Analytics and insurance
Q&A with David McCloskey
Business analytics applies to any industry with large amounts of data, however one of the key areas of expertise that Pathfinder Solutions brings to Deloitte's analytics and information management team is in the insurance industry.
Founder of Pathfinder Solutions, David McCloskey, and the Australian Head of Deloitte Analytics, Anthony Viel, discuss how analytics can assist the insurance industry.
1. What is the most effective use of analytic for general insurers and life insurers?
David McCloskey believes advanced analytics can be used effectively by general insurers to:
- Assist with de-averaging risk and provide individual property-level risk pricing."The improved insights created by analytics can help with more appropriate risk pricing," he said. "The benefits are that if some insurers are pricing risk at the individual property level while others are still averaging risk, then should a major event occur, the insurers pricing risk at the individual level are likely to have less market share of high risk. In other words, their premiums for these properties are likely to be higher than those of insurers averaging risk. This can translate into a potential reduction in exposure of many millions of dollars"
- Help to optimise marketing activity, including contact optimization, offer optimization and communication optimization. "Analytics can help call centres' in-bound phones ringing more often for less marketing spend," he said
- Aid in building insights into the effectiveness of marketing spend on above the line media, with measurement of "MROI" (marketing return on investment). "The use of analytics can result in more cost effective media planning, with the potential to achieve the same exposure to target audiences with significantly reduced media spend," said Mr McCloskey.
Anthony Viel, Australian Head of Deloitte Forensic, added, "Another area of significant opportunity is fraud. Advanced analytics and diverse data sets can be leveraged to address what can, in my experience, be up to 5 to 10 percent of claims cost."
McCloskey said that life insurers typically require a significant level of disclosure from policyholders on existing medical conditions and risk behaviours. "Insights into expected health issues and risks that are developed through advanced analytics can potentially reduce the burden of questions required of applicants. It can also help to facilitate both pre-approvals and better premium pricing."
Deloitte will basically tailor engagements to suit client requirements. This can range from on-site engagement with teams through to provision of software to implement property level risk pricing and bureau consultancy.
"The benefits gained by adviser groups and brokers through conducting an analytic segmentation of these groups can potentially be significant," said Mr McCloskey. "As many of these groups are independent businesses at different stages of a business lifecycle and also may have different product mix, segmentation can help these channels focus their efficiency. There is improved opportunity for win/win/win among policy holders, intermediaries and underwriters."
"There are a range of issues that need to be considered for some risks which have non-standard regional distributions," said Mr McCloskey. "Specialist knowledge and appropriate mathematical techniques should be applied to these risks."