Business intelligence and data analytics within lloyd’s of LondonAn investigation into the current state of the market, the appetite for Business Intelligence and

Analytics and the effect of analytics on competitive advantage

About the Author

Matthew Robinson is a MSc student of Management and Entrepreneurship at the University of Sussex. Having previously worked in the insurance industry, he was interested in investigating the effect business intelligence and analytics has on competitive advantage in an industry based on the ability to turn raw data into information and knowledge. Lloyd’s of London was chosen as the final focus of the study due to the perception of its slower uptake of analytical technologies in comparison to other areas of insurance. He can be reached at robmj@gmx.com and https://www.linkedin.com/in/matthew-robinson-b6370652

acknowledgements

Special thanks must go to the participants who so kindly gave their time and insights through interviews and questionnaire responses, without them this study would not have been possible.

Sponsors

This study was sponsored by Giroux, who specialise in providing Business Intelligence and Advanced Analytics solutions to the London insurance market through bespoke data warehouse design and deployment. Further to this, Giroux is one of the UK’s leading MicroStrategy partners, the world’s foremost pure-play BI software provider, helping clients gain more rapid returns on their BI investment. For further information on how Giroux can help your business through the power of analytics please do not hesitate to contact the Managing Director, Eric Giroux at eric@giroux.co.uk.

Business Intelligence and Analytics

“the use of software to examine large amounts of data to help uncover hidden patterns, correlations or other insights to help with business decisions. Common data analytical software includes Tableau, Hadoop and MicroStrategy offering services such as advanced analytics, data warehousing, big data and dashboard visualisations”

IntroductionBusiness Intelligence and Analytics (BI&A) has been a growing trend amongst companies around the world for decades now. However, for syndicates operating within Lloyd’s of L o n d o n , w h o s e b u s i n e s s r e l i e s predominantly on the quality and quantity of information and data available, the uptake has b e e n surprisingly low thus far. The overall aim of this study was therefore to investigate whether the use of BI&A has an effect on competitive advantage within Lloyd’s.

The study used a three stage approach to investigate the effect Business Intelligence and Analytics has on competitive advantage w i t h i n L l o y d ’s o f London.

1

2

Initial interviews with Health, Property, Motor, Reinsurance and Lloyd’s syndicates to assess the current state of Business Intelligence and Analytics in the UK insurance market.

Questionnaire circulated to underwriters and actuaries at 50 Lloyd’s syndicates, of which 25 individual syndicates responded.

3 Final interviews with underwriters, actuaries and senior management members of six syndicates of varying size.

Key findings from the initial interviews

• Large variance in the use of Business Intelligence and Analytics between different lines of insurance.

• Motor insurance has been using analytics extensively for 20 to 30 years.

“we are the kings of data analytics” - CEO, Motor Insurer

• Property, Health, Reinsurance and large segments of the U.S. market also have begun to implement analytics throughout their business

Lloyd’s of London syndicates were found to be implementing analytics much less than other lines of insurance and several key findings are highlighted below:

Lloyd’s of London

Structure of the market

• Fragmented• Many players competing• More capital flowing into the market than

ever

Current usage of analytics

• Large variances• Some larger players are beginning to

deploy analytics• Smaller players more likely to rely solely

on underwriting judgement

Sources of competitive advantage

• Relationships and reputation• Focus on being particularly good at three

or four things• Having a diverse product range

How analytics effects competitive advantage

• Avoid unnecessary claims• Real-time analysis of risk portfolios• Helping to set the right price• Finding profitable segments of the market

“In the past, the discipline of storing data hasn’t been very good, I think the whole market is moving to actually getting better at storing data and therefore analysing that data”

- Senior Actuary, Large Syndicate

Barriers to the uptake of analytics

• Lloyd’s is quite old-fashioned in its ways• Risks are high value and low volume• Hard to demonstrate the value of data

without the results• A reliance on data from external sources

Underwriter

Actuary

Executive

Other

48%

35%

13%

3%

Large

Medium

Small

45%

27%

27%

Respondents Position

Syndicate Size

Based on 25 survey respondents and 15 interviews

key Findings from the survey and interviews

Between June and August 2016, a series of interviews were conducted in conjunction with a

questionnaire, circulated to 50 Lloyd’s syndicates. To attain a balanced and overall view of the

use of Business Intelligence and Analytics in Lloyd’s both actuaries and underwriters were

chosen and responses were gathered from syndicates of varying size.

0% 5% 10% 15% 20% 25% 30% 35%

BusinessDecisions

RiskSelections

ExposureManagement

NotUtilised

Pricing

Compliance

AvoidMistakes

Flexibility

RoleofDataAnalyticsinCompetitiveAdvantage

0 1 2 3 4 5 6 7 8

People(ExpertiseandRecruitment)

Information/Analytics

Relationships/Contacts

Reputation

Innovation

Leadership/Team Work

LongTermVision/Strategy

ClaimsHandling

SmallSyndicate LargeSyndicate

Top Three Skills, Resources and Capabilities that Drive Success within lloyd’s of London

From this, as expected, Lloyd’s is very much still a “people” business with respondents likely to state People, Relationships and Contacts as a key skill. Note the discrepancy in the view on “Information/Analytics” between small and large syndicates.

Number of respondents

The role of data analytics in competitive advantage

Percentage of respondents

When asked how BI&A affects competitive advantage, syndicates clearly felt that better

business decisions and better risk selection are two key areas BI&A can lead to competitive

advantage.

“It has the potential for competitive advantage and giving us greater insight into the business”

- Senior Actuary, Large Syndicate

Source of your competitor’s competitive advantage

Large syndicate“the larger syndicates are going to have the data behind them and will be able to devote more resource to big data”

“being flexible, nimble and making decisions as quickly as possible”small syndicate

0% 5% 10% 15% 20% 25% 30%

Data

Size

Diversification

Scale

Pricing

Resource

Relationship

Capacity

CompetitorsCA

Percentage of respondents

From these responses it is clear that many syndicates are wary of their competitors’ capabilities when it comes to having better data. This fear of others having superior data is a tell-tale sign of the potential for analytics. Further to this, size, scale and diversification were also stated as sources of competitive advantage and analytics can be used to augment each of these as demonstrated below:

Diversification Size Scale

Analytics can help identify profitable segments of the market, support the decision to launch new products as well as provide support to business decisions and new strategies.

Analytics allows syndicates to p r o v i d e u p - t o - t h e - d a t e information regarding al l aspects of their book to c a p a c i t y p r o v i d e r s , establishing greater trust be tween synd i ca te and provider, ultimately resulting in greater capacity granted.

As with both diversification and size, analytics facilitates the establishment of profitable new markets and products as well as access to more capital resulting in increases in scale

Priority of Analytics for your Company rated out of five

0

1

2

3

4

5

6

0 1 2 3 4 5 6 7 8 9

Market share (%)

Rating out of five

When questioned on the priority of Business Intelligence and Analytics, there is an apparent increase in importance as market share increases. It is clear that the larger companies are beginning to value analytics more as initiatives begin to come online, demonstrating the value of examining the data. Some smaller players value analytics extremely highly and they are likely attempting to use greater analytical insights as a leverage from which to gain competitive advantage. Four factors were discovered as essential for the successful deployment of Business Intelligence and Analytics amongst Lloyd’s insurers and it is likely these smaller player already have several or all of these factors in place. These factors are demonstrated in further detail later in the paper.

Large syndicate

“we have been able to invest well and I think that the data is to become valuable now”

Chief Actuary, Large Syndicate

“everyone wants that competitive advantage and if you are not doing it [data analytics] then you are effectively going to be selected against”

Actuary, Large Syndicate

small syndicate

“we are always going to be beholden to what data others are prepared to give us”

Senior Actuary, Small Syndicate

“if the data were there it would be valued at 5/5, in reality it is now 1/5”

Actuary, Small Syndicate

0

1

2

3

4

5

6

0 1 2 3 4 5 6 7 8 9

Use of Data Analytics in comparison to the industry leader rated out of five

Rating out of five

Market Share (%)

Interestingly, no syndicate believes that they are particularly good at analytics, despite many mentioning data as a source of their competitor’s competitive advantage. The market is currently at a turning point and syndicates, operating in a so called ‘soft market’, will need to turn to analytics in order to write the best and most profitable business they can. Over the past five years, larger players, with more resources behind them have begun to invest and deploy analytical initiatives sporadically, while the majority of smaller players are yet to invest significantly. From the interviews it appears that the larger syndicates are finally beginning to see the results of this initial investment, helping to highlight the fact that gains in performance and competitive advantage may take several years to

BusinessDecisions43%

RiskSelection28%

ExposureManagement

29%

Advantages of business intelligence and analytics to Lloyd’s syndicates

materialise. Following the study I believe it to be critical for syndicates, both large and small, to start deploying BI&A initiatives if they have yet to do so. This must start with a conscious effort of collecting and organising claim and premium data from the entire company. Once enough data has been collected, analysis will begin to reveal hidden trends and patterns allowing better business decisions, risk selections and exposure management.

“I would be very uncomfortable

sitting here saying we have got two

actuaries, we haven’t really looked

at evaluating the models this year,

we are not really looking for

sources of data but we will see how

we get on. That would worry me

a lot.”

Director Of Underwriting

medium syndicate

Extent The use of Business intelligence and analytics can give competitive advantage in the medium term

rated out of five

0

1

2

3

4

5

6

0 1 2 3 4 5 6 7 8 9

Market Share (%)

From these responses it appears that the jury is still out on the benefit of analytics for some companies and individuals. With all the press and literature regarding analytics some lines of business are still yet to fully appreciate the potential analytics holds for them and their company.

From the interviews it is apparent that there is some resistance to analytics from underwriters not wanting to be told how and what to write. However, it must be stated that BI&A is only ever intended to support decisions rather than dictate them and it can be a powerful tool when deployed in conjunction with existing underwriting intuition.

A plethora of different industries have begun BI&A initiatives in the past decade with great success and Lloyd’s of London should be no different. With such a wealth of diverse and historical data, insights may be hiding around every corner. As a result of this study I would say the time is right for syndicates to begin reviewing the current analytical

technologies that they have in place and start seriously considering implementing and deploying analytics at a market leading level.

“I think if the smaller syndicates can embrace the analytics, it will give them a good chance to

increase their size. I can’t see how else they would do that otherwise, other than just chancing it and getting lucky”

Senior Actuary, Large Syndicate

0-1%

24

Market share

Number of Syndicates

1-2%

18

2-4%

6

4-7%

9

On the following page are the four key factors for the successful deployment of Business Intelligence and Analytics that were theorised in the paper. All, or most, of these factors are required before gains from BI&A will begin to appear.

FOUR KEY FACTORS FOR THE SUCCESSFUL DEPLOYMENT OF BUSINESS INTELLIGENCE

AND ANALYTICS

Quality of information is essential and in the case of

Lloyd’s syndicates, the number of years of data is also key.

Quality of the user is also important and within syndicates

this normally stems from the importance and the number of actuaries.

The extent to which the senior management value and

promote the use of analytics, also known as Business Intelligence and Analytics Governance is another key factor.

The willingness and ability of underwriters in combining analytics with intuition as well as crucially maintaining client and broker relations.

Questions syndicates must ask themselves

Recommendations for Lloyd’s Syndicates

• Are we looking at all of our data?

• Are we analysing our unstructured data as best we can to extract meaningful and useful insights?

• Do we currently have the right tools in place to help us analyse our data fully?

• Do all of our employees see the potential of data equally?

• Do our insights get shared and acted upon quickly within the company?

• Do our actuarial and underwriting teams work closely together in order to combine intuition with analytical techniques to ensure the best decisions are made?

As a result of the study on the use of Business Intelligence and Analytics within Lloyd’s of London it is clear a massive opportunity has presented itself. The conditions are ideal for investment in analytical technologies for two reasons.

1. The market is awash with capital2. Prices are historically low, meaning

syndicates are having to write better and better business to avoid significant losses.

In periods of financial uncertainty companies are more likely to increase investment in analytics and I believe that this will be the case for Lloyd’s in the near future.

The study has helped to uncover several prominent BI&A trends within Lloyd’s and highlighted the current views and appetites for analytics amongst a variety of syndicates. This, combined with the study’s four necessary factors for the successful deployment of analytical technologies, will hopefully encourage syndicates to begin investing further in analytical technologies.

Giroux is a well placed partner for syndicates looking to establish the primary key factor - quality of information.

Syndicates investing in Giroux’s data warehouse and MicroStrategy programme will have the potential to quickly develop coherent and organised databases. From this they will be able to begin extracting meaningful emergent patterns and trends, helping write the best and most profitable business as possible.

In a nutshell, the Lloyd's market is finally shaking off its shackles of tradition and it is waking up to the fact that the future of the market is already contained within the very heart of the business itself - data.

http://giroux.co.uk