Earlier this year, experts at WallStreet & Technology (wallstreetandtech.com) identified predictive analytics and cloud computing as two of six hot technologies that will transform the insurance industry in 2011 and beyond. Predictive analytics is not only a key technology to manage better through challenging economic times but it is also a key to improving customer experience, developing new products/markets and aligning resources for improved business performance.
Furthermore, predictive analytics is helping insurers with premium and claims leakage root out fraud.
Moreover, cloud-based predictive analytics is enabling companies to implement analytical solutions in record time.
Although predictive analytics has been traditionally applied in catastrophe and fraud related assessment, it is now being used to support customer retention initiatives and broker/agent distribution channel strategies. Predictive analytics is also being tapped to mitigate losses through automated claims fraud abuse and detection.
Customer Value — Renewal Management
Given that customer acquisition typically costs 3X to 5X more than retaining an existing customer, retaining profitable customers is key to achieving healthy growth. In some cases, improving customer retention by as little as 5 percent can increase profitability by a much larger margin of 30 percent to 90 percent. A McKinsey study found that a customer churn of 10 percent focusing on unprofitable policies increased revenues by as much as 25 percent.
For insurers using predictive analytics to supplement underwriting by forecasting future customer value, the likelihood of attrition and the cost to service customers can optimize the value of their existing book of business — and free up the investment needed for customer acquisition initiatives.
Leading carriers are using customer retention strategies that combine segmentation, renewal scoring and upsell/cross sell strategies. Segmentation is used to gain a deeper understanding of clients and their profiles by subdividing customers into smaller groups with similar characteristics. Renewal scoring is used to automatically evaluate each policy 60 days prior to its expiration, rank probability of churn, and recommend discounts or promotions to preserve the best policies. Upsell/cross sell strategies are employed to grow revenue and market share across existing clients.
Revenue — Channel Sales Management
Agents and brokers remain the primary sales channel for most carriers. Producers are employing different strategies to deal with the tense, yet essential, symbiotic relationship with carriers. According to a Deloitte survey, 42.8 percent of producers will be increasing the number of carriers they work with, while 36.9 percent expect to reduce the number they represent. With very little control and rampant third-party mobility, it can be challenging for carriers to effectively manage their producer relationships.
Insurers can gain competitive advantage by understanding and predicting the weaknesses, strengths and growth potential of individual brokers and agents. The key is embedding predictive analytics into existing business processes to better inform business decision makers and customer-facing personnel, and to suggest recommended actions. With enhanced segmentation and a deeper understanding of the current population of brokers/agents, carriers can take actions to ensure that the best ones are being supported.
Predictive analytics can also be used to target prospective brokers/agents that share similar characteristics of a carrier’s best current channel partners. The carrier can then implement a cohesive, ongoing process so that the distribution network is optimized with the best mix of brokers/agents to retain and acquire clients.
Claims Fraud and Deterrence
Carriers often overlook growing revenue by optimizing claims efficiency and preventing fraud. Up to 20 percent of expenses are related to processing claims. By implementing systems to automatically review incoming claims against risk profiles, a carrier can significantly reduce its claim handling costs (by as much as 20 percent to 40 percent) and double its fraud detection rates. Carriers using real-time risk assessment are able to expedite claim handling, focus fraud investigators on high-risk claims and quickly settle low-risk claims — resulting in improved customer experience and revenue preservation.
Sales analytics supports customer retention and sales channel strategies. Predictive analytics also supports claims fraud abuse and detection initiatives for loss mitigation. These uses of predictive analytics are improving business performance for market leading carriers.
Topics Carriers Fraud Agencies Claims Data Driven
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