The use of analytics among property & casualty insurers hasslowly evolved from strictly a risk-centric approach to business totoday include a focus on customer-centric data, according to MarkBreading, a partner in the research and consulting firm StrategyMeets Action (SMA) and the author of a study on the subject: Dataand Analytics in Insurance: Property and Casualty Plans andPriorities.

“Analytics is the basis for competitive advantage going forward;understanding your data, getting insight, and acting upon it,” hesays.

Breading reports he was conducting a roundtable recently withsome insurers and the topic was the customer experience.

“We were talking about customer analytics and everybody agreedthere was a time in the mid-90s when insurers did almost noanalysis of customers,” he says. “Most insurers didn't even havemarketing departments back then.”

Over the last 15 years that approach to serving customers haschanged greatly and today the goal of nearly every insurer is to bemore customer-centric.

“The analytics have come along with that approach,” saysBreading. “Insurers are trying to be more sophisticated in the waythey do customer segmentation, the way they understand customerneeds and use that knowledge to design products, and the way theyserve customers.”

Analytics is different from most technology used in corporateAmerica today because many business units have acquired these toolson their own, without the intervention of their IT departments.Breading reports 47 percent of those surveyed indicate thatbusiness units are spending an amount equal to or greater than whatis being spent by IT.

“Whether it's the actuarial department or the claims unit,analytics and business intelligence are areas where there hasalways been a fair amount of spending outside IT,” says Breading.“They have gone out and bought tools to try to understand theirbusiness a bit more. They never wanted to wait for IT to buildcustom solutions for them.”

Breading believes this has created a dichotomy for insurers, wholook for strong governance and having their technology investmentsmanaged by IT.

“It's good to have that governance so that the IT departmentunderstands the budget and all the technology investment across thecompany,” he says “There's a downside because that can inhibitcreativity if you are funneling everything through IT.”

The investment patterns for analytics are pretty similar betweenpersonal lines and commercial lines, according to Breading, withone area of difference: There's more activity around productdevelopment on the personal lines side.

“The reason is you are usually talking about higher volumes ofdata for customers, there is more external data available to studycustomers, and the whole science around customer segmentation andunderstanding customer behavior is more mature for aconsumer/retail kind of business than it is for any commercial typeof business,” says Breading. “Personal lines insurers are investingmore for projects for marketing and product development.”

Eventually that might factor in with the surge towardusage-based insurance (UBI), but Breading believes, because ofwhere UBI is in the marketplace right now, there are not manypilots being performed so it is not yet showing up in surveys likethe one he conducted.

Breading is clear on his feelings toward UBI, though.

“My belief is telematics is going to become the killer app forbig data,” he says. “I've talked to some insurers that have UBIprograms in the marketplace and they tell me they have so much datacoming in that there are all kinds of insights to be gained. Butthey're not there yet.

Even though the telematics technology has been around for 15years, Breading feels it is just starting to gain somematurity.

“Insurers are just starting to understand what the data meansfrom sales, pricing, underwriting and claims standpoints,” he says.“How does this affect their business? Most are only looking at afew factors so far, although lots of data points are beingcollected.”

Analytics has always been seen as a good partner for frauddetection within the insurance industry, but Breading adds that thefront end—customer acquisition activities in particular—always getmore investment than the back-end technology, such as claims.

“You can make a compelling case for why insurers should investmore in claims—especially fraud—but when it comes to prioritizationit's always easier for senior management to see the payback ininvesting in a marketing or sales effort or a new product asopposed to improving claims deficiencies or addressing fraud,” hesays.

Breading believes the reason for that is the relative level offraud—in terms of its relation to premium dollars—is the same as itwas in 1990: 10 percent. He also maintains there is a belief in theindustry that some fraud is the cost of doing business.

“Most insurers want to keep fraud at that level, but certainlythere are individual insurers that are more aggressive, whetherthat means beefing up SIUs or harnessing analytics, but generallyinsurers focus on the front end of the value chain,” he says.

Breading believes if the vast improvements and investments toaddress fraud over the last 20 years hadn't been done, insurerswould have been further behind.

“If you shave one point off your loss ratio it makes a hugedifference in your bottom line,” he says. “The larger insurers areinvesting significantly, not just fraud, but to better understandtheir claims operation.”