Analytics and big data are taking the business world by storm. These red-hot technology trends are changing how people think about information and processes and creating monumental shifts in business practices nationwide. Already, recent analytical advancements have changed the way people shop for goods, play sports and track data. Within the insurance industry, analytics and big data present an opportunity for organizations to enhance their profitability and gain a competitive edge in today’s increasingly competitive marketplace.
With more and more insurers embracing the power and impact of analytics, 2015 has been dubbed the year of technology-driven transformation industry-wide. Progressive organizations are now incorporating the groundbreaking applications of technology and analytics into their business plans and practices. In fact, insurers are currently adding analytics positions at a rate more than five times faster than overall national employment growth.
As the big data and analytics megatrends continue to influence the insurance industry, business as usual is undergoing a drastic transformation. How is the prevalence of analytics changing the way insurers do business? What does the future hold for analytics in the insurance industry and how can we prepare?
The Growing Impact of Big Data and Analytics
Long considered to be solely an actuarial function, insurance organizations have begun to recognize the immense value and impact that analytics can have on the remainder of their business. As recent as the past 10 to 15 years, insurers have started to embrace the potential offered by these technological advances and are now leveraging data analytics throughout their organizations. More than one-third of all insurers are investing in analytics and big data.
In fact, embracing analytics and big data is quickly becoming non-negotiable for insurance organizations looking to ensure their future successes. According to a study conducted by Ordnance Survey and the Chartered Insurance Institute, 82 percent of insurance professionals now believe that organizations who do not take advantage of these trends will become obsolete and uncompetitive.
Industrywide, analytics is expanding beyond the traditional functional areas of actuarial and IT and is affecting every aspect of the insurance organization: claims, underwriting, sales and marketing, and even customer service. As organizations focus on incorporating analytics into their day-to-day operations, the demand for these skilled professionals is skyrocketing.
In the overall U.S. economy, nearly two million jobs will be created by the end of this year in order to support the increased focus on big data and analytics. By 2017, it is predicted that the total number of analytics positions nationwide will have increased by 92 percent. Unsurprisingly, the supply of talent is unable to keep pace with this accelerated demand. By the end of this year, insurance organizations are set to face a deficit of more than 260,000 analytics and big data professionals.
The race is on to harness the power of analytics and achieve a competitive edge in the marketplace. As organizations turn to big data and analytics to build their brands and enhance profitability, the accelerated demand for talent is set to take off.
Preparing for the Digital Future
Already, analytics and big data have made an impact on the insurance industry. Improved efficiency and consistency are being touted as key benefits and are resulting in changing business processes and new products. Insurers are now focusing on how to best leverage the potential applications of analytics and big data throughout their organizations. For example, these advancements are now being utilized to better manage risk, to develop personalized products and to set more appropriate pricing.
Historically, insurance agents were directly connected to their customer bases. As neighbors and fellow community members, they had insights and an understanding of the risks involved in providing these individuals and businesses with insurance. Today, an increased focus on decentralized agencies and the growth of online applications has hindered agents’ ability to accurately assess risk, as they no longer have this first-hand knowledge on which to base decisions. The advent of analytics and its access to a myriad of data is changing that. Agents are now able to pull demographic data, credit activity, ‘business climate’ scores and more in order to build statistical models to better understand and qualify risk.
In addition, insurers are using collected data to adapt products and premiums to the individual customer. Pulling information on demographics, health background and account information is enabling insurance organizations to create more accurate customer habit models and to personalize their products to the individual.
Products such as Progressive’s Snapshot® and Allstate’s Drivewise® are now entering the marketplace and allowing insurers to offer highly personalized policies at a competitive premium based on an individual’s habits and history.
It is clear that analytics and big data are here to stay. These heavy hitting trends are poised to create competitive advantages that will enable insurers to drive their future successes. Embracing and building a cutting-edge strategy that incorporates and harnesses the power of analytics is no longer an option, but rather a requirement. However, as with all technology, these changes are occurring at a breakneck pace. Only those forward-thinking insurers that truly embrace the potential of analytics and big data, and leverage their potential throughout their organizations will find success in the data-driven future.