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Counting on the Future: More Than All Our Fingers and Toes

The title of the recent Insurance-Canada Executive Forum (ICEF2015) was “Emerging Threats and Opportunities.”  In hindsight, we might have been well served by including a less subtle sub-title; something like: “Learn to Use Analytics or Die.”

Question for you: What do you think is the state of our industry in deploying and understanding analytics?

A four on the floor and a R-squared under the hood

We have been debating and testing the use of telematics and usage-based insurance for the last 7 years.  It seems that some insurers are getting traction (pun intended), but most analysts suggest we are 5-10 years away from 20% penetration for personal vehicles.

However, the same technology is driving (yes, another pun) development of autonomous and semi-autonomous vehicles.  At  ICEF2015, Catherine Kargas, VP at MARCON, led a panel which included Bob Burrows, CEO at G4 Apps, Inc. which focuses on wireless vehicle technologies, Matthew Turack, President of CAA insurance, and Jessica Mahon,team leader, special projects at the Ontario ministry of transportation (MTO).

The panelists reviewed the state of vehicular technology and its longer term impact on insurance.  Mahon advised that the Ontario Government has now mandated the MTO to create a regulatory framework that would allow testing of autonomous vehicles.

Turack noted that these technologies will improve safety.  However, he felt the full deployment of autonomous vehicles would be some ways out.

This debate will continue, however one thing is clear: autonomous vehicles will change how risk is calculated. Kargas quoted KPMG data which suggested that within 10 years, there will be high impact of these vehicles on insurance.  This will require understanding the algorithms that are used.

Are your analytics distinctive?

Cindy Maike, GM Insurance, Hortonworks and Greg Purdy, Managing Partner, getClarity, Inc. made it clear that data, especially Big Data,  require powerful analytics to be meaningful.  According to Maike, when done correctly, the data, when combined with analytics, create a new information infrastructure, as is becoming the case in China with its Smart City Project.

Purdy focused on insurance marketing and segmentation.  Traditional segmentation focuses on risk evaluation and the propensity of clients to place claims.  The data, coming from internal systems,  usually consist of age, gender and claims history.

Other industries (as well as some insurers) have taken steps to include behavioural and lifestyle, typically by third parties.  Behavioural data can be analyzed to provide richer information to inform sales, servicing, and marketing communications.  Lifestyle data can inform product design and development as well as marketing.

The key is tuning the analytics to allow the data to inform decisions.  These are strategic decisions.

At the distribution edge

In a subsequent session on the future of distribution, Bernard McNulty, Head of Claims at Allianz Canada,noted that there has been an increase in the use Big Data for internal use – underwriting, claims, operations.  In addition, these data were being shared with brokers to assist with a common understanding.

Two insurance brokers on the same panel – Brenda Rose, Technology Champion,  Brokers Association of Canada and Partner at FCA, and Eileen Greene, VP at Hub International – noted that these data were required to have effective relationships with the carriers and with the customer to assist with engagement.

Analytics  supporting specialty lines growth

One size no longer fits most, much less all clients’ needs.  Specialty Lines is growing because an increasing number of insureds require specialized coverage.  To take advantage of this trend, insurers, brokers, agents, and MGAs are looking for data and analytic tools to improve product features, selection and pricing.

Led by Drew Collins, VP – Casualty at Totten Insurance group, the specialty lines panel discussed critical success factors in this growing part of the insurance business. Other panel members were Sean Murphy, President of Lloyds Canada, Maureen Tomlinson, VP – Product & Soutions at SCM, and Kareem Sandid, Chief Actuarial Officer at Totten.

When asked about competition with standard markets, Sandid noted that analytics provide a lens that allows viewing risks in such a way that, by applying specific terms and increases in the rates, specialty writers can be profitable while writing business that the standard markets avoid.

Tomlinson added that data to support these decisions are available through aggregators and third party suppliers.  Specialty writers and distributors make effective use of these tools.

When asked about Lloyds support for specialty lines.  Murphy noted that Lloyds syndicates have increased capacity in the Canadian marketplace because of the deployment of new, profitable products developed to address customized risks.

In addition, Lloyds has had success with Lineage, a customized placement and administration technology which allows the syndicates and the brokers a common view of the data.

The year of living analytically?

Insurance has always been numbers driven, but it seems that the application of analytics is having particularly important implications.  I’d like to know what you think.

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