Profits for insurers in a tough market

It is obvious that we currently live in challenging market conditions. Companies are forced to rethink their strategies and their approach to business. Insurance companies are no exception to this rule. Like other industries, insurers take a closer look inward and examine the unrealized value of different sources of revenue.

Typically, the two main sources of revenue for insurers are:
1. Underwriting profits
2. Investment gains

While insurance companies do not suffer from the financial crisis like the banks, the returns on investment in a barren economic environment decreased significantly. Thus, companies are forced to maximize their profits from underwriting and ensure that they have optimal strategies to achieve this end.

A critical strategy for insurers to maximize returns from writing new business is creating new sales opportunities for existing customers. That sounds simple but the challenge is to identify the right products for the proper audience. Therefore insurers strive to gain access to insightful policyholder information that helps them sell more.

Of course it is not possible for the companies to know everything about their customers. Still, they attempt to achieve as much as possible to segment customers, position products, and target customers most effectively.

The unique problem of insurance companies is the lack of interaction with their customers, they are dependent on loyalty. The relationship between a consumer and an insurer is normally initiated at the time of a significant life event, such as the purchase of a new car, a new house, or the anticipation of a new baby.

Once the customer has evaluated the insurance market to get the best coverage for a low price he contacts an agent or the insurer directly to get the deal done. With the signature under the policy contact between the policyholder and the insurer is limited, if required at all. Automatic policy administration systems take care of the billing and renewals. Delinquencies and address changes seem to be the only reasons for interaction. When these rare situations occur most insurers are not prepared to foster the relationship to achieve stronger customer loyalty and/or capitalize on the sales opportunity with intelligent customer insight.

A proper customer analysis for an insurance company has usually to deal with fragmented data sources due to mergers and acquisitions that were necessary to penetrate new markets or utilize new channels. An integrated view of this data is – even when it is tedious to build – important for proper customer care.

Business Intelligence (BI) solutions are the answer to these demands. They are not just reporting tools. They can translate the data into actionable insight and additional revenue opportunities for the businesses.

Today, best-of-breed BI platforms can be cost-effectively deployed to tap into and query a number of different sources of data to produce useful information based upon historical and real-time data, and predictive models. Resulting information about customer demographics, product performance, and next-best actions can empower companies to uncover hidden opportunities and devise strategies to maximize customer value.

What do insurance companies know about their customers? Which customers are most profitable? Can a positive ROI be generated with this customer? What is his growth potential? What product bundles can be marketed to him?

These are just a few questions that BI can help answering. Combining multiple data sources like marketing data, policy statistics, financial data, demographics etc. with a unified, integrated metadata layer can lead to the right product mix. Clustering of customers and the usage of predictive analytics can identify hidden patterns in loyalty and buying behavior that had been previously overlooked. In addition, managers of multiple lines of business have more data at their disposal, enjoy greater flexibility with more analytic capabilities, and receive unique, targeted offerings from which to choose.

Another advantage of BI – in comparison to the traditional spreadsheets, still very popular with insurers – is the incorporated security. The customer data is very sensitive and requires a sophisticated security in place in order to prevent unauthorized data access. Besides, the various intuitive visual representations of information that BI provides (e.g. ad hoc reporting or multiple dashboard books that present all relevant information at a glance) and the fast performing distribution of reports to a wider audience are key factors for an efficient information delivery strategy.

Last but not least, the demand for scorecards that represent the key performance indicators of the insurance company (branch or department) in a colored scheme, i.e. “traffic lights” where green represents a KPI on target, yellow indicates a possible problem and red shows a value that is out of range, is becoming more and more evident.