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Insurers Not Using "State-of-the-Art" Analytics Face 'Grim Prognosis'

(Posted by Guest Blogger, and Craig's List Devotee, Ian Turvill.)

This week in Florida, Frank J. Coyne, chairman, president and chief executive officer of ISO (formerly, the Insurance Services Office) gave a keynote presentation at ISOTECH, his organization's annual technology conference.  The primary thesis of his presentation was that:

"...breakthroughs in analytics are transforming dynamics in insurance markets [my emphasis added].  Sophisticated insurers able to harness large volumes of high-quality data to drive decisioning all along the value creation chain can look forward to a long and prosperous future. But insurers unable to keep up in the intellectual and technological arms race face a grim prognosis."

I think one of his most interesting statements was:

"A chasm is growing between insurers using state-of-the-art analytics and those who aren't — the “haves” and the “have nots.”  [my emphasis added] Increasingly, the ‘haves’ will be able to write business at the margins they target.  The ‘have nots’ will fall victim to adverse selection, as more sophisticated insurers target the risks apt to prove profitable. And the bar will rise continually as competition drives weaker players from the field.   Today’s ‘haves’ are at risk of becoming tomorrow’s ‘have nots.’

This is certainly something that we have believed for a long time.  James and I have written about this extensively, on this blog, in Fair Isaac's various organs for distributing our thought leadership, and through our organization's general marketing collateral.

So here's what I suggest (certain degree of shameless commerce here):

  • If you are an insurer, and you fear that you may fall into the "have not" category, then you will want to visit a microsite we developed to help insurers measure their decision-making performance, using the concept of Decision Yield that James has talked about so much in the past, and to identify specific initiatives that can drive your firm into the "have" category.
  • If you think you fall into the "have" category, you will want to see my most recent article on insurance in Fair Isaac's ViewPoints online magazine.  Entitled "The 21st Century insurer: A smarter way to beat the competition", it describes how leading insurers can drive their underwriting to the next level - and making sure that they do not suffer the fate of the "have nots".  Specifically, I recommend the adoption of "decision analytics" to take into account a very much broader range of factors when actuaries and underwriters create classes and set prices. 

For the full text of Mr. Coyne's comments, please go here.  If you aren't frightened enough already, you soon will be.

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