Beruflich Dokumente
Kultur Dokumente
Partha Srinivasa, Senior Vice President & CIO, HCC Service Company
Maroun Mourad, former CEO & Chairman, Middle East, Zurich Insurance Group
& Author of The Insurance Management Playbook: A Leaders Guide
* Views expressed by our experts represent their sole thoughts on the topic of Insurance
analytics. They do not necessarily represent the views of their current organizations and should
not be seen as an endorsement of any group, product or strategy.
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Ltd and its partners. FC Business Intelligence Ltd has no obligation to tell you when
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GWhiting.com
is accurate or complete. In no event shall FC Business Intelligence Ltd and its partners be
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Brittany Reyes, VP of
Financial Services &
Insurance, FC Business
Intelligence
INTRODUCTION
Insurance walks a delicate balance between assuming new risk and developing new policies, but this high wire act becomes less of a concern when companies are able to grow sales from current customers. Whether times are lean
or markets are expanding, savings are almost always present when pursuing
the existing possibility.
To further the upsell and cross-sell opportunities, insurers large and small are
turning to analytics to understand the behaviors, preferences, and mentality
of their customers. Assigning a risk to these and evolving that risk with a profile allow insurers to best understand customers and their lifetime value.
This is a long-tail view of the customer, and it is proving to be fertile ground
thats difficult to till. Todays analytics and business intelligence professionals
are determining how to measure customer lifetime value and how best to
apply it to customers and organizations.
Many insurers are still dealing with the growing pains of these models: determining how best to treat high-value customers to increase business while not
deserting low-value customers and suffering small, but consistent revenue
losses.
This paper aims to provide top-level insights from industry thought leaders to
help develop an understanding of customer lifetime value and its impact on the
insurance space. Company understanding of the processes is essential to success and the makeup of these analytics units will require a new level of finesse.
While insurers face many hurdles, this guidance aims to provide the spark
needed to manage customer lifetime value on systems, within organizations,
and when interacting with the customer as they change.
If you have a customer with five products and they make a claim on one, then
you still have four very profitable products. That puts the insurer in a better
position and makes the customer more profitable than if: they only have one
policy, make a claim, their rate goes up, and then they leave.
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financial support theres a struggle about explaining the value of the investments and getting the funding, said Srinivasa.
That puts many analysts at risk of promising too much when trying to make
their case. Every factor must be addressed, especially those with financial
impacts. While personalization can provide the opportunity for better leads,
cross-selling, and up-selling, it wont take outside factors into consideration.
Without inputting new data, no system can predict and react to these factors,
such as when competitors raise or lower prices, which will impact how models perform.
Removing Bias
Analytics is often at odds with intuition. Understanding customer lifetime
risk and value can exacerbate this divide. If a customer is viewed as a risk but
the data says otherwise, the suggestion will be to target them with multiple
products to increase their CLV.
This requires the data to be objective and credible enough to not only
overcome an initial objection, but do so with such force that it is persuasive
enough for a multi-product pitch. Demand must related to lost costs and
relative risk, all with direct linkages back to the consumers risk characteristics
and a projection on how those characteristics change over time.
The same type of bias often exists when analytics prompt a conversation
about changing behaviors to match customer view points and preferences.
Its the role of the data unit to provide comfort, and in business that comes
down to tying change to bottom-line improvements and retention.
Addressing the bias requires analytics leads to quantify as much as possible.
This gives data and suggestions the appropriate weight and can help keep
the conversation on track. Data will not be persuasive when it or its lessons
are left in the abstract.
Bias reduction requires competence and confidence. These are perhaps best
achieved through small successes and a carefully crafted team that addresses
data and CLV from its very core.
Cross-Sell, Up-Sell Focus
The cross-sell and up-sell are major factors in customer lifetime value, but
its not just for these. Its also about looking to profile the customer from a risk
perspective. Theres a need to profile a person with data, credit history and
other information. We can use claims and fraud perspectives to bring in the
holistic view of the customer, and thats valuable, said Srinivasa.
The holistic customer view is a best practice for developing models and strategies in multiple realms of analytics. Where CLV starts to differ is its approach
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Companies should act as risk engineers and advisors to their customers. Profile them, understand their lifestyle and business needs, and suggest products
and services that actually help them as opposed to just helping insurers sell
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more products. This approach should lead to high lead conversion and customer retention rates. said Mourad.
Looking outside of the insurance industry may provide some key tips for
handling personalization without becoming creepy. A common best practice
is to simply ask customers more questions and give them more options in
terms of opt-outs and preferences. Establishing a preference center that covers marketing message frequency and avenue goes a long way to improving
relationships.
This type of build-out, alongside other systems to manage customers as they
move through the product lifecycle is an essential part of developing a business unit that can properly hone and address CLV.
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tracking system that draws upon data from customer interactions and updates over time when combined as part of customer lifetime value measurements. The models we are building today need to evolve into self-learning
systems that update instantly with each new interaction, said Arora.
From a sales point of view, analytics facilitate data mining to segment customers, match personal or business risk needs with the right services, at the
right time. Everyone talks about Big Data, but thats yesterdays news. Companies want data, and need it, right now! Customers behavior changes from
day-to-day. We need to monitor that, adjust, and tweak along the way using
event-triggered analytical capabilities, said Mourad.
That tweaking will not come through traditional channels in either data modeling or location. The next balancing act to observe is about the nature of data
itself and its sources in particular.
Datas Part and Location
Developing and adjusting the models for CLV takes powerful systems that can
integrate with a broad spectrum of tools and data sources. Customer lifetime
value analysis, for many, draws upon all other existing data sets and a variety
of third-party information that can bolster its efficacy.
While other analytics platforms can be niche and siloed for data processing,
CLV requires an open approach to pull in relevant information from all disparate systems. On top of that, the CLV platform must also allow for data governance and cleanup before processing. The goal is always to work with model-ready data, but organizations are consistently finding that they must do
some cleanup, whether theyre working with internal or external data sources.
Data itself must play a neutral role in company operations for it to lend analytics any credence. Starting a project with a stated goal of proving or disproving
something inherently makes the system less objective. Losing objectivity is a
prime way that models degrade and become less accurate.
Accuracy also depends on information sources. The proper mix of internal
and external data is up for debate. Some of our experts are focusing on their
existing data to manage CLV, while others say that the largest increase in data
for proper CLV measurement must come from outside of the organization.
Insurers must determine how to balance their own data that may have fewer
updates and external data, which is ultimately available to all of their competitors as well.
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We use a mixture data and have access to a lot of third-party sources. There
are individual insurance data, company data, and other information thats
legally available, Srinivasa said. Our goal is to use a lot of external data, and
we would never want to slow that down, but we would also like to use some
of the secret sauce with our internal data thats not available to competitors to
provide a unique value to the customer.
If you want to use text mining such as underwriting, claims adjuster or
customer service notes or any relevant text data we need better systems to
find that useful nugget. We need something that understands the insurance
jargon and properly identifies useful information from the organic text capturing practices across insurance operations, said Arora.
Does Social Media Have a Role?
Social represents a promising place for expansion, but it still struggles with
some adoption hurdles around quality, veracity, and processing.
Social mining will give us a lift in our models. Theres also some learning that
will go with text mining. It provides a way to improve our predictive models,
but must be a slow and well-thought application to be done correctly so it
can be used in enterprise-wide models, said Arora.
And as with many other industries, social media comes with a variety of caveats.
The amount of external data is also huge. The problem is determining how
good that external data is. When youre looking at external data, quality
matters. Without quality, its no good to you, and you have to determine this
before using it, noted Srinivasa.
Social media will likely be part of an analytics future for CLV because of its
accessibility and sheer volume. It can serve as a starting point for a continual
monitoring of customer information and it provides the insurer with a platform to start the conversation. Public social media posts are a place where the
customer has signified that theyre willing to provide information.
The starting point should be external data if you really want to get serious
about analytics. This should be coupled with internal data but most insurers really have a few basic data points about customers because they only
interact with them two to three times per year. Compare this level of customer interaction to that of Facebook, Google, or even ones local supermarket.
We should aspire to follow the customers life journey, when she checks in at
a new location for example and use event-triggered analytics to notify her
about a risk profile change and then suggest ways to mitigate it through the
use of insurance, said Mourad.
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These types of nanosecond level systems exist for major service providers, but
are they possible in insurance? In many areas, real-time analytics are in big
demand. While this hasnt reached CLV, it will soon start to bleed over, according to our experts.
The problem is cost not the capability. We can get it, but we have to afford it.
It becomes a question of whats important and what we can live without, cautioned Srinivasa. There are many services that can provide instant, real-time
options, but we also dont need it for each insurance vertical. We have to be
smart and know when we dont need the Cadillac solution, but still get the
services we need.
Feedback Loops and Starting Points
Tackling CLV requires a strong buy-in from executive leadership, and that
means a foundation of proper analytics and proven results before the conversation can begin. For such an in-depth process, many in leadership roles will
want to see analytics wins for short-term and long-term projects.
That necessitates a slow rollout for CLV for some industries, but refining
different models with varying feedback loops ultimately makes CLV analytics
stronger. The key is to balance wins for buy-in and understanding of value for
business cases with different return timeframes.
Unless you have a lot of historical data and youre just going to clean that,
analytics and CLV processing does take at least a year, sometimes up to three
years, for your tests. Is that a burden? Certainly. But thats also why predictive
analytics is playing a larger role. Were able to provide some guidance about
what the future will look like, said Srinivasa.
Some models, such as demand models, have a very quick feedback loop.
Insurers can quickly crunch the numbers on how well a new product launch
is faring in relation to how the issue rate has improved or declined. These
present a good place to start when developing buy-in, but CLV also requires a
foundation in longer-term projects.
Industry experts suggest looking to areas such as retention that have immediate and longer-term loops. Tracking both can help insurers refine models
to address both price increases at renewal and observe trends that happen
during the year that may be related to policy loss at non-renewal times.
It can be a burden in the sense that it takes longer to fine tune models and
make adjustments, but technologies have evolved and they can help insurers
reduce many of these cycles.
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Customer lifetime value is among the most complex modeling tasks, chiefly
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because of its reliance upon data from other modeling, which often necessitates that systems have at least some level of in-house development. The
debate of whether to build or to buy is multifaceted and sometimes becomes
a choice of when to develop in-house in order to foster growth in a particular
skill or competency.
The complexity of the decision typically makes the mix-and-match approach
viewed as a best practice, especially in growing departments. This allows
companies to build and buy based on usage, and then expand models based
on what works best in data exploration and staging.
It behooves us to have multiple tools in our toolbox. Having a mix of services
in our toolkit allows us to use the best in each area. From model to model and
problem to problem, we can best approach the need with this mix. Have you
ever fixed a car with many problems with one tool? Our business is like that,
said Arora.
Theres no single technology. Its always a set of technologies that we need
to work to integrate and customize based on our needs. We have to provide
a level of support and internal development, noted Srinivasa. For customer
lifetime values we are already seeing some tools to look at risk and add these
options into broader systems.
There is also no single approach that can guarantee success, but modern analytics are slowly turning to reach industry and niche needs, so the landscape
may change dramatically and very quickly as outside companies realize how
much money is to be made by addressing insurances fertile grounds.
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MOVING FORWARD
Hurdles to CLV Analytics
The customer should be at the heart of everything we do. If you let this principle guide your behavior, youre likely to see your customer lifetime value increase in a way that is higher than what youve ever expected, said Mourad. This
mindset, however, is not as prevalent as it should be and needs to start from the
top. Customer-centricity is just isnt present in enough corporate cultures.
Unfortunately, there are points in time where policies and projects arent
ready to be customer-centric because there is not enough data available at
present. In these circumstances, insurers must turn to strong leadership to
steer the course of action. A business strategy is needed to make the business
change, and then modeling and analysis can be applied. This leadership also
often dictates the hiring process when it is time to expand.
The Talent pool will always be a challenge. If youre looking to expand over
the next three years, it may become even more of a challenge. Most insurers
plan to grow their staff and that means more competition for these types of
scientists, noted Arora. The challenge grows because very few people have
CLV in their skillset profiles. A lot of predictive modelers have an IT skillset or
parallel industry knowledge, but very few have insurance domain knowledge
and a predictive modeling skillset.
One point our experts touched on was the potential for a role between data
scientists and insurance companies taking part in the education process. Other sectors, especially manufacturing, have seen improvements in the future
workforce by partnering with universities and colleges to guide programs.
Guidance and partnerships allow degree programs to focus on the right skillset
and theyve been successfully applied on varying degrees of skill and intensity.
Having the insurance domain knowledge plus data science skills is a very
strong combination. Its going to be hard to find that in the next couple of
years, said Arora. The challenge will remain for the P&C insurance industry:
how do we bring the business perspective to these data scientist graduates?
Final Thoughts
To close this report and help spur the industry toward understanding and
adopting a customer lifetime value approach, were turning over the spotlight
to our experts.
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These salient points and specific takeaways are designed to help you understand company structure, client perspectives, and expected industry challenges as you look to implement CLV models and create company mindshare for
your data-driven workforce.
The biggest challenge that I have seen is that there are very few vendors
who are creating high-quality, insurance-domain trained platforms with wider
predictive modeling capabilities. Those who create these platforms are using
limited modeling methodologies or require expensive integration and specialized knowledge. Having stronger insurance-mainframe products that are endto-end predictive analytics products and facilitate seamless integration
with the policy and claims operational systems is one area that needs a lot
of attention. There are some efforts but it will likely be five years before we see
more than just a few products mature, said Arora.
Analytics and CLV systems must be seen as a business initiative and not an IT
initiative. As an insurer, you are going to struggle unless you have a focused
team and can show how analytics and customer lifetime value is a core business
benefit. Companies who have a lot of historical data are doing well and that
should be a sign to others to invest. Its going to be difficult for some to catch
up, but the last thing you want is to become another Blockbuster, said Srinivasa.
Dont focus internally, focus externally, and start with the customer. If you
really focus on solving the customers problems by offering them solutions
that respond to their lifestyle and business needs, then you have a higher
probability of achieving greater product density, better profitability, higher
customer satisfaction, and retention. At the end of the day, its the customer
who decides whether or not your company succeeds, said Mourad.
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