficult to integrate or consolidate”

“Privacy will become a major issue as external data sources drive decisions”

Robert E Nolan Company Executive Survey, 2011Analytics: A Cross-Functional Solution to Information Overload

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With Opinions Varying Greatly“The importance placed on analytics will grow, however there will be a disproportionate reliance placed on results, until management learns that garbage in/garbage out continues to cast its shadow.“

“It really doesn’t matter as most data currently produced comprises the basis for most uses necessary. Advanced techniques do not therefore produce ‘advanced’ data - the numbers are the numbers no matter how produced. Indeed, give me a room full of ladies in green eyeshades and Marchant calculators and maybe a punch card reader or two and I could be perfectly happy with managing the business, no matter how complex.“

“Those companies that do not embrace technology and analytics will be left behind in the dust of those companies that do. “

Analytics: A Cross-Functional Solution to Information Overload

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Common Barriers to Using Analytics

Analytics: A Cross-Functional Solution to Information Overload

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Analytics is One Tool in the Entire Product Life Cycle

FeedbackFeedback

Retroactive Research

Internal and External Data

Acquisition and Cleansing

Conversion and Formatting

Client and Account Centric

Integration

Population Analysis and Segmentation

Predictive Analysis

External Data Acquisition

Exception Handling and

Workflow

Rule and Rate Automation and

Enforcement

Product Development & Assembly

Pattern and Data Analysis

Rule and Rate Production

Roll Out

Product / Forms Creation

and Assembly

Underwriting Rules Design and Modeling

Rule and Rate Model Prediction and Optimization

Rate Design and Modeling

A clear but specific A clear but specific vision enables a vision enables a

manageable project manageable project structure with iterative structure with iterative

deliveries. deliveries.

Iterative Process

ProductionOperations

Analytics: A Cross-Functional Solution to Information Overload

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Improved use of analytics can be organized so that the key plan areas can be developed along three parallel tracks.

Current Data Evaluation

Data Cleansing and Alignment

Market Segmentation Analysis

External Data Aggregation

Trend Analysis Tools and Modeling

Product Development

Product Development

Modeling and Analytic Tools

Rules Engines

Rating Engines

Product Assembly

Process Integration and Management

Performance and Scalability

Data Evaluation

and Analysis

Data Evaluation

and Analysis

Production Processing Integration

Production Processing Integration

Rates and Rules Integration

Predictive Analysis Models

Workflow and Exception Process

Legacy Integration

“Dashboard” Development

Transforming Product Development

Analytics: A Cross-Functional Solution to Information Overload

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Case Study A: Prospect Scoring

PredictiveAnalysis

and Modeling

Low Medium High Propensity to Convert

High value, Low

conversion, 2nd Priority

High value, Medium

conversion, Top Priority

High value, High

conversion, Top priority

Good value, Low

conversion, Low Priority

Good value, Medium

conversion, 2nd Priority

Good value, High

conversion, Top Priority

Low value, Low

conversion,Low Priority

Low value, Medium

conversion, Low Priority

Low value, High

conversion, 2nd Priority

Potential Value

Potential Future Value of Customer

Scoring of prospects based on conversion and value, marketing strategy developed to match

Survey Data

Web LogData

TextData

Purchased Data

Psycho-graphic Data

Analytics: A Cross-Functional Solution to Information Overload

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Case Study B: Agency Management

60% of customers would switch carriers if so advised by their agent. (Source: JD Power & Associates)

33%+ of agents are likely to change insurance carriers.(Source: National Underwriter and Deloitte)

Insurers better manage their agents achieve competitive advantage.New customers have high acquisition costs, retaining one more profitable.New agents have high acquisition expenses and pose a greater risk of inferior retention rates, resulting in lower profits.Monitoring effectiveness of agents provide early warning that an agent may be about to leave, triggering action and market differentiation.Predictive scorecards tie traditional features like traffic lights and speedometers to powerful analytics.

Dashboard visuals provided at-a-glance access to the current status of new KPIs, with automatic alerts for underperforming objectives and strategies.

Implemented an agency dashboard based on new KPI’s that were modeled with a predictive analytics tool.

June 201223Analytics: A Cross-Functional Solution to Information Overload

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Case Study B: Agency Management

24Analytics: A Cross-Functional Solution to Information Overload

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Case Study C: Loss based Pricing

Result: More equitable and competitive risk adjusted pricing.

25

$812.50

$1187.00

$438.00

Territory average loss ratios generate prices that are too high for some and too low for others.

Detailed risk analytics generate more accurate loss cost estimates by discrete segments of business.

ISO Price Analyzer Tool used for graphics

Analytics: A Cross-Functional Solution to Information Overload

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Case Study D: Retention StrategiesStep 1: Determine Life time Value

26

Time of Purchase Demographics -Loses predictive value over time as relevance is superseded by inforce behaviors

Customer behavior shifts focus from current to future value

Predictive Analysis

Current Value

Future Value

Post Purchase Activity –Increases in predictive value over time as behavioral patterns develop

Analytics: A Cross-Functional Solution to Information Overload

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Case Study D: Retention Strategies Step 2: Predict Potential Lapse

27

Predictive Analysis –

Model Channel

and Consumer Behaviors

Source of Business influences lapse tendencies based on channel behaviors

Transaction behavior influences lapse tendencies per consumer behaviors

Analytics: A Cross-Functional Solution to Information Overload

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Case Study D: Retention StrategiesStep 3: Develop Strategy Matrix

28

Match effort to risk and value –

•High value low risk gets medium effort, save money on retaining low risk customers

•Low value customers get low cost efforts across the board

•Targeted high efforts on high value / high risk

Analytics: A Cross-Functional Solution to Information Overload

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Case Study E: Claims Fraud• About 10% of all insurance claims are fraudulent.• Annual fraud losses for P&C industry total $30B in US alone.• Need to detect unknown patterns of financial fraud.• Keep track of new fraud schemes.• Unsure exactly what to look for.

• Rules: Captures fraud on known patterns previously usedEx: Two claims in different time zones within short window

• Anomaly Detection: Detect unknown patterns (ind & aggr)Ex: Statistics (mean, std dev, uni/multivariates, regression)

• Advanced Analytics: Detect complex patternsEx: Knowledge discovery, data mining, predictive assessment

• Social Network Analytics: Determine associative linksEx: Knowledge discovery via associative link analysis (entity

map)

Analytics: A Cross-Functional Solution to Information Overload

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Automated Fraud Detection Points

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FNOL EvaluateClaim

CloseClaim

Negotiate / Initiate

Services

Predict durationForecast loss reservesOptimize fast track claimsPrioritize resourcesFraudulent scoringLitigation propensity

Prioritized investigationFocus on organized fraudMinimize claim paddingReduce false positives

Identify salvage and subrogation opportunitiesIndicate deviations Reports on overrides

InitiateSettleme

nt

SIU

Update Claim

Fraud Referrals Fraud Referrals

Re-estimate durationReassess loss reservingPrioritize resourcesFraudulent rescoringReview litigation propensity

Cross-sell options for satisfied customerCustomer retention

Assign Claim

Fast Track Claim

Analytics: A Cross-Functional Solution to Information Overload

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Claims Analytics:Fraud Red Flag Dashboard

June 201231Courtesy of AttensityAnalytics: A Cross-Functional Solution to Information Overload

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Other Brief Claims Examples

Optimized Claims Adjudication process.Using data mining to cluster and group claims by loss characteristics (such as loss type, location and time of loss, etc.).Claims scored, prioritized and assigned by experience and loss type.Higher quality, more consistent, and faster claims handling.

Adjuster Effectiveness Measurement.Adjusters typically evaluated based on an open/closed claims ratio.Analytics create key performance indicator (KPI) reports based on customer satisfaction, overridden settlements and other metrics.

Claims using attorneys often 2X settlement and expenses. Analytics help determine which claims are likely to result in litigation.Assign to senior adjusters to settle sooner and for lower amounts.

32Analytics: A Cross-Functional Solution to Information Overload

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Case Study G:Life Underwriting via App + Social Data

33

Second child born last yearHigh investment risk toleranceLived in home 2 yearsOwns homeCommuting distance 1 mileReads Design and Travel MagazinesUrban single clusterPremium bank cardGood financial indicatorsActive lifestyle: Run, Bike, Tennis, AerobicsHealth food choicesLittle to no television consumption

Actively pursue for issuance of a preferred policy without requiring fluids or medical records.Use strong retention tactics.

Life UW using a GLM predictive model to assess risk:Use info on app plus social data, No fluids or filesIntegrate 3rd party publicly available information.

Analytics: A Cross-Functional Solution to Information Overload

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Case Study:Life Underwriting via App + Social Data

Do not send offers. Do not pursue aggressive retention strategies. If applies, pursue additional medical records and tests.

In a test over 30,000 applicants, behavioral and lifestyle factors provided 37% of the risk assessment influence and performed as well as additional, more intrusive medical tests and fluids.

Current residence four yearsLived in same hometown 15 yearsCurrently rentingCommuting distance 45 milesWorks as administrative assistantDivorced with no childrenForeclosure/bankruptcy indicatorsAvid book readerFast food purchaserPurchases diet, weight loss equipmentWalks for healthHigh television consumptionLow regional economic growthLight wine drinker

Analytics: A Cross-Functional Solution to Information Overload

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Types of third party marketing data

35Deloitte Predictive Model for Life

Analytics: A Cross-Functional Solution to Information Overload

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Life Underwriting Savings:Using 3rd Party Data versus Medical Data

36Deloitte Predictive Model for LifeAnalytics: A Cross-Functional Solution to Information Overload

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Workers Comp already has a track record of using Social Data

37Analytics: A Cross-Functional Solution to Information Overload

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Social Analytics: Customer Engagement Dashboard

Automatically monitor social conversations

Filter out irrelevant posts

Analyze posts to extract key insights

Engage customers with proactive outreach

Improve experience customers are having on the site

Improve brand image and emphasize business legitimacy

38Analytics: A Cross-Functional Solution to Information Overload

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Social Analytics: Conversation Sentiment Tracking

39Courtesy of AttensityAnalytics: A Cross-Functional Solution to Information Overload

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Social Analytics:Website Sentiment by LOB

40Courtesy of AttensityAnalytics: A Cross-Functional Solution to Information Overload

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Available Third Party Data is Extensive

Survey Data:•Self-reported information •Contains many lifestyle elementsBasic demographics•Age, sex, number & ages of kids, marital status•Occupation categories, education levelFinancial information•Income level, net worth, savings, investments•Home value, mortgage value, credit card infoLifestyle data•Activity: running, golf, tennis, biking, hiking, etc. •Inactivity: TV, computers, video games, casinos •Diet, weight-loss, gardening, health foods, pets

Third party marketing datasets are often used to develop the predictive models, they include over 3,000 fields of data, contain no PHI, are not subject to FCRA requirements, and do not require signature authority. The match rate with insured’s is typically around 95% based only on name and address. Third party marketing data includes:

Rewards programsMagazine subscriptionsEmail listsWebsitesGrocery store cardsBook store cardsPublic records

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Social Analytics:Overall Sentiment Ratings Dashboard

42Analytics: A Cross-Functional Solution to Information Overload

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Social Analytics:Competitive Sentiment Dashboard

June 201243Courtesy of Attensity

Analytics: A Cross-Functional Solution to Information Overload

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Closing Notes: Bloomberg Qualitative Research Findings

Analytics rapidly advancing past “emerging stage” Organizations proceeding cautiously in adoption Business experience driving factor in decision making Analytics for big issues, focus on improving bottom line

Key adoption challenges:– Data quality, acquisition, integration – Many carriers lack proper analytical talent – Culture critical– Executive sponsorship key– Start small, work big

Analytics: A Cross-Functional Solution to Information Overload

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3 Guidelines to Implementing Analytics

1. Have executive sponsored roadmap clearly outlining: What resources will be needed for how long, Where and when predictive analytics will be used, Which tools will be used, and How will success be measured.

2. Use data that is comprehensive, accurate, and current. Not necessarily 100%, some have used only 70%. Must be representative.

§ Staff with talented and engaged people. 1. Completely understand business problem, proficient with analytics. 2. Every person does not have to meet both qualification.3. A team can be used with some business and some analytics experts.

June 201245Analytics: A Cross-Functional Solution to Information Overload

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Questions?

Thank You...

Steve Callahan, CMCPractice Director

[email protected]/in/stevenmcallahan

@stevenmcallahan(206) 619-7740