Using business intelligence and optimization to secure the future in the global Insurance market
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Transcript of Using business intelligence and optimization to secure the future in the global Insurance market
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IBM Global Business Services Financial Services
White Paper
Using business intelligence andoptimization to secure the futurein the global Insurance market
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As the gates o recovery inch open, the race to capture market share and mitigate riskcontinues to intensiy – only the most agile Insurers will pull ahead o the competition.
Post-crisis, belts are tighter, regulations are stier and customers are shrewder.
Customer expectations are newly galvanized around trust, transparency and value. In act, 80 percent o consumers rate trust and transparency as critical to their choice o
an Insurer, yet 60 percent o consumers state that they do not currently have that trust.1
New market entrants and new delivery channels are threatening to edge out legacyoerings, as younger investors are considering alternative products such as annuities.
Regulatory controls have become exceedingly more rigorous and demanding – quicklyclimbing to top the list o Insurers (and shareholders) greatest concerns.
To secure the uture, Insurers must close these gaps. They will need to eectively leverageinormation and technology to create customer trust and transparency – speeding competitively priced new product oerings to market in a multi-channel environment,and successully mitigating raud risks. Most Insurers already have much o the
inormation they need to accomplish this, but not yet the analytics and processes tounlock its power.
Winners in the recovery insurance market will balance business intelligence and optimization eorts to ocus on customers and distributors, fnancials, risk and regulatory requirements, and core processes to create growth and savings opportunities,and dierentiate rom the competition. In our work with leading Insurers around the globe, we have implemented winning business analytics optimization strategies that prepare Insurers or long-term success in a changing marketplace.
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IBM Global Business Services 3
Profitability Margin
Market Impact/Growth
Agile
Insurer
Agile
Insurer
Societal
Predictive
Insurer
Optimized
Insurer
Optimized
Insurer
Aligned
Insurer
Aligned
Insurer
P&C: 7 pts better combined ratio
Life: 1.5 times higher profit
Best in-class agile insurers
leverage information for:
- better focus on the customer
- transforming processes
- leveraging new business models
Aligned Insurer
Consistent market approaches bymultiple business lines with modestlevel of integration. Business / ITalignment is a desired state tocapture more corporate efficiencies
Optimized Insurer
Ability to embrace and implementholistic strategies leveragingsynergies that will increaseoperational efficiency whileminimizing losses andmaximizing profits.
Agile insurer
Capability to enter new marketssuccessfully, build newdistribution channels and launchnew products quickly. Ability tomonitor and adapt quickly basedon market responses to retain andgrow market share.
Societal Predictive insurer
Creation of new businessmodels based on statistical andanalytical techniques thatpredict future events or behaviorsacross the broader society.
The new agility – Inormation, analytics
and optimizationPressured by industry drivers, Insurers are seeking new models
to capture revenue growth and increased prots. While most
are at the beginning o their journey, the trajectory rom
current state to uture “best in class” position is clear – it is
inextricably linked to how Insurers are organized and equipped
to leverage timely, accurate inormation to ensure inormed
business decisions and actions.
We believe insurers can make progress in terms o market
share and protability by moving in line with the maturity path
we have dened (see Figure 1). However, executives
responding to a recent IBM survey acknowledged that when it
comes to data, they have signicant blind spots – one in three
Fig.1. Insurance Industry Maturity Path
said they requently lack inormation necessary to make critical
decisions. One hal said they did not have access to the
inormation required to do their jobs, or close inormation
gaps to reach business objectives.2
According to a recent study, many Insurers have planned
investments in business intelligence and/or analytics over the
next 12 months. Why are Insurers undertaking these
investments, even in a time o uncertain economic stability? They understand the need or aster, more inormed decision-
making, and the need to ensure and track alignment to
corporate goals. Further, Insurers need to meet tighter
regulatory compliance requirements and manage inormation
better in a real-time, increasingly sel-service environment.
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4 Using business intelligence and optimization to secure the uture in the global Insurance market
We believe winning Insurers will ocus investments specically
on putting the customer rst, enabling agents to sell and serve,
increasing transparency and risk control and nally, building
IT-enabled organizations where automation creates eciency
and eeds predictive analytics or the uture.
Putting the customer frst
Due to direct services and new industry entrants with slick business models and lower price points, insurance customers
have more choice than ever beore. They want transparency
and are becoming more demanding in how they interact with
their Insurers, the products they want and the premiums they
are willing to pay.3 This reality rings even more true in
emerging markets – where widespread need and customers’
sophisticated use o online and mobile technology are creating
signicant competition and opportunity.
Pricing strategies are still predominant, but are not sucient
to create long-term value – they may maintain market share,
but at the expense o margins. Industry winners are ocusing on
consumer segmentation, building trusted brands and oering
convenient multi-channel customer access to win new business
The act is that insurance will one day be viewed as one o
many choices – instead o as a must-have product.
At the same time competition is increasing, consumer trust is
at an all time low. So is the ability to predict customer behavior
to identiy new revenue, reduce servicing costs, and reduce risk
– which will make ensuring customer satisaction to build
much needed relationships – near to impossible?
The reality is that most customers may seek interaction and
inormation across several channels, based on their household
demographic. Seamlessness, responsiveness, transparency and
convenience – in addition to saety and air price or value
delivered – translate into customer trust. Post-crisis, trust and
transparency are table stakes or Insurers. Insurers that work to
close the trust gap will tap into new opportunities to create value.
Fig.2. Drivers or Business Intelligence (BI) Investments among Insurers
0 10 20 30 40 50 60 70 80
10.7
50.0
35.7
71.4
39.3
39.3
7.1
25.0
14.3
To better manage a specific operational
process in a more timely fashion
To better align with and track against
corporate strategies and objectives
To ensure regulatory compliance
To speed up and improve theorganization’s decision-making ability
To respond to user needs for data
on a timely basis
To move users toward a self-service
model of information delivery
To share information with customers,
suppliers and partners
To decrease business costs and
improve operational efficiency
To increase the organization’s revenue
Percentage of Respondents
Question “What were the three most signifcant reasons in your organization to invest, i planning to use BI or to consider? Source: Gartner (February 2009)
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IBM Global Business Services
Applying business analytics and optimization can help Insurers
acquire a deeper understanding o customer requirements, to
rapidly identiy and adjust price as appropriate, target market
their products to specic demographic segments, and
ultimately increase cross selling. Even with limited historical
data, Insurers can use business intelligence to simulate risk
proles and optimize price-driven demand. All o this
contributes to potentially higher product and service
penetration and a higher retention rate.
Case in point, one o our US Insurance partners was operating
day-to-day on gut-instinct, rather than data-driven decision
making. We helped them launch a customer ocused business
intelligence program to transorm the company’s ability to
improve overall business perormance, and ensure a stronger
customer service experience in order to drive revenue growth.
They now have a roadmap to help them ocus on achieving
value. In addition, they have operationalized business
intelligence through a center o competency and data
governance program responsible or creating and maintaining
consistent, contextual and accurate business data. By linking the
program to the overall improved perormance o the company,
the Insurer drove a measurable cultural change ocused on the
availability and improvement o both corporate inormation and
BI skills and now has ormed mature BI solution development
capabilities to the point o sel-sustainability.
Empowering agents to sell and serve There is a growing need to empower agents to sell and serve
customers more eectively. But the inability to identiy, recruit,
equip, and provide incentives to retain the best agents, as well
as integrate and optimize agent inormation into Insureroperations makes the customer relationship ocus all the more
dicult to sustain.
Business intelligence and optimization eorts can help Insurers
strengthen distributor relationships through modeling and
optimizing agent proles or recruiting, retention, and
compensation o “A Players.” In addition, Insurers can employ
business intelligence eorts to enable success with customers
by automatically identiying potential new segments and
adjusting sales tools, pricing, products, and other attributes to
target the best opportunities to acquire, retain and grow
customer relationships.
We partnered with a U.S. based P&C Insurer experiencing a
dynamic shit in their business – while selling insurance products
through agency owners and independent exclusive agents was
once seen as one o its biggest strengths, changes in consumer
buying habits required the company to enhance its channelstrategy. It became critical or the company to present a single
ace to the customer, regardless o their choice o channel.
Working across enterprise silos, we helped the Insurer develop
a clear multi-channel distribution strategy. By aligning the
culture, technology, metrics, processes and incentives, the
Insurer successully arranged a model that supports the way
their customers want to be serviced. This type o multichannel
approach refects the thinking that 79% o consumers will
commit to a deeper product or service relationship with a
brand ater a satisying experience.4 With this approach the
Insurer exceeded sales targets in year one and customers
started over 2.5M quotes 2009.
Increasing transparency, controlling riskDealing with a growing ocus on regulatory compliance is the
second largest concern o Insurers (52% o responders in a
recent study).5 “Insurance regulation is being re-examined in
the light o the bailout o prominent US insurers, with
international risk management standards likely to emerge.
Eighty-three percent o Insurers expect to increase spending
on risk management activities by more than 10 percent
annually, over the next ve years. The Solvency II guidelinesare already weighing on European Insurers, and the nancial
crisis has resulted in increased regulation across the globe.
Winning insurers are using these events as a burning platorm
in the drive to enhance enterprise control. Investments are
required in underlying data management processes,
inrastructures and capabilities to enable sustainable
transparency. A ocus on nancial and regulatory analytics can
help Insurers signicantly improve risk aversion through
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6 Using business intelligence and optimization to secure the uture in the global Insurance market
understanding risk posed by new products, globalization and
regulatory controls. In addition, Insurers can employ business
intelligence to reduce surprises in nancial results and
proactively manage market changes.
External stakeholders demand transparent quantitative
disclosure o all risks and reporting or accounting on air value
principles (IFRS, MCEV and Solvency II). We partnered with
a leading European Insurer to improve the management andcompliance to regulations through a holistic program ocused
on standardized, accurate, auditable and transparent data
management. As a result, enterprise data will be extracted rom
100+ systems, uniormed, enriched and stored to be used in
calculations and accounting.
This proactive approach enabled more awareness and
responsiveness to regulatory actions, better risk aversions
through integrated enterprise risk management, improved
eciency and perormance through shared systems and
processes across nancial services. Today this Insurer benets
rom better knowledge sharing through internal and external
transparency with external partners, and is able to better
respond to market changes. No matter what the regulatory
requirements end up becoming, they will now be prepared to
meet them.
Predicting the uture Today, Insurers must make sense o the unwieldy amount and
dierent types o inormation available in and outside o the
organization. Now many companies are applying analytics and
optimizing the bottom line ocused on consolidated reporting,
cost and expense management, perormance management, and
raud management. But soon early movers will emerge rom
these exercises with strategies that ocus on the top line - using
advanced analytics to pro-actively manage the pipeline,oers and promotions, brand perception, customer care
and eectively sense market twists and turns beore their
competitors.6
The end-goal or many insurers will be the ability to reduce
lost costs and improve customer service with the use o
advanced analytics. Predictive modeling can help Insurers
improve organizational fexibility to react quickly to market
conditions and scale to address customer needs (in the case o
catastrophe or other signicant market change), analyze claims
risk to decrease cost rom losses or improve customer service
based on known indicators. We are starting to see insurers use
predictive modeling to better serve their customers with
“customized products” based on individual wants-and-needs
analysis and to deliver improved medical care management
targeted to “at-risk” groups.
Fig.3. Analytics and optimization areas o ocus over the next 24 months
Pricing and offer strategies•
Branding and reputation management•
Product/services market selection•
Lead generation and pipeline management•
Promotion and offer management•
Logistics and distribution management•
Customersegmentationandproftability•
Demand forecasting and management•
Enterprise goal setting and alignment•
Budgeting and resource allocation•
Reporting and performance measurement•
Cost/expense management•
Career path and succession management•
Fraudandfnancialriskmanagement•
Leadership development•
Channel performance•
Next 24 months top 10
Current top 10
Project scope Tactic
Increase focus
Maintain focus
Re-assess focus
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IBM Global Business Services
Healthcare Insurers are leading the way in analytics and risk
management by creating medical management predictive
models. IBM is helping US health insurers use advanced
analytical tools to risk stratiy their member population and
ensure appropriate and preventative care is coordinated and
designed to assure good outcomes. Predictive modeling is
used to identiy “at risk” groups and to risk stratiy them. The
insurer can then match interventional programs with the level
o risk and deliver them consistently and cost-eectively. As anexample, members at risk or coronary artery disease, can
receive education and preventative care in an attempt to avoid a
catastrophic event like a heart attack. These new approaches to
promoting health and delivering care allow members to make
better health and wellness choices and allow the Insurer to
deliver signicant value and avoid subsequent costly health care.
ConclusionFor many Insurers, the ocus o the last ew years has been to
keep pace in a declining market. It now looks like things could
be turning upward. But whether the benets o the recovery
are elt earlier or later than analysts predict, the nancial crisis
has set in motion a “lean years” perspective that global leaders
and consumers won’t yield or some time. Trust has been
threatened. The pressure to gain share in a sharpening market
will not ebb. New regulations loom on the horizon. There will
be no going back to business as usual.
Insurers must solve two key problems in order to secure their
uture: getting meaningul products to market ast and
improving customer service. Their ability to leverage
technology and inormation to drive business intelligence will
be a dening actor in their success. Some insurers will pullaway rom the pack by ocusing on the customer, through
employing a business analytics and optimization lens to drive
value and aligning business with IT to turn out meaningul
products, achieve more transparency, and improve service
eciently.
However, competitive business analytics and optimization
capabilities require deep skills in business intelligence and
inormation management – which most Insurers lack today.
Strong business intelligence capabilities must also be backed by
streamlined data governance processes that pervade the
organization. In addition, Insurers must continue their ocus
on smart streamlining, integration and consolidation across the
organization – and well considered cost take out measures – to
und dierentiating analytics and optimization eorts.
Though the customer must be the ultimate ocus o business
analytics eorts, many insurers are nding that it is increasing
regulatory issues which provide the perect entry or driving
buy-in or a ocused business intelligence eort. These eorts
must top the chie executives’ (CEO, CFO and CIO) agendas
to achieve ull benets. By starting small, generating short-
term proo o concept successes and scaling ast, leaders can be
successul in linking these eorts to their organization’s
strategic business agenda, and catapulting their Insurers to
ront-runner status. For more inormation on pursuing a more
proactive approach to securing your company’s uture, please
contact Lee-Han Tjioe, [email protected].
“The pressure to gain share in a sharpening market will not ebb. New regulations loom on the horizon.There will be no going back tobusiness as usual.”
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GBW03116-USEN-00
© Copyright IBM Corporation 2010
IBM Global ServicesRoute 100Somers, NY 10589U.S.A.
Produced in the United States o America June 2010 All Rights Reserved
IBM, the IBM logo and ibm.com are trademarks or registered trademarkso International Business Machines Corporation in the United States, other
countries, or both. I these and other IBM trademarked terms are marked ontheir rst occurrence in this inormation with a trademark symbol (® or ™),these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this inormation was published. Such trademarks may alsobe registered or common law trademarks in other countries. A current list o IBM trademarks is available on the Web at “Copyright and trademark inormation” at ibm.com/legal/copytrade.shtml Other company, productand service names may be trademarks or service marks o others.
Reerences in this publication to IBM products and services do notimply that IBM intends to make them available in all countries in whichIBM operates.
Please Recycle
About the AuthorLee-Han Tjioe is the worldwide Leader o IBM Global
Business Services’ insurance group, currently responsible or
the strategy, solutions and service development or Insurance
industry, as well as client relationships and delivery -- rom a
headquarters in Shanghai, China. He and his team have
developed a number o successul insurance specic solutions
and services.
He has worked or more than 18 years in consulting or
nancial institutions, including as an Asia Pacic practice
leader or PricewaterhouseCoopers in Hong Kong. His
consulting work includes strategic and business process
transormation projects or clients like ING, Aetna, AXA,
Fortis, Aegon, and Achmea. He is a specialist on insurance
companies challenged with the design and successul launch o
online and multi-channel distribution o Insurance products.
Mr. Tjioe graduated with an MBA at the Fuqua School o
Business, Duke University in the United States.
For more inormationibm.com
_____________________________________
1 Bieck, Christian. “Growing trust, transparency and technology: Insurance
customers’ perspectives in a global context.” IBM Global Business Services, in
association with the University of St. Gallen Institute of Insurance. http://www-935.
ibm.com/services/us/index.wss/ibvstudy/gbs/a1030834?cntxt=a1000058
2LaValle, Steve. “Breaking away with business analytics and optimization.”
IBM Institute for Business Value.
3 Ibid
4LaValle, Steve and Brian Scheld. “CRM Done Right: Executive handbook for
realizing the value of CRM.” IBM Global Business Services.
5 IBM Global CIP Study 2009; Full sample n = 2598, Insurance n = 212
6Gartner (February 2009)