How Analytics can address Insurance challenges

The Lloyd’s insurance market, which is now an English heritage building was started in an establishment as small as the Central Perk coffee house of F.R.I.E.N.D.S. It was the hub, where sailors, merchants and ship-owners discussed shipping news and insurance deals over coffee in 1688. In 325 years, Lloyd’s has evolved from a coffee house to the world’s leading market for specialized insurance products.

In fact, Lloyd’s is not the only insurer that has evolved, the entire insurance industry has transformed. Today, the insurance industry is one of the top five technology spending industries in the world, with IT spending total of $ 187 billion in 2014 and growing at 3.8% through 2018 as per Gartner forecast.

If we pause to consider what made a traditional industry like insurance spend so much on technology, the challenges that insurers face come to the front. The most common challenges include: the complex nature of business, change in business approach from risk absorption to risk mitigation, data explosion, adoption of disruptive technologies and the rising number of insurance fraud. Let us see how advanced data analytics addresses these challenges.

Actuarial Science – A Complex Maze

acturial science - complex maze

Assessing insurance risks aka actuarial science is a combination of probability, mathematics, statistics, finance, economics, financial economics, and computer programming.  No wonder then that actuaries are among the highest paid professionals who are always in demand. With the advent of analytics, insurers are able to supplement their actuaries and underwrite their risks more efficiently.

Underwriting is just one piece of the puzzle. There are many functions which use analytics to sharpen their efficacy such as marketing, claims processing and pricing. This pays back the insurers to maintain a strong Key Performance Indicators (KPIs) both in financial and operational terms. In one example, Zurich insurance cut the time to quote policy for a 110 vehicle fleet from 8 hours to 15 minutes, after introducing underwriting analytics.

Risk – Absorption Vs Mitigation

Many insurers are turning from risk absorption companies to risk mitigation companies to avoid the potentially devastating impact of ‘black swan’ type events on their businesses. Property & Casualty and Reinsurance companies have started modelling and mitigating more predictable risks such as potential natural catastrophes. However, the challenge remains in identifying, measuring and mitigating the obscure risks such as reputation, regulatory, political risks, financial crisis etc. Analytics is seen as a savior by insurers in predicting these ambiguous risks which will help them keep a check on their underwriting expenses and to increase profitability.

Big Data – Bigger Opportunities

Big Data - big opportunitiesGiven the idiosyncratic nature of the industry, analytics tools that can power through big data and take actionable insights out of a seeming mountain of irrelevance came as a silver bullet to rescue the hapless insurer.

A PriceWaterhouseCoopers report on the insurance industry says insurers using big data can improve their overall performance by facilitating greater pricing accuracy, deeper relationships with customers, and more effective and efficient loss prevention.

AXA, a large French insurer had set up its own Business Intelligence & Analytics division in 2000, shows that insurance companies are pioneer in converting big data into bigger opportunities. The sheer quantum of information sources is constantly increasing as the industry embraces disruptive technologies such as social, usage based insurance and cloud. As a response to this big data problem, State Street survey conducted in 2013 found that 82% insurers feels their leadership sees analytics as high or most important strategic priority.

Usage Based Insurance – Game Changer

Usage based car insurance

Disruptive technologies such as usage based insurance is embraced by insurers of all size and line of business to get a competitive edge. From Progressive’s Snapshot for auto insurance to Oscar’s Misfit, which counts the steps of the insured to incentivise them with cash benefits, disruptive technologies always gives a leg up for the insurers. Many IT giants have launched mobile telematics solutions for auto insurers. Analytics at a customer level is on the rise and made possible with more disruption in the technologies such as mobile and cloud. These technologies along with analytics have given insurers competitive differentiation and changed the face of insurance companies which were once seen, nickel and diming its customers.

Fraud – Growing Concern

In Property & Casualty insurance, the industry estimates put fraud at about 10% of the incurred losses each year. Questionable insurance claims are increasing every year, not only in the P&C industry but also in the health insurance sector. Insurers have started using predictive and prescriptive analytics to identify fraudulent claims and potential fraudulent customer to avoid underwriting such a policy. Fraud is a very sensitive issue that all insurers face and they cannot afford to make a mistake which will penalize the right customer. Machine learning is used in such cases to make the system learn patterns and to make progressively smarter decisions.

What we are seeing here is that insurers now have every reason to turn to analytics to seek answers for their business problems.

BRIDGEi2i offers predictive analytics solutions to optimize acquisition and cross-selling efforts across multiple products and channels for a leading US based Insurance company. See the entire BRIDGEi2i Case Study for more details. We have also helped a global investment management firm optimize their multi-channel campaigns and improve conversion rates.

Please share your thoughts on how you have seen analytics is transforming the insurance industry. In the next few blogs, I will try and explore analytics’ role in the insurance industry in further detail.

This blog is written by Karthick Paulraj, Analytics Consultant at BRIDGEi2i

About BRIDGEi2i: BRIDGEi2i provides Business Analytics Solutions to enterprises globally, enabling them to achieve accelerated business impact harnessing the power of data. BRIDGEi2i’s Insurance Industry solutions bring in a unique combination of advanced analytics techniques and domain experience to help businesses develop a clear understanding of the market landscape, prioritize marketing channels and transform digital data into actionable insights to deliver incremental marketing return on investment. To know more visit

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The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position or viewpoint of BRIDGEi2i.