How Data Analytics is Changing the Competitive Insurance Industry

Craig Bedell, Global Insurance Industry Executive, IBM Watson

Craig Bedell, Global Insurance Industry Executive, IBM Watson has over thirty years experience in P&C insurance. Ahead of the 4th Annual OPEX Insurance: Disruptive Transformation Summit, advisory board member Bedell reveals his insights on the rapid and vast change in the insurance industry and his top pointers for leveraging digital transformation to bring together operational excellence and innovation.

In this in-depth PEX Network interview, Bedell shares his outlook on how data analytics is changing the competitive insurance industry and the untapped treasure trove of data insight to be gleaned from outside the four walls of their organizations.

How would you describe the current state of operational excellence in the insurance industry?

We are making progress, but, as an industry, we’re still significantly behind the curve as far as meeting both customer and professional expectation.

I think today we are facing a real inflection point with regards customer expectation, risk management, product delivery and processing in the insurance industry. It varies to some degree between personal lines and commercial lines insurance, but in both cases we’re struggling as an industry to meet customer expectations that have been set by other types of product and service providers. We are making progress, but, as an industry, we’re still significantly behind the curve as far as meeting both customer and professional expectation.

What are some of the opportunities and threats that the industry is currently facing with respect to digital disruption?

What this new dynamic brings about is really to put a spotlight on the inefficiencies that exist with the underlying core systems and the base business capabilities that insurance companies struggle to perfect.

There is global trend for the expectation of information being available in any form and any time. People’s expectations are rising in as far as what they expect of anyone with whom they do business, and that includes insurance companies. Frankly, what this new dynamic brings about is really to put a spotlight on the inefficiencies that exist with the underlying core systems and the base business capabilities that insurance companies struggle to perfect. And too many are overlooking the need to address these fundamentals.

Being able to tie all of the products and services that we write for an individual; a household or a corporation and having those reflect through a digital environment is critically important. There’s a lot of focus right now on making things clever, attractive and easily consumable. But we must not overlook the issues that still reside deep in the bowels of the data that we have in the core systems and rationalizing the two of those, along a digital strategy. This is a key area of focus for many companies and what’s causing some of the biggest disruption in insurance today.

How is InsurTech stimulating the insurance industry?

InsurTech is stimulating and exciting, but also to some degree distracting the industry.

InsurTech is stimulating and exciting, but also to some degree distracting the industry. That may sound facetious – but there’s a tendency for us to get excited about new and attractive things that are out there. Seeing the art of the possible has helped a lot of insurance companies break out of the traditional industry attitude, and they’re now interested in exploring new options. That’s good and important. At the same time, there’s a danger of being distracted by what those promising shiny offerings. I’m finding that InsurTech is stimulating, I think it bringing healthy exploration. At the same time I caution executives and my colleagues in the industry not to let it be a distraction either. There’s an interesting dichotomy at play right now. The key is to take and organized strategic approach. Also, that requires a corporate digital transformation strategy which should be tied to the strategic roadmap.

How are data and analytics are driving digital transformation within the insurance industry?

Becoming a fact based decisioning organization will be a necessity in the ever competitive and evolving market.

The analytics and the data used to fuel those analytics is getting a lot of focus in the areas of customer risk, product, agency and distribution, and that will continue to evolve. What I do think still needs to occur is for the role of analytics to evolve from being a point service or period insight delivered by specialist to a core component of every decision up and down the insurance organization Becoming a fact based decisioning organization will be a necessity in the ever competitive and evolving market.

Insurance companies have always based underwriting, loss and rating decisions on facts. Analytics have been core to our actuarial decision making but from an operational perspective, and my last point, from a financial perspective, we been relatively analytically immature..

I would hold out as an example of that statement the fact that even today most insurance companies cannot really determine their product profitability. And, how can one understand customer profitability if they aren’t able to really determine product profitability – but that’s another story.

You could argue that the risk associated with insurance makes it difficult to determine true profitability, but not to know and properly allocate the costs associated with producing and distributing our product and thus measuring our success is something that we really have to get to.

How will we really know if an InsurTech investment or a new innovative way of doing something is in fact improving things if we can’t measure its improvement on operational efficiency, customer satisfaction or product profitability. We have a ways to go with analytics but certainly across the board the industry’s awakening and maturing those capabilities.

What are the biggest challenges right now for business intelligence and analytics in insurance?

There’s a treasure trove of insight to be had from data outside of our own organizations.

Data is still a major issue. There’s still a matter of refining the data that we already have, harnessing the unstructured data that we already have, and cognitive computing is playing a role in that. There’s still a lot of valuable data not being captured. Think about quotes not taken or the insight that previous policies written for the same insured would provide analytics and decision making.

But equally, understanding the role that analytics plays and can play in organization decision-making helps define and prioritize which data does in fact need to be addressed, what data issues need to be addressed. Finally, there’s a treasure trove of insight to be had from data outside of our own organizations and again insurance companies are just now beginning to realize how they can conduct their underwriting, rating, market analysis, all sorts of analytics utilizing data that’s afforded to them outside of the four walls of their organizations.

What emerging trends are you witnessing with respect to back office operations management?

We are beginning to see significant focus on radical cost takeout, operational efficiency and robotic process automation.

From the pure back office operations perspective we are beginning to see significant focus on radical cost takeout, operational efficiency and robotic process automation. We have seen a big trend by insurance companies to replace core systems and they’ve long been averse to upsetting. Where it’s going to go is continued outsourcing, but I also see the whole API (application programming interface) economy beginning to affect at least the thinking of some of the more progressive insurance companies across the globe. Taking the approach much like Uber and other companies subscribing to best of breed services in an API way and really focusing their time, money and effort on those things that make their business and brand unique - that’s their risk management capabilities, customer relations capabilities and the service that they provide, least of which is the claims service. I think that the back office operations will become more a factor of managing third party providers to the insurance company.

What is the one trend that will have the biggest impact on the insurance industry going forward?

The technology instrumentation trend is going to change things up very dramatically from a risk perspective for the good and not so good from the traditional insurance model’s applicability.

I think in the end it’s going to be the evolution of risk and risk management. That is as technology permeates every aspect of our lives, whether that’s a self driving car comes to fruition, the interconnected home or the smart home, the instrumented worker, instrumented workplace, we’re going to be in some ways better able to manage risk and in other ways we’re going to be creating new risk. Some of which we can imagine today, such as cyber, General Data Protection Regulation (GDPR) recognizes the fact that privacy and security is important, but I think there will be a whole new set of risks that come out of all of this.

What happens when consumers expect that a product will know its health and its provider will be expected to maintain it and the product fails to perform. The gap in performance and expectation will likely translate into liability. That’s just one example and I can think of a dozen more. What form of liability cover will apply?

The technology instrumentation trend is going to change things up very dramatically from a risk perspective for the good and not so good from the traditional insurance model’s applicability.

What are your top tips for leveraging digital transformation to bring together operational excellence and innovation?

The most important thing is to have a clear purpose, direction and corporate strategy to which all of these efforts should be mapped.

I think the most important thing is to have a clear purpose, direction and corporate strategy to which all of these efforts should be mapped. Is it going to be the claims service that the insurance company is going to be most noted for and it will be the quality of claims come hell or high water that they focus on? It may be the dedication to the distribution arm – it may be directly to the customer. But ultimately from that everything should evolve and digital transformation is a critical and vibrant extension of that strategy.

There’s an expression I over use and that’s that the whole is equal to the sum of its parts. As simple as that may sound, getting an entire organization like an insurance company coordinate to a strategy across underwriting, pricing, marketing, sales and distribution, agency management and claims, that’s not necessarily an easy task. What we have to realize is in the past we might have come up with one marketing strategy for the year and a couple of sales strategies for the year. The dynamics of the current marketplace are changing that up completely, so focusing on that acumen is my biggest tip.

From a technology perspective: The dependency on a single platform and the dependency on a single technology, those issues have been somewhat mitigated. I think the API economy will continue to make that give flexibility in that regard. Flexibility - I think that’s the biggest tip I can give anyone.

The other one is to experiment and to be willing to fail, to get benefit out of failure, rapid prototyping and parallel prototyping to see what works and see what doesn’t work. Most importantly, feed back from those experiments, whether they be marketing or customer outreach, whether they be customer interaction through call center, feeding those insights back into the programs so that they can be improved is going to be the other. It’s really staying in touch that we’re going to have to be much better at doing, and that applies both from the personal lines perspective as well as the commercial.

How can we model our operations around the future needs of businesses and our customers?

It’s all dependent in today’s world on flexibility.

It is by being able to stay in better contact with the customer itself, commercial or personal, the market itself. Be thinking and acting more proactively around customer need and breaking the mold of what insurance and insurance related services have typically been, and paving a new path with new products and services.

It’s all dependent in today’s world on flexibility. The insurance industry traditionally has not necessarily needed to be flexible, and thus our systems were designed to produce a policy, produce a bill and get them mailed to the right location. We never envisioned that technology would be used in the way it is today, we never envisioned that technology and other social changes would make the world as reactive and spontaneous as it is today, and as such both risk and the way insurance companies address that risk, help manage that risk for their clients, it’s going to necessitate flexibility.

I’m absolutely convinced that we’ve only envisioned a minor set of what’s going to change – and unless an insurance company builds flexibility into its business, its people, process and technology it’s going to struggle to keep pace with the change as it continues.

What do you intend to bring to the 4th Annual OPEX Insurance: Disruptive Transformation Advisory Board?

I hope to promote the insurance industry and its best interests, and at the same time acting as a professional catalyst for change. That is one aspect I want to bring to the board. The other is the whole aspect of the networking in and across the industry to the degree that competitors can cooperate and work together to learn from one another. I think being an advisory board member would allow me an opportunity to do that, and contribute the rather unique experience that I’ve had over 40-plus years in both insurance and now technology solutions is something that I can bring to the board as far as insight.

How prepared are you and your organization for the changes on the horizon?

Find out more from Craig and 60+ insurance industry speakers and conquer the chaos and technology of today to become the insurer of tomorrow.

Only at the 4th Annual OPEX Insurance: Disruptive Transformation Summit, taking place September 18-20, 2017, in Atlanta. For more information, go to: www.operationalexcellenceinsurance.com

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