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However, gaining greater knowledge, through the more effective use of information is providing true differentiation for today’s leading insurance companies. That’s why more and more insurers are investing in gaining greater and more comprehensive knowledge about their customers, products/services, employees, and overall company performance. These initiatives, known as business intelligence, are being developed to allow these firms to become increasingly innovative, cost-effective, agile and responsive to the very dynamic financial services market within which they operate.
It is this dynamic marketplace, in fact, that is posing a risk to insurance companies that do not capitalize on leveraging their information assets as a competitive weapon. Mergers and acquisitions are narrowing the industry base in terms of large insurers and integrated financial services firms, even as smaller, non-traditional and Internet-based companies jockey for position in this competitive field. At the same time, the complexity of doing business is on the rise as new and personalized products are introduced to appeal to specific and more demanding customers.
Just as significant, the nature of the business itself is changing, especially in the areas of risk management in the wake of geo-political disturbances and catastrophic natural disasters such as Hurricane Katrina and the Pacific tsunami. In response, insurers have realized that one of their most valued and differentiated assets is “information.”; information, that when applied to address an important business decision, becomes “business intelligence” (BI).
Defining moments
There are many definitions of business intelligence, but the essence of BI is such that it constitutes relevant, accurate, timely information – from both inside and outside the company – that can be used in an integrated fashion to make “on demand” business decisions, throughout the Enterprise, in the face of volatile markets and changing customer demand.
It essentially is “information on demand”, or business insight that arrives in time to create or add business value. The key is that it is integrated and effectively delivered in context across the enterprise as conditions and assumptions change, minimizing the time required to make a decision and take action.
In general, leading insurers have incorporated BI as an integral part of their business strategies and are looking to move beyond historical reporting to a higher level of predictability and business insight. Their goal is to embed analytics into critical processes to manage the business better and make this information much more readily accessible throughout the company. This capability, which can be described as “operational intelligence”, establishes the foundation for using information in context to make timely decisions.
Ultimately, it’s about using information and applied analytics to anticipate change and quickly shape company strategies, processes and governance policies to adapt to these events as they occur, or in some instances, to be able to anticipate these events and take proactive action before the event occurs.
New business models
Some insurers, for example, take advantage of their customer and product data, combine it with relevant external data, analyze it and use the information to help build specific channel strategies aimed at high-net-worth customers. This information can also be leveraged to attract new customers with personalized product offers, as well as to up-sell and cross-sell existing customers. In addition, experience has demonstrated insurers who provide multiple services and products to a single consumer/household, significantly improve customer loyalty and retention rates. In simple terms, the more financial products a customer purchases from a single company, the less likely he/she is to attrit.
Underwriting also has benefited greatly from the strategic use of BI. In this area, BI is enabling insurers to continuously monitor policies and claims in order to instantly spot new trends and adjust underwriting rules or propose new coverages resulting in increased customer satisfaction and lower cost ratios. Other “on demand” underwriting and claims processing capabilities, include:
- Fraud detection;
- Predictive modeling;
- Greater understanding of specific risk factors and their impact on pricing;
- Updated underwriting rules;
- Managed underwriting knowledge (rules and performance);
- Automated claims processing and settlement;
- Improved risk management, and
- Other advanced decision-support capabilities.
In the area of Risk Management, BI can be used as a means of anticipating, factoring and managing operational, market and credit risk, and as a tool to help identify more specific and refined risk profiles and then to use these profiles to do a more effective job of planning for, monitoring, and responding to the various types of risk.
Business processes, reinforced through embedded business intelligence, can also be put in place to build tailored policies and financial plans, on demand, for individual customers or households. For instance, today, data from monitoring devices installed in cars help form the basis for a system that develops personalized policies and coverages based on individual driving habits. By collecting and analyzing information about who’s driving, when they’re driving, where they’re driving, and how fast they’re driving, this data is analyzed and used to set specific rates based on this real-time, personalized information.
BI solutions are also being used to improve customer service necessary to deliver “on demand” products and services via the customer-preferred channel(s). In many cases, current policy administration systems depend on overnight and intra-day batch updates to synchronize policy and customer information in multiple databases. “On demand” BI enables real-time updates so the current view of all relevant customer activity and relationships is instantly available to authorized employees, partners, and the customer. This allows agents and customer service representatives, as well as self-service channels, to have the information necessary to quickly respond to customer inquiries instantly and accurately.
Other information-based “on-demand” policy administration capabilities include:
- Just-in-time “policy building;”
- Instant policy renewals/additions;
- Enhanced flexibility for designing personalized policies; and
- Improved policy administration processes to reduce costs and improve customer service
The SOA Nexus
Another strategic imperative for Global Insurance Executives is innovation. This innovation is manifesting itself through more integrated, streamlined business processes. BI must play a very significant role in helping support this business process transformation through “operational intelligence.” Operational business intelligence offers insurers an opportunity to define their key operational performance metrics beginning with the corporate strategy and then aligning these metrics through the various lines of business, functions, departments, and the specific business processes to better plan, manage, and improve overall corporate performance. Simply put, “operational intelligence” provides the information required to support the convergence of these transformed business processes with service-oriented architecture (SOA).
Operational intelligence makes use of SOA-based tools/technologies to provide the information foundation underlying these business processes, thereby achieving two important information on demand objectives. First, operational intelligence represents the next generation of Business Performance Management (BPM) as organizations align their key performance indicators (KPIs) throughout the enterprise. Once defined, these KPIs are cascaded down through the various lines of business, functions, departments, processes, etc. such that there is alignment, transparency, and accountability from the executive suite through the individual business processes.1
The second objective for operational intelligence is to ensure that the individuals who are associated with these business processes (e.g., actuaries, agents, underwriters, adjusters, etc.) are armed with the information that they need to make better and more timely decisions. This requires that the information be of quality and presented in the right context, thereby improving customer service, employee satisfaction and productivity, procurement and costs, and ultimately, corporate profitability and performance.
At the same time, BI offers insurers an opportunity to improve their external and statutory reporting capabilities as well. Case in point is what occurred in 2005 immediately following the devastation of New Orleans and many Gulf Coast Communities as a result of Hurricane Katrina. As a result of the tremendous damages incurred, debt rating agencies and Wall Street analysts took a serious interest in the impact that Katrina-related claims would have on individual insurance companies. Some insurers took a long time to find and compile this information and as a result suffered debt downgrades and lost significant market value. Those firms, with more advanced BI solutions already in place were able to respond to the regulators and analysts quickly with up-to-date information that accurately projected their exposure. More importantly, these insurers were much better positioned to quickly locate and communicate with their policyholders in the affected areas to provide timely and critical support and financial assistance.
Information, when used to make better business decisions (i.e., business intelligence), really is power. Insurers will continue to find themselves in the throes of unsettling trends that call for more agility, reduced costs, enhanced capabilities, and the flexibility to adapt to a constantly changing business model.
To compete and win in this dynamic environment, firms will need to be able to quickly adjust their strategies and business processes. They will need to act more aggressively in modeling the business in terms of components and services. At the same time, they must leverage their information assets to align individual activity with organizational goals while also providing the business insight and the tools to enable improved decision-making and productivity at all levels of the business. Moreover, these BI solutions must be deigned to offer a view of the entire globally-integrated enterprise required to optimize overall business performance which is essential to compete and prosper in today’s “on demand” insurance environment.
A little knowledge may be a dangerous thing, but a lot of it – applied in an integrated and strategic fashion across an entire insurance enterprise – can be even more dangerous ... to your competition.
References:
1 The Agile CFO: Acting on Performance Risk Insight IBM Presentation, October 2006
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Michael Schroeck is the Global Business Intelligence Leader with IBM Global Business Services. Schroeck has helped build the BI (Business Intelligence) practice into the world's largest, with more than 4,000 consultants providing solutions to more than 500 clients globally. You can reach Michael at mike.schroeck@us.ibm.com.
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