Latest Sigma report from Swiss Re focuses on how P&C insurers should use advanced analytics to find profitable growth
Advanced analytics could be the key to unlocking growth for commercial lines insurers, according to Swiss Re.
Commercial lines can catch up with personal lines, which currently use analytics more extensively, through exploiting the rapid explosion in the number and breadth of structured and unstructured data sources, according to the reinsurer’s latest Sigma report.
Insurers can grow and optimise their existing portfolios, as well as becoming more efficient, by using advanced analytics that combine data science, extensive risk knowledge and industry expertise, emphasised Swiss Re.
Insurers can target at least a 2-5% improvement in loss ratios under real trading conditions with use of advanced analytics, the reinsurer suggested.
Past successes that focused on improving expense ratios have catalysed new investment with pilots by insurers showing meaningful improvement in loss ratios, as insurers gain better visibility into underlying loss drivers, noted the study.
True potential will only be realised through co-ordinated efforts between developers and users, although expectation of success in all projects could limit adoption and constrain a virtuous circle of trial and improvement, according to Swiss Re.
“Most insurers aim for a success rate of one-third in operationalising pilots,” said Daniel Knüsli, Swiss Re’s head of property and casualty (P&C) Analytics, P&C Solutions.
“Too high a success rate may mean that the use cases are not challenging enough,” said Knüsli.
Swiss Re listed some typical challenges to success in advanced analytics, including legacy systems, traditional mindsets, and scarce talent at the “intersection of data science, risk knowledge and technology”.
Despite this, the Swiss Re Institute expects spending on data and analytics to rise within static IT budgets, as more insurers complete core systems updates over the coming years and seek out differentiating capabilities.
Advanced analytics should be considered from the perspective of business capabilities rather than technologies, the reinsurer urged.
These include how to enable growth by using analytics to achieve an in-depth understanding of new market opportunities and new risk pools; how to better comprehend and influence customers; how to gain insights on risk accumulation and portfolio steering through linking existing portfolios with orthogonal external datasets; and how to improve efficiency by automating manual and repetitive tasks that take up valuable time for underwriters and claims managers.
Advanced analytics pilots across several lines of business do indicate healthy loss ratio improvements, Swiss Re said, but for various reasons, results in real-time trading conditions may vary. All told, most insurers seem to be targeting around 2-5% improvement in loss ratios under real trading conditions, according to Swiss Re.
“The time taken to implement P&C solutions projects depends on the lines of business and project objective, but several weeks is the minimum time for rapid deployments,” said Eric Schuh, global head of P&C Solutions at Swiss Re.
“Wider business integration and extracting larger scale efficiencies can take longer, P&C Analytics, part of the P&C Solutions suite, can also integrate other solutions into its projects for added client benefits,” Schuh added.
The Swiss Re study cited examples across major commercial P&C lines.
In commercial property, insurers are using data to auto-fill underwriting criteria for new business and renewals and moving towards virtual inspection platforms, Swiss Re noted.
Data about location and occupancy can be modelled to produce risk scores that enable underwriters to base risk selection and price on market-wide experience, the reinsurer said.
“The ability to gain useful predictive insights from ever-increasing amounts of data is challenging. There needs to be more investment of time and resources on data curation,” said says Daniel Ryan, head of insurance risk research at the Swiss Re Institute.
“Many new data sources are not created for insurance, and owners of the data may neither understand insurance nor what needs to be done to make the data usable for insurers,” said Ryan.
Marine insurers can now use detailed behavioural and situational data on over 100,000 vessels to identify risky behaviour and monitor risk concentration, Swiss Re noted, opening the path towards “pushing” the insured to improved preventative measures (see screen grab below).
Making the investment case
Successful implementations of analytics projects start with insurers asking the right questions on value propositions and data sources, Swiss Re emphasised.
Questions cited include: how to identify areas where analytics generate tangible value; how to build a holistic data strategy; and what are the success criteria, for example return on investment and time horizon?
One useful framework cited to determine the value of projects is to evaluate them across desirability, feasibility and viability.
Insurers should focus initially on areas where there is high potential on all three fronts, Swiss Re suggested.
Knüsli added: “We continue to see demand for P&C Analytics, which is part of Swiss Re’s P&C Solutions suite, to provide tangible data-driven business insights that help our clients grow their business, increase their profitability and enhance their efficiency.”