By Larry Jacobson, senior consultant at FICO
Data matters, but
Making strong, profitable, data-driven decisions presents several hurdles for insurers. Firstly, collecting, verifying, and processing large volumes of data is a huge challenge. There is a plethora of disparate data available that needs to be made sense of before insurers can arrive at a decision.
More data can improve decision-making, but manually filtering through and evaluating lots of data often makes the process more tedious. Too many insurance companies are drowning in data lakes, unable to realise the value of their investments because the focus is on gathering data. Analytics offer a much-needed helping hand for insurers awash in the ocean of big data, allowing actuaries to re-focus on what really matters; claims, pricing, and customer decisions.
Beyond using data to arrive at an optimal decision, recording the decision-making process presents another challenge. Historically, the insurance industry has not tended to manage and record decision logic, thus failing to capture the invaluable resulting intellectual property.
This is a big mistake. The real business value of data lies in the decisions that an organisation makes based on that data, and on the intellectual property gathered as a result of the decision-making process. Insurers need to treat decisions like the valuable assets they are, and store them for future learning to facilitate continuous improvement.
Reaping the rewards of recording decisions
Smart analytics can help insurers deal with these challenges quickly and efficiently. The right analytical tools allow insurers to navigate the vast amount of data available, focus only on the most valuable data in real-time, and make informed, quick, and accurate decisions based on this. They also enable insurers to design a model, test it, execute it, and record the outcome so it can be re-visited as many times as necessary for future cases. This means that the resulting intellectual property is automatically recorded in a way that’s accessible and organised, so it can easily be re-visited as new decisions need to be made.
Changes in regulation, such as the 2013 auto-insurance Gender Directive, present further hurdles for insurers. In many industries, regulators expect companies to be able to easily prove that they are adhering to the latest regulation changes.
This often means explaining the process behind every decision and providing relevant documentation. With technology that automatically records the steps taken to arrive at a decision, it is quick and simple to show regulators how each decision was made and the data it was based on. Get this right, and transparency and compliance take care of themselves.
FICO partner, Infosistema, recently created the first reusable Configuration Packages for the insurance industry using FICO’s Strategy Director to help insurance firms implement sophisticated decision-making solutions in record time.
Technology like this is invaluable for future commercial success, especially in an industry where the reasoning behind decisions is so crucial to the product on sale.
Analytics delivering insurance results
Unlike many firms that are just starting to explore how they can use Big Data to make better decisions, our customers have been doing this successfully for years — in some cases, decades. For example, Aviva Health and VHI Ireland use FICO technology to automate a number of complex process and decision areas and model insurance decisions, both to increase profitability and expand.
Aviva’s customer journey has been significantly improved by allowing analytics to automate much of the claims process, meaning 70% of quotes are handled in a zero-touch manner and cutting claims cycle time from 22 days to under six minutes. VHI renewed their 30-year-old incumbent system with a more agile solution that reduced the cost of handling all claims and enabled more flexible products to be launched by automating decisions embedded in the adjudication process.
While it can be hard not to be distracted by floods of new and potentially useful data, it is important to remember that data is a means to an end, not the end itself. It’s time to bring focus back to what really matters; business decisions.
Focusing on decisions rather than data alone allows businesses to build models that identify all relevant decision inputs - including data, business knowledge, and results of previous decisions - and thus make better decisions
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