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How Acquisitions Are Reshaping Landscape

With the announcement that Insurity has acquired Valen Analytics, the core and analytics landscape has changed again. We have been tracking M&A activity and outside investments in the core systems space for some time, and the past year has seen a marked trend toward the acquisition of data and analytics firms by core systems providers.

Insurity and Valen are only its latest manifestation. Duck Creek acquired Yodil. In March 2016, Guidewire acquired EagleEye Analytics, and prior to that Millbrook. The momentum of these acquisitions and core providers’ other investments in expanded capability is morphing the core provider landscape significantly.

The insurance industry is awash in data, and more and more data presents itself every day. Historically, insurers had three choices for how to extend data and analytics capabilities across the enterprise. Many contracted with outside providers, for example, SAS, SAP and IBM. Others chose to build their own data and analytics capabilities. Both of these options had expense and skill set considerations that put these paths beyond the reach of most small and mid-tier insurers. They most frequently turned to the third option: spreadsheets. The big players had the best options – and smaller insurers having to make do struggled to join their ranks.

See also: Applied Analytics Are Key for Progress  

When SMA surveyed insurers on their plans for becoming Next-Gen Insurers, we found out just how important data and analytics are. We measured insurers’ progress along seven “bridges” – initiatives that provide defined pathways upon which insurers can build transformation strategies critical to becoming a Next-Gen Insurer. The results were published in the recent report, Insurance in Transformation: Building 7 Bridges to the Future. The number one bridge was “majoring in data and analytics.” 95% of insurers are making progress in this area. It is imperative, therefore, that insurers look for ways to further their data and analytics capabilities.

Based on insurers’ three options for data and analytics, smaller insurers have been at a disadvantage. Although they are well aware of the importance of data management and analytics, they are limited by resources and skill sets.

While core systems have advanced in many areas the past 10 years, their data and analytics capabilities have typically focused on business intelligence functions, like operational reporting and data standardization. Predictive analytics and link analysis have not been within the scope.

The analytics firms that we are seeing acquired by core solution providers, however, have the deep expertise in these areas that many insurers have never been able to access. Smaller insurers and others who depend heavily on the built-in capabilities of their core systems stand to gain the most from this trend of core providers acquiring data and analytics expertise. The benefits are significant. Insurers that previously were not able to gain necessary insights from their data will now be able to obtain them. New insights that will allow insurers to innovate will go a long way toward leveling the playing field.

See also: Why Data Analytics Are Like Interest  

Integrating the new acquisitions is a work in progress for the core providers. The major upside for insurers is that pre-integrating analytics into the core environment supports the trend of bringing analytics closer to real-time transactional processes. This is an important goal for all insurers to attain.

Analytics at the Next Level: Transformation Is in Sight

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.