Download - Top 10 Ways to be Successful Implementing Predictive ...€¦ · 9/16/2009 Top 10 Ways to be Successful Implementing Predictive Modeling in Insurance Commercial Markets 6 A –Analytical

Top 10 Ways to be Successful Implementing Predictive Modeling in Insurance Commercial Markets

October 21, 2009

Underwriting Transformation

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2Top 10 Ways to be Successful Implementing Predictive Modeling in Insurance Commercial Markets9/16/2009

Zurich

Global footprint

– Five continents

– 170+ countries

3rd largest commercial insurer

26 straight quarters of profitability

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What is the Value Proposition related to Predictive Analytics?

Design risk based pricing structure

Focus retention effort on profitable risks

Identify potential premium leakage

Implement straight through processing

Optimize audit procedures, loss control, service offerings

Enhance our ability to detect fraud

Focus sales on profitable niches

Target new business

Identify highly profitable agencies

Reduce application information collection

Increase our Cross-selling / Product Density

Loss Ratio

Improvement

Expense

Reduction

Profitable Growth

Value Drivers: Implementation Methods:

Customer

Centricity

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Purpose

Why are we here?

– Bigger wins

– Broader capabilities

What are the takeaways?

A. Analytical Transformation

B. Business Fundamentals

C. Communicate

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A – Analytical Transformation

Strategic Evolution of a Predictive Analytics Practice

Plant the seeds

Condition the soil

Pull the weeds

Reap what you sow

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Industry Specific Considerations - Commercial insurance

Market Cycles

– Right price for the risk vs. what the market will bear

– Competition

– Marketing insight

Underwriting Actions

– Directional

– Continuum of actions

– Renewal strategies

Frequency vs. Severity

– Frequency based = more stable; more credible

– Severity based = less stable; less credible

Market Forces

– Expense reduction

– Customer expectations

– Loss inflation trend

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Average Complete Market Cycle lasts 5-10 Years

* Rate Response Triggers

1) ISO Rate changes and/or 2) Annual pricing projections

0 1 2 3 4 5 6 7 8 9 10

Market Softening

Average soft market lasts 2 – 6 years

Market Hardening

Average hard market lasts 3 – 4 years

Typical Duration of Rate Response = 21+ Months

(17%-35% of the market cycle)

Filing Process

6 Months

Premium change

15 Months

*Trigger

N Months


Commercial insurance Market Cycles

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Expense Reduction

Current Future

Review of deductibles

Collection of Financials

Calculation of Quick ratios

Providing the Financial Ranking

Lowering costs and Increasing Premiums Audited

Non-

Value

Added

Non-

Value

Added

Putting Predictive Analytics in the Underwriting Process

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Commercial insurance Underwriting Actions

Under-priced

Significant

Rate

Increase

Great

Potential

Credit

Moderate

Potential

Debit

Good

Renew

Risk

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Potential for Adverse Development

64.5%

65.0%

66.0%

67.0%

64.0%

0%

25%

50%

75%

100%

125%

Kee

p all

Lose

bes

t 5%

Lose

bes

t 15%

Lose

bes

t 25%

Var

y Ret

entio

n

Scenario Description

Decile R

ete

nti

on

*

62.0%

63.0%

64.0%

65.0%

66.0%

67.0%

68.0%

Pro

jecte

d L

oss R

ati

o

Best 30%

Middle 50%

Worst 20%

Projected LR

A – Analytical TransformationCommercial insurance - Avoiding Adverse Selection

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Commercial Lines Predictive Modeling, Thomas R. Bayley, Emphasis magazine


Commercial insurance – Frequency vs. Severity

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Discover unexpected insights

– customer segments

– products

– processes and workflows

Reuse model output

– refine segmentation

– one or more models working together

A – Analytical TransformationReuse insight where you can

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Level 6

Level 5

Level 4

Level 3

Level 2

Level 1

En

terp

rise S

trate

gy

Peo

ple

Data

Mo

deli

ng

To

ols

Bu

sin

ess P

rocesses

Resu

lts M

easu

rem

en

t

Predictive Product Cross Sell Capabilities

Straight Through Processing Enabled by Analytics

Reuse of Data and Output Tools for Other Models

Alignment with Rate Monitoring

Creation of an Analytics Strategic Roadmap

Tactical Solution Development

Value Generation

runs in tandem with

Capabilities Maturity

which runs in tandem with

Building Block Development

Bu

ildin

g B

locks

Ca

pa

bili

tie

sB – Business Fundamentals

Capabilities Maturity

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To achieve the goal of developing sustainable competitive advantage through profitable growth, the model must be fully

integrated across the organization.

Each piece of the puzzle must be enabled in order for the full benefits to be achieved.

Internal and External Communication

Roles and Responsibilities

Performance Management

Training People

Applications

Architecture

Interfaces

Infrastructure

Technology Product Management

Underwriting Processes

Customer Services

Marketing & Distribution

Data Management

Processes

Change Management

Geography Alignment & Structure

Agency Integration

Organization

B – Business Fundamentals

Implementation Overview

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Data

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Data

Cleansing / reconciling bad data

elements is time consuming

Multiple data sources required

Commercial lines

– Regulation

– Legacy systems

Data Stewardship – savvy leadership on

what the data means

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IT Impact

Predictive tools bump

into legacy systems

which can be costly

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Scope Control

+/- 300% +/- 100% +/- 40% +/- 10%

ConceptData gathering

Build model Build & Deploy

Start Finish

+/- 10%

+/- 10%

+/- 10%+/- 10%

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The Last Mile

―…the most important activity for the leadership team is to keep analytical initiatives on track and to

monitor outcomes to ensure that anticipated benefits are achieved.‖Competing on Analytics, Thomas Davenport, Harvard School of Business, 2007.

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Enhancements

Tools

Models

Target

Segment

B – Business FundamentalsLeverage the Capabilities

$$

$ $Value

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Gauging Success

Keep it simple - track and monitor team outcome and model success

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Renewal Price Change & Loss Ratio (Retail)

5.20%4.10%3.90%

6.10%4.50%4.60%

9.20%

7.30%6.40%

30.08%

29.80%30.50%30.00% 30.44%29.90%

35.30% 32.30%

35.20%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

Q1 Q2 Q3

Month

Pric

e C

han

ge &

LR

Best 3 RPC

Avg 5 RPC

Worst 2 RPC

Best 3 LR

Avg 5 LR

Worst 2 LR


Gauging Success

Line of Business Countrywide—

Pricing, Loss ratio by Decile Bands

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Line of Business Countrywide—Retention Results by Decile Bands

Retention (Retail)

76.00% 75.10%77.00%

74.50%71.80% 70.85%

65.60%63.40% 62.10%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

Q1 Q2 Q3

Month

Rete

nti

on

Perc

en

tag

e

Best 3

Avg 5

Worst 2


Gauging Success

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4. Buy-in

3. Collaboration

2. Cooperation

1. Awareness

C – Communication

Hierarchy of objectives

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C – Communication

It’s a People Thing

Do we have a

common

Understanding?

(Are you sure?)

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Implementation – Standard project stuff…

Stakeholder Analysis

Communication Plan

Status Reports

Operational Use of Analytics – A little different…

What went into this score?

What does it mean?

How do I use it?

C – Communication

Secret Sauce

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C – Communication

Complete the feedback loop – measure model effectiveness

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Top 10 List

A – Analytical Transformation1. Use Innovation and entrepreneurial principles

2. Be thought leaders

3. Reuse insight where you can

B – Business Fundamentals4. Apply project management competencies

5. Control scope – successful bite size chunks

6. Sprint the last mile – implementation is the only thing that counts

7. Measure outcomes against key performance indicators

C - Communicate8. Establish a communication plan upfront

9. Apply change management competencies to overcome adoption challenges

10. Share success

Thank you

zurich.com

Download - Top 10 Ways to be Successful Implementing Predictive ...€¦ · 9/16/2009 Top 10 Ways to be Successful Implementing Predictive Modeling in Insurance Commercial Markets 6 A –Analytical

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