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Life Is a Bowl of… Customer Analytics

In 1931, Ethel Merman sang a song titled “Life Is Just a Bowl of Cherries.” The phrase “life is a bowl of cherries” carried on – meaning that life is carefree. The life and annuity industry certainly can’t adopt this phrase because generating profit and growth has been significantly challenging since the 2007-2008 financial services crisis. Given that the low interest rate condition the economy currently lingers in isn’t going to dramatically change anytime soon, L&A insurers need to determine how to improve financial outcomes in other ways.

According to LIMRA, there is a $16 trillion coverage gap in the U.S. In the language of the song title – that’s a lot of cherries! And an amazing opportunity for L&A insurers who are willing to change the way they approach the market. The recent SMA L&A data and analytics survey  revealed several important insights relative to this significant coverage gap.

See also: 10 Trends on Big Data, Advanced Analytics  

Financially protecting loved ones in the case of the death of a bread-winner isn’t a brand-new concept. In fact, it’s a fairly fundamental concept going back to original native tribes who had a structure for that. Yet, the identified coverage gap remains today. L&A insurers need to gain insight into those without life insurance coverage. What will trigger buying? What is important about products and services? How do they want to buy? The questions go on. However, only 38% L&A insurers indicate they are advanced users of dashboards and scorecards – which have been around a long time. Without modern dashboard technology that facilitates interaction with data, line of business experts cannot learn about the untapped and sometimes unknown opportunities.

Closely aligned to the dashboard gap is the gap around predictive analytics. Only 19% of responders indicate they were advanced users of predictive analytics and models. These are critical areas for L&A insurers to dedicate time, skills, and financial resources to – if they want to convert a portion of the $16 trillion coverage gap.

Overall, SMA research reveals that all insurers, both P&C and L&A, continue to invest in things they already do well. Investment in data and analytics for risk-based activities such as reserving, pricing, and product portfolio analysis has been high (between 70% and 76%) and are historically the top areas. Clearly, no one should stop investing in risk analysis as these activities are critical. However, customer-related data and analytics investment is very low. Customer segmentation and single view of the customer only garner 52% investing, and the investment percentages go as low as 29% for lifetime customer value. Even CRM only gets 48% investing. There is a clear imbalance.

See also: Why to Refocus on Data and Analytics  

While there are many other insights emanating from SMA’s L&A data and analytics research, the story around customer areas and the lack of proportional focus by life insurers is very important. Simply hoping that investments in advertising and websites will result in new customers from that previously uninsured $16 trillion is not a winning strategy. L&A insurers must know what is important to the uninsured population of the U.S. And there won’t be one right answer – there will be multiple right answers. Data and analytics investment for customer insights must increase. While there is a very low probability that a winning insurer in the L&A space is going to be playing Ethel Merman songs in their lobby, it won’t be an awful thing if insurers feel like there is a growing bowl of cherries in their corporate halls.

Why to Refocus on Data and Analytics

Data and analytics is a phrase that is probably in 75% of articles and blogs written today on the industry. In fact, data and analytics is used so frequently that it almost appears to be one word – dataandanalytics. SMA research shows that 92% of insurers have data and analytics initiatives under way in 2017. It is the number two initiative, only three percentage points behind customer experience, to which it is closely aligned!

The importance of data and analytics to the enterprise is no longer debated. However, there is danger in this. A level of complacency has crept into how insurers are addressing data and analytics requirements. SMA survey results show that, on average, 65% of insurers are investing in reporting and dashboards and scorecards, spanning both personal lines and commercial lines of business. Clearly, it is important to do this because managing day-to-day operations is critical. However, and this is the salient point, investing in these areas is historical – it’s where the money has been going for quite some time.

See also: Analytics and Survival in the Data Age  

The flip side of this picture is that 80% of survey responders indicate they have no plans for investing in cognitive computing, and 37% have no plans for investing in data and text mining. Use cases follow the same pattern. In terms of the customer and distribution, insurers have been investing in new business analysis and agent performance for years. Yet, 53% of survey responders say they have no plans for using data and analytics for single view of the customer. Numerous other examples abound, as detailed in our research findings.

The insurance industry is definitely focused on investing in data and analytics, but the research shows that the investment is in the same areas, for the same purposes. Insurers continue to get good at what they are already good at. And it is hard not to do this … the positive results are compounding! But one huge factor is making this direction untenable – the pace of change. Technology, particularly technology coming from insurtech organizations, is exponentially advancing. Customer expectations and the rapidly evolving nature of risk are figuratively (and somewhat literally) running right along next to these emerging technologies, eager for the value being delivered.

When it comes to emerging data sources such as the IoT, wearables and drones, there are a handful of insurers that are embracing the data and developing capabilities. Yet, as many as 82% of insurers have no plans to leverage these data sources. Those insurers advancing with new data sources are rapidly creating a gap that insurers with no plans will find difficult to bridge. This is another example of where the pace of change will have a big influence.

See also: Data and Analytics in P&C Insurance  

A great percentage of insurers are poised to change direction and move from the data-and-analytics-investment “comfortable zone” and over into innovation. Significant work has been done from an organization and role perspective in terms of data and analytics teams, particularly at an enterprise level. But the measured steps of the past need to be replaced by a faster pace and focused on new targets that emulate the world that we live in.

SMA’s recently released report, Data and Analytics in Insurance: P&C View Through 2020, provides a deep dive into the state of data and analytics today, as well as plans for the future. The report also features an updated version of SMA’s proprietary Data and Analytics Spectrum, which provides a framework for insurers to benchmark their initiatives. It also details the various components of a robust data and analytics strategy. Or is it a dataandanalytics strategy?

Telematics: A Claims Adjuster’s New BFF

Nobody can have too many BFFs (that’s best friends forever in today’s texting-driven vernacular).  That statement goes double for claims adjusters who are frequently seen as “bad guys” because of all the difficult-to-understand complexities of the adjusting process. The reality is that claims adjusters do not get enough recognition for the many times they go the far distant extra mile to help a customer after an auto accident. Claims adjusters need all the tools they can possibly get to deliver customer service at the high levels they want to deliver. And telematics is here to the rescue!

Many insurers see telematics only as a new way to rate auto insurance coverages, perhaps even replacing traditional rating criteria as some InsurTech innovators are doing. Other insurers only see telematics as a new way to underwrite auto policies, replacing traditional and sometimes complicated criteria with usage-based facts. These are all real situations. But what most insurers do not yet see is that telematics can be a way to give claims adjusters a customer service tool that, incidentally, improves claims financial outcomes. And who doesn’t love a win-win!

See also: Telematics: Moving Out of the Dark Ages?  

A new claims adjuster, right after getting a company ID badge and signing up for company benefits with HR, learns that the sooner the company is advised of a claim, the better the odds are the company can assure a successful outcome and control costs. That’s Claims Adjusting 101. Many insurers have addressed this by directing the first notice of loss from the consumer through a company contact center or service provider. More recently, companies have developed FNOL apps for mobile devices so that claims reporting can kick off shortly after paperwork is exchanged at the site of the accident. But, what if the FNOL could be generated as the accident happens? As a matter of fact, state-of-the-art telematics can actually do this.

Leading telematics technology can generate the FNOL from the actual impact dynamics. Appropriately implemented, this means that an emergency medical response could be automatically initiated if the impact details warrant it. In the event of a serious crash, this could make a critical difference in treatment outcomes. Towing services could also be initiated, getting the vehicle off the roadway sooner. Body shops and storage facilities could also be looped in as appropriate. Being the technology-enabled “first on the scene,” and providing much-needed assistance at a stressful time puts any claims adjuster on the fast track to BFF status. And, returning to Claims Adjusting 101, it helps with the positive management of claims costs.

The benefits of telematics in auto claims adjusting don’t stop there. Telematics can provide factual details that sometimes elude those involved in the event. When asked what happened, those involved in the accident very frequently respond with “it all happened so fast.” Telematics facts can replace post-loss perceptions of the event, thus helping the adjuster move the claim along faster. The telematics-defined dynamics of an accident can also aid in injury assessment, again, moving the claim process along.

There’s more. Vehicle repair can be an arduous process, particularly if the damage renders a vehicle unusable. Not having a car is clearly a source of frustration for most individuals. Simply getting all the assessment details can hinge on visual inspections, reports, and sending photos. Telematics can provide impact details and dynamics that can speed this process along, leap-frogging traditional claims processes to reunite vehicle and driver sooner. Another BFF moment!

In my role, I have spoken to a great number of claims executives. I have yet to meet any who did not see themselves and their organization as a key driver, if not the number one driver, of customer satisfaction. There are a good number of tools that claims organizations possess to deliver excellent customer service. And you can never have too many customer service capabilities (just as you can never have too many BFFs). Insurers should assess their existing or newly planned telematics initiatives and expand the opportunities for value and customer service beyond rating and underwriting to claims operations. Many technologies benefit one product line, or one discipline, or one process. It is, indeed, a top priority technology initiative that can span the organization at many levels, improving customer service and bottom-line results simultaneously. Telematics should be on the short list.

See also: Lessons From New Telematics Firm  

For additional thoughts on how telematics can be a successful component of an anti-fraud strategy, please read our blog Fraud is Not a Cost of Doing Business – And Emerging Tech is Here to Prove It!

It’s Time to Declare an End to Fraudsters

Fraud has long been a significant problem for the insurance industry – actually since the very beginning of insurance at Lloyd’s coffee house. The Coalition Against Insurance Fraud indicates that 5% to 10% of claims costs are related to fraud, with more than 30% of insurers reporting as much as 20% of claims costs being related to fraud. Fraud is lucrative fraudsters, and perpetrating fraud becomes more creative every day. I am pretty certain that most heads of special investigations units (SIU) feel that “fraudster” should be a job category within the Department of Labor … the focus on committing fraud is so relentless by some that it is almost a profession!

In my insurer career, I was a technical adviser to an SIU. I have always felt that was probably the best job assignment I ever had. The investigators were all ex-law enforcement – big city police officers and state troopers, with some FBI agents thrown in for good measure. They told the best stories about chasing down bad guys! Underlying it all, however, was frustration. Detecting fraud is hard. Finding the fraudsters and prosecuting them is even harder. Current estimates are that only 1.5% of cases are prosecuted. Unfortunately, some insurers have an attitude about fraud that borders on: “It’s just a cost of doing business.” That attitude cannot persist in today’s business environment, where every dollar of claims costs must be acutely managed to maximize very thin bottom-line margins.

See also: How Bad Is Insurance Fraud Really?  

The recent SMA research brief, Fighting Fraud with Advanced Technology: Detection, Mitigation, and Prevention, recounts the historical and current path of fraud detection, starting with the “gut feel” of seasoned claims adjustors. Then, along came business rules, which allowed for uniformity and some automation. Today, predictive analytics and link analysis are the leading solutions for fraud detection. In particular, link analysis is an effective way to find fraud rings that attempt to hide within large claims volumes, using technology to change their personas.

Ironically, the new reality for insurers is that, the more digital they become, the easier it is for fraudsters to hide and reinvent themselves. Fully automated, online new business applications allow fraudsters to gain access to coverage. Electronic claims submissions permit individuals, including unscrupulous doctors and lawyers, to submit “documentation” that payments are warranted. No insurer is going to stop its digital initiatives because of these avenues of attack. However, insurers need to augment business rules, predictive analytics and link analysis with emerging technologies in the fight against fraud.

Telematics can assist adjusters, for example, in determining if a vehicle in question was in the location alleged at the time of the loss, or if the reported injuries actually equate to the crash details or appear to be fabricated. Telematics aren’t just for rating! Wearables can do the same thing relative to individual workers. Could a severe injury claimed from a fall actually have occurred given the dynamics of the fall?

Big data and emerging technologies such as artificial intelligence (AI), behavior science and behavioral analytics hold the promise of allowing insurers to get out in front of fraud. The clear problem that SIU investigators have, even with link analysis and predictive analytics, and certainly with business rules, is that they are always chasing the fraudsters after they have gotten claim payments. It is true that predictive analytics and link analysis can minimize the number of fraudulent payments the fraudster obtains, but the fact is that the bad guys get themselves into the payment queue, and then the alerts and flags go up. Big data, AI and behavior analytics have the great potential to cut off the fraudsters before they get a claim payment. And, we don’t know what we don’t know when it comes to AI and behavioral analysis – whole new worlds of fraud fighting capabilities may arise out of new insights.

See also: Insurtech: Unstoppable Momentum  

I would dearly love to reconnect with the SIU team I worked with back in the day. It would be amazing for them to see what current predictive analytics and link analysis in an automated fashion can do, where they once applied sweat and elbow grease to accomplish whatever they could with precious few positive results … and to brainstorm outcomes aided by telematics, wearables, AI and behavior analysis. The most amazing thing for them to witness is that current and future fraud-related technology investments combined with the honed skills of SIU investigators can generate significant ROI and change the attitude that fraud is just another cost of doing business!

Don’t Be Distracted by Driverless Cars

Because of the arrival of autonomous vehicles, a good number of prognosticators are loudly heralding the end of auto insurance and the insurers that rely on this income stream. While there is no doubt that the auto insurance will change over time because of autonomous vehicles, the doomsday folks paint a picture of an almost certain — and right-around-the-corner — cataclysmic change, with the general population cheering wildly about not having to pay for auto insurance anymore.

Disappointingly for those people, this is a highly unlikely scenario.

At the most fundamental level, autonomous vehicles are expensive. Until the bulk of the population can afford autonomous cars and trucks, we will be living in a world with a foot on each side of the driving paradigm. This means that, while the autonomous vehicle might not hit the car in front of it, the vehicle behind it may very well end up in its back seat. Uninsured and underinsured coverage, comprehensive coverage, coverage for property damage and liability coverage will be needed for a long, long time.

See also: Connected Vehicles Can Improve Claims  

In the meantime, auto insurers will have the opportunity to work out the liability paths with the autonomous auto manufacturers. And auto insurers will have the time to adjust their product mixes and financials. Underwriters and claims personnel will adjust processes and practices. Believe me, I am not suggesting that change won’t happen. It will. And some of the changes will be painful from several perspectives. But with all the various factors potentially reining in the spread of autonomous vehicles — cost, regulators, consumer wariness — insurers will adjust. At least the insurers that believe in innovation and data and analytics will adjust — and flourish.

What people are not focusing on is the rapid change in the products and services that are coming from the convergence of emerging technologies — and this is happening right now. Take a quick perusal of the topics in SMA’s Next-Gen Innovation Community, and some examples come to light:

  • To diagnose a rare genetic disorder, a physician combined an exomes analysis with a facial comparison using an app called Face2Gene, which was developed by the same programmers who taught Facebook to find your face in your friends’ photos.
  • To reduce manufacturing times and production periods, Adidas will use 3D printing or additive manufacturing methods as the core technology of its factory that produces sneakers.
  • The use of “cobots” — collaborative robots that perform tasks alongside humans — is rapidly gaining popularity, and it is the fastest-growing segment of the U.S. robotics industry.
  • The global semiconductor industry is pushing to develop new chip designs, materials and manufacturing processes. One reason is the widening use of the artificial-intelligence technique known as deep learning in products — both consumer and manufacturing products.

Additional examples could consume volumes of space. But what does this convergence mean for the insurance industry? It means unknown risk and unknown liability.

Unlike the autonomous vehicle world, where underwriters and claims adjusters understand the general risk and liability landscape, the convergence of emerging technology is generating significant numbers of unknowns. Relationships between the unknown risks and liabilities will be the most challenging.

The insurance industry should not be as concerned about the impact of autonomous vehicles as it should be about what is happening now in the rapidly changing world of products and services because of the effects of emerging technologies. Underwriters and claims personnel must be supported by sophisticated data and analytics capabilities using AI, machine learning and cognitive computing (pick your favorite advanced tool!)  because risk and liability will not be in the same forms as are currently familiar to insurance professionals.

See also: Autonomous Car Tech Reaches Mid-Market  

There are a lot of reasons that insurers will not look the same in five to seven years. Core modernization, digital capabilities and, yes, autonomous vehicles will generate change. But the halls of successful insurers will not be empty. They will be filled with technical experts in product liability, D&O, E&O, cyber and medical malpractice — to name but a few product lines that will have the ability to rapidly respond to a risk and liability landscape that didn’t exist  in their wildest imaginations two to three years ago.

Insurers that are not preparing themselves for this eventuality will fail.