Although insurance companies are embracing analytics in many forms to a much higher degree than other businesses, adoption by the insurance industry is still only in its adolescent stage. Deployment is broad but inconsistent. The use of analytics may be about to mature considerably, though, based on a recent series of mergers and acquisitions.
Currently, while a majority of large carriers use predictive modeling in one of more lines of business, and mostly in personal lines auto, a smaller percentage use it in their commercial auto and property units. Insurers recognize predictive analytics as a critical tool for improving top-line growth and profitability while managing risk and improving operational efficiency. Insurers believe predictive analytics can create competitive advantage and increase market share.
Fueling even greater excitement – and soon to be driving transformational innovation - is the recent surge of M&A activity by both new and nontraditional players, which have combined risk management and sophisticated analytics expertise with robust and diverse industry database services. The list of recent deals includes:
- CoreLogic’s 2014 purchase of catastrophe modeling firm Eqecat, following its 2013 acquisition of property data provider Marshall & Swift/Boeckh; a significant minority interest in Symbility, provider of cloud-based and smartphone/tablet-enabled property claims technology for the property and casualty insurance industry; and the credit and flood services units of DataQuick.
- Statutory and public data provider SNL Insurance’s 2014 purchase of business intelligence and analytics firm iPartners, which serves P&C and life companies.
- Verisk Analytics’ 2014 acquisition of EagleView Technology, a digital aerial property imaging and measurement solution.
- LexisNexis Risk Solutions’ 2013 acquisition of Mapflow, a geographic risk assessment technology company with solutions that complement the data, advanced analytics, supercomputing platform and linking capabilities offered by LexisNexis.
Other 2013/2014 transactions that have broad implications for the insurance analytics and information technology ecosystem include:
- Guidewire Software, a provider of core management system software and related products for property and casualty insurers, acquired Millbrook, a provider of data management and business intelligence and analytic solutions for P&C insurers.
- IHS, a global leader in critical information and analytics, acquired automotive information database provider R.L. Polk, which owns the vehicle history report provider Carfax.
- FICO, a leading provider of analytics and decision management technology, acquired Infoglide Software, a provider of entity resolution and social network analysis solutions used primarily to improve fraud detection, security and compliance.
- CCC Information Services, a database, software, analytics and solutions provider to the auto insurance claims and collision repair markets, acquired Auto Injury Solutions, a provider of auto injury medical review solutions. This transaction follows CCC’s acquisition of Injury Sciences, which provides insurance carriers with scientifically based analytic tools to help identify fraudulent and exaggerated injury claims associated with automobile accidents.
- Mitchell International, a provider of technology, connectivity and information solutions to the P&C claims and collision repair industries, plans to acquire Fairpay Solutions, which provides workers’ compensation, liability and auto-cost-containment and payment-integrity services. Fairpay will expand Mitchell’s solution suite of bill review and out-of-network negotiation services and complements its acquisition of National Health Quest in 2012.
Based on these acquisitions and the other trends driving the use of analytics, it will be increasingly possible to:
- Integrate cloud services, M2M, data mining and analytics to create the ultimate insurance enterprise platform.
- Identify profitable customers, measure satisfaction and loyalty and drive cross/up-sell programs.
- Capitalize on emerging technologies to improve pool optimization, create dynamic pricing models and reduce loss and claims payout.
- Encourage “management by analytics” to overcome departmental or product-specific views of customers, update legacy systems and reduce operating spending over the enterprise.
- Explore external data sources to better understand customer risk, pricing, attrition and opportunities for exploring emerging markets.
As the industry is beginning to understand, the breadth of proven analytics applications and the seemingly unlimited potential to identify even more, coupled with related M&A market activity that will drive transformational innovation, indicates that the growing interest in analytics will be well-rewarded. Those that are paying the most attention will become market leaders.
Stephen will be Chairing Analytics for Insurance USA, Chicago, March 19-20, 2014.