Using business intelligence and optimization to secure the future in the global Insurance market

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IBM Global Business Services Financial Services

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Using business intelligence andoptimization to secure the futurein the global Insurance market



As the gates o recovery inch open, the race to capture market share and mitigate riskcontinues to intensiy – only the most agile Insurers will pull ahead o the competition.

Post-crisis, belts are tighter, regulations are stier and customers are shrewder.

Customer expectations are newly galvanized around trust, transparency and value. In act, 80 percent o consumers rate trust and transparency as critical to their choice o

an Insurer, yet 60 percent o consumers state that they do not currently have that trust.1

New market entrants and new delivery channels are threatening to edge out legacyoerings, as younger investors are considering alternative products such as annuities.

Regulatory controls have become exceedingly more rigorous and demanding – quicklyclimbing to top the list o Insurers (and shareholders) greatest concerns.

To secure the uture, Insurers must close these gaps. They will need to eectively leverageinormation and technology to create customer trust and transparency – speeding competitively priced new product oerings to market in a multi-channel environment,and successully mitigating raud risks. Most Insurers already have much o the

inormation they need to accomplish this, but not yet the analytics and processes tounlock its power.

Winners in the recovery insurance market will balance business intelligence and optimization eorts to ocus on customers and distributors, fnancials, risk and regulatory requirements, and core processes to create growth and savings opportunities,and dierentiate rom the competition. In our work with leading Insurers around the globe, we have implemented winning business analytics optimization strategies that prepare Insurers or long-term success in a changing marketplace.



IBM Global Business Services 3

Profitability Margin

Market Impact/Growth

Agile

Insurer

Agile

Insurer

Societal

Predictive

Insurer

Optimized

Insurer

Optimized

Insurer

Aligned

Insurer

Aligned

Insurer

P&C: 7 pts better combined ratio

Life: 1.5 times higher profit

Best in-class agile insurers

leverage information for:

- better focus on the customer

- transforming processes

- leveraging new business models

Aligned Insurer

Consistent market approaches bymultiple business lines with modestlevel of integration. Business / ITalignment is a desired state tocapture more corporate efficiencies

Optimized Insurer

Ability to embrace and implementholistic strategies leveragingsynergies that will increaseoperational efficiency whileminimizing losses andmaximizing profits.

Agile insurer

Capability to enter new marketssuccessfully, build newdistribution channels and launchnew products quickly. Ability tomonitor and adapt quickly basedon market responses to retain andgrow market share.

Societal Predictive insurer

Creation of new businessmodels based on statistical andanalytical techniques thatpredict future events or behaviorsacross the broader society.

The new agility – Inormation, analytics

and optimizationPressured by industry drivers, Insurers are seeking new models

to capture revenue growth and increased prots. While most

are at the beginning o their journey, the trajectory rom

current state to uture “best in class” position is clear – it is

inextricably linked to how Insurers are organized and equipped

to leverage timely, accurate inormation to ensure inormed

business decisions and actions.

We believe insurers can make progress in terms o market

share and protability by moving in line with the maturity path

we have dened (see Figure 1). However, executives

responding to a recent IBM survey acknowledged that when it

comes to data, they have signicant blind spots – one in three

Fig.1. Insurance Industry Maturity Path

said they requently lack inormation necessary to make critical

decisions. One hal said they did not have access to the

inormation required to do their jobs, or close inormation

gaps to reach business objectives.2

According to a recent study, many Insurers have planned

investments in business intelligence and/or analytics over the

next 12 months. Why are Insurers undertaking these

investments, even in a time o uncertain economic stability? They understand the need or aster, more inormed decision-

making, and the need to ensure and track alignment to

corporate goals. Further, Insurers need to meet tighter

regulatory compliance requirements and manage inormation

better in a real-time, increasingly sel-service environment.



4 Using business intelligence and optimization to secure the uture in the global Insurance market

We believe winning Insurers will ocus investments specically

on putting the customer rst, enabling agents to sell and serve,

increasing transparency and risk control and nally, building

IT-enabled organizations where automation creates eciency

and eeds predictive analytics or the uture.

Putting the customer frst

Due to direct services and new industry entrants with slick business models and lower price points, insurance customers

have more choice than ever beore. They want transparency

and are becoming more demanding in how they interact with

their Insurers, the products they want and the premiums they

are willing to pay.3 This reality rings even more true in

emerging markets – where widespread need and customers’

sophisticated use o online and mobile technology are creating

signicant competition and opportunity.

Pricing strategies are still predominant, but are not sucient

to create long-term value – they may maintain market share,

but at the expense o margins. Industry winners are ocusing on

consumer segmentation, building trusted brands and oering

convenient multi-channel customer access to win new business

The act is that insurance will one day be viewed as one o

many choices – instead o as a must-have product.

At the same time competition is increasing, consumer trust is

at an all time low. So is the ability to predict customer behavior

to identiy new revenue, reduce servicing costs, and reduce risk

– which will make ensuring customer satisaction to build

much needed relationships – near to impossible?

The reality is that most customers may seek interaction and

inormation across several channels, based on their household

demographic. Seamlessness, responsiveness, transparency and

convenience – in addition to saety and air price or value

delivered – translate into customer trust. Post-crisis, trust and

transparency are table stakes or Insurers. Insurers that work to

close the trust gap will tap into new opportunities to create value.

Fig.2. Drivers or Business Intelligence (BI) Investments among Insurers

0 10 20 30 40 50 60 70 80

10.7

50.0

35.7

71.4

39.3

39.3

7.1

25.0

14.3

To better manage a specific operational

process in a more timely fashion

To better align with and track against

corporate strategies and objectives

To ensure regulatory compliance

To speed up and improve theorganization’s decision-making ability

To respond to user needs for data

on a timely basis

To move users toward a self-service

model of information delivery

To share information with customers,

suppliers and partners

To decrease business costs and

improve operational efficiency

To increase the organization’s revenue

Percentage of Respondents

Question “What were the three most signifcant reasons in your organization to invest, i planning to use BI or to consider? Source: Gartner (February 2009)



IBM Global Business Services

Applying business analytics and optimization can help Insurers

acquire a deeper understanding o customer requirements, to

rapidly identiy and adjust price as appropriate, target market

their products to specic demographic segments, and

ultimately increase cross selling. Even with limited historical

data, Insurers can use business intelligence to simulate risk

proles and optimize price-driven demand. All o this

contributes to potentially higher product and service

penetration and a higher retention rate.

Case in point, one o our US Insurance partners was operating

day-to-day on gut-instinct, rather than data-driven decision

making. We helped them launch a customer ocused business

intelligence program to transorm the company’s ability to

improve overall business perormance, and ensure a stronger

customer service experience in order to drive revenue growth.

They now have a roadmap to help them ocus on achieving

value. In addition, they have operationalized business

intelligence through a center o competency and data

governance program responsible or creating and maintaining

consistent, contextual and accurate business data. By linking the

program to the overall improved perormance o the company,

the Insurer drove a measurable cultural change ocused on the

availability and improvement o both corporate inormation and

BI skills and now has ormed mature BI solution development

capabilities to the point o sel-sustainability.

Empowering agents to sell and serve There is a growing need to empower agents to sell and serve

customers more eectively. But the inability to identiy, recruit,

equip, and provide incentives to retain the best agents, as well

as integrate and optimize agent inormation into Insureroperations makes the customer relationship ocus all the more

dicult to sustain.

Business intelligence and optimization eorts can help Insurers

strengthen distributor relationships through modeling and

optimizing agent proles or recruiting, retention, and

compensation o “A Players.” In addition, Insurers can employ

business intelligence eorts to enable success with customers

by automatically identiying potential new segments and

adjusting sales tools, pricing, products, and other attributes to

target the best opportunities to acquire, retain and grow

customer relationships.

We partnered with a U.S. based P&C Insurer experiencing a

dynamic shit in their business – while selling insurance products

through agency owners and independent exclusive agents was

once seen as one o its biggest strengths, changes in consumer

buying habits required the company to enhance its channelstrategy. It became critical or the company to present a single

ace to the customer, regardless o their choice o channel.

Working across enterprise silos, we helped the Insurer develop

a clear multi-channel distribution strategy. By aligning the

culture, technology, metrics, processes and incentives, the

Insurer successully arranged a model that supports the way

their customers want to be serviced. This type o multichannel

approach refects the thinking that 79% o consumers will

commit to a deeper product or service relationship with a

brand ater a satisying experience.4 With this approach the

Insurer exceeded sales targets in year one and customers

started over 2.5M quotes 2009.

Increasing transparency, controlling riskDealing with a growing ocus on regulatory compliance is the

second largest concern o Insurers (52% o responders in a

recent study).5 “Insurance regulation is being re-examined in

the light o the bailout o prominent US insurers, with

international risk management standards likely to emerge.

Eighty-three percent o Insurers expect to increase spending

on risk management activities by more than 10 percent

annually, over the next ve years. The Solvency II guidelinesare already weighing on European Insurers, and the nancial

crisis has resulted in increased regulation across the globe.

Winning insurers are using these events as a burning platorm

in the drive to enhance enterprise control. Investments are

required in underlying data management processes,

inrastructures and capabilities to enable sustainable

transparency. A ocus on nancial and regulatory analytics can

help Insurers signicantly improve risk aversion through



6 Using business intelligence and optimization to secure the uture in the global Insurance market

understanding risk posed by new products, globalization and

regulatory controls. In addition, Insurers can employ business

intelligence to reduce surprises in nancial results and

proactively manage market changes.

External stakeholders demand transparent quantitative

disclosure o all risks and reporting or accounting on air value

principles (IFRS, MCEV and Solvency II). We partnered with

a leading European Insurer to improve the management andcompliance to regulations through a holistic program ocused

on standardized, accurate, auditable and transparent data

management. As a result, enterprise data will be extracted rom

100+ systems, uniormed, enriched and stored to be used in

calculations and accounting.

This proactive approach enabled more awareness and

responsiveness to regulatory actions, better risk aversions

through integrated enterprise risk management, improved

eciency and perormance through shared systems and

processes across nancial services. Today this Insurer benets

rom better knowledge sharing through internal and external

transparency with external partners, and is able to better

respond to market changes. No matter what the regulatory

requirements end up becoming, they will now be prepared to

meet them.

Predicting the uture Today, Insurers must make sense o the unwieldy amount and

dierent types o inormation available in and outside o the

organization. Now many companies are applying analytics and

optimizing the bottom line ocused on consolidated reporting,

cost and expense management, perormance management, and

raud management. But soon early movers will emerge rom

these exercises with strategies that ocus on the top line - using

advanced analytics to pro-actively manage the pipeline,oers and promotions, brand perception, customer care

and eectively sense market twists and turns beore their

competitors.6

The end-goal or many insurers will be the ability to reduce

lost costs and improve customer service with the use o

advanced analytics. Predictive modeling can help Insurers

improve organizational fexibility to react quickly to market

conditions and scale to address customer needs (in the case o

catastrophe or other signicant market change), analyze claims

risk to decrease cost rom losses or improve customer service

based on known indicators. We are starting to see insurers use

predictive modeling to better serve their customers with

“customized products” based on individual wants-and-needs

analysis and to deliver improved medical care management

targeted to “at-risk” groups.

Fig.3. Analytics and optimization areas o ocus over the next 24 months

Pricing and offer strategies•

Branding and reputation management•

Product/services market selection•

Lead generation and pipeline management•

Promotion and offer management•

Logistics and distribution management•

Customersegmentationandproftability•

Demand forecasting and management•

Enterprise goal setting and alignment•

Budgeting and resource allocation•

Reporting and performance measurement•

Cost/expense management•

Career path and succession management•

Fraudandfnancialriskmanagement•

Leadership development•

Channel performance•

Next 24 months top 10

Current top 10

Project scope Tactic

Increase focus

Maintain focus

Re-assess focus



IBM Global Business Services

Healthcare Insurers are leading the way in analytics and risk

management by creating medical management predictive

models. IBM is helping US health insurers use advanced

analytical tools to risk stratiy their member population and

ensure appropriate and preventative care is coordinated and

designed to assure good outcomes. Predictive modeling is

used to identiy “at risk” groups and to risk stratiy them. The

insurer can then match interventional programs with the level

o risk and deliver them consistently and cost-eectively. As anexample, members at risk or coronary artery disease, can

receive education and preventative care in an attempt to avoid a

catastrophic event like a heart attack. These new approaches to

promoting health and delivering care allow members to make

better health and wellness choices and allow the Insurer to

deliver signicant value and avoid subsequent costly health care.

ConclusionFor many Insurers, the ocus o the last ew years has been to

keep pace in a declining market. It now looks like things could

be turning upward. But whether the benets o the recovery

are elt earlier or later than analysts predict, the nancial crisis

has set in motion a “lean years” perspective that global leaders

and consumers won’t yield or some time. Trust has been

threatened. The pressure to gain share in a sharpening market

will not ebb. New regulations loom on the horizon. There will

be no going back to business as usual.

Insurers must solve two key problems in order to secure their

uture: getting meaningul products to market ast and

improving customer service. Their ability to leverage

technology and inormation to drive business intelligence will

be a dening actor in their success. Some insurers will pullaway rom the pack by ocusing on the customer, through

employing a business analytics and optimization lens to drive

value and aligning business with IT to turn out meaningul

products, achieve more transparency, and improve service

eciently.

However, competitive business analytics and optimization

capabilities require deep skills in business intelligence and

inormation management – which most Insurers lack today.

Strong business intelligence capabilities must also be backed by

streamlined data governance processes that pervade the

organization. In addition, Insurers must continue their ocus

on smart streamlining, integration and consolidation across the

organization – and well considered cost take out measures – to

und dierentiating analytics and optimization eorts.

Though the customer must be the ultimate ocus o business

analytics eorts, many insurers are nding that it is increasing

regulatory issues which provide the perect entry or driving

buy-in or a ocused business intelligence eort. These eorts

must top the chie executives’ (CEO, CFO and CIO) agendas

to achieve ull benets. By starting small, generating short-

term proo o concept successes and scaling ast, leaders can be

successul in linking these eorts to their organization’s

strategic business agenda, and catapulting their Insurers to

ront-runner status. For more inormation on pursuing a more

proactive approach to securing your company’s uture, please

contact Lee-Han Tjioe, [email protected].

“The pressure to gain share in a sharpening market will not ebb. New regulations loom on the horizon.There will be no going back tobusiness as usual.”



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IBM Global ServicesRoute 100Somers, NY 10589U.S.A.

Produced in the United States o America June 2010 All Rights Reserved

IBM, the IBM logo and ibm.com are trademarks or registered trademarkso International Business Machines Corporation in the United States, other

countries, or both. I these and other IBM trademarked terms are marked ontheir rst occurrence in this inormation with a trademark symbol (® or ™),these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this inormation was published. Such trademarks may alsobe registered or common law trademarks in other countries. A current list o IBM trademarks is available on the Web at “Copyright and trademark inormation” at ibm.com/legal/copytrade.shtml Other company, productand service names may be trademarks or service marks o others.

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Please Recycle

About the AuthorLee-Han Tjioe is the worldwide Leader o IBM Global

Business Services’ insurance group, currently responsible or

the strategy, solutions and service development or Insurance

industry, as well as client relationships and delivery -- rom a

headquarters in Shanghai, China. He and his team have

developed a number o successul insurance specic solutions

and services.

He has worked or more than 18 years in consulting or

nancial institutions, including as an Asia Pacic practice

leader or PricewaterhouseCoopers in Hong Kong. His

consulting work includes strategic and business process

transormation projects or clients like ING, Aetna, AXA,

Fortis, Aegon, and Achmea. He is a specialist on insurance

companies challenged with the design and successul launch o

online and multi-channel distribution o Insurance products.

Mr. Tjioe graduated with an MBA at the Fuqua School o

Business, Duke University in the United States.

For more inormationibm.com

_____________________________________

1 Bieck, Christian. “Growing trust, transparency and technology: Insurance

customers’ perspectives in a global context.” IBM Global Business Services, in

association with the University of St. Gallen Institute of Insurance. http://www-935.

ibm.com/services/us/index.wss/ibvstudy/gbs/a1030834?cntxt=a1000058

2LaValle, Steve. “Breaking away with business analytics and optimization.”

IBM Institute for Business Value.

3 Ibid

4LaValle, Steve and Brian Scheld. “CRM Done Right: Executive handbook for

realizing the value of CRM.” IBM Global Business Services.

5 IBM Global CIP Study 2009; Full sample n = 2598, Insurance n = 212

6Gartner (February 2009)

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Using business intelligence and optimization to secure the future in the global Insurance market