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IBM Global Business Services        Financial ServicesWhite PaperUsing business intelligence andoptimization to secure the...
As the gates of recovery inch open, the race to capture market share and mitigate riskcontinues to intensify – only the mo...
IBM Global Business Services    3The new agility – Information, analytics                                            said ...
4    Using business intelligence and optimization to secure the future in the global Insurance marketFig.2. Drivers for Bu...
IBM Global Business Services   5Applying business analytics and optimization can help Insurers        adjusting sales tool...
6   Using business intelligence and optimization to secure the future in the global Insurance marketunderstanding risk pos...
IBM Global Business Services   7Healthcare Insurers are leading the way in analytics and riskmanagement by creating medica...
About the AuthorLee-Han Tjioe is the worldwide Leader of IBM GlobalBusiness Services’ insurance group, currently responsib...
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Using business intelligence and optimization to secure the future in the global Insurance market


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Learn how for many Insurers, the focus of the last few years has been to keep pace in a declining market. Insurers must solve two key problems in order to secure their future: getting meaningful products to market fast and improving customer service.

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

  1. 1. IBM Global Business Services Financial ServicesWhite PaperUsing business intelligence andoptimization to secure the futurein the global Insurance market
  2. 2. As the gates of recovery inch open, the race to capture market share and mitigate riskcontinues to intensify – only the most agile Insurers will pull ahead of the competition.Post-crisis, belts are tighter, regulations are stiffer and customers are shrewder.Customer expectations are newly galvanized around trust, transparency and value.In fact, 80 percent of consumers rate trust and transparency as critical to their choice ofan Insurer, yet 60 percent of consumers state that they do not currently have that trust.1New market entrants and new delivery channels are threatening to edge out legacyofferings, as younger investors are considering alternative products such as annuities.Regulatory controls have become exceedingly more rigorous and demanding – quicklyclimbing to top the list of Insurers (and shareholders) greatest concerns.To secure the future, Insurers must close these gaps. They will need to effectively leverageinformation and technology to create customer trust and transparency – speedingcompetitively priced new product offerings to market in a multi-channel environment,and successfully mitigating fraud risks. Most Insurers already have much of theinformation 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 andoptimization efforts to focus on customers and distributors, financials, risk andregulatory requirements, and core processes to create growth and savings opportunities,and differentiate from the competition. In our work with leading Insurers aroundthe globe, we have implemented winning business analytics optimization strategiesthat prepare Insurers for long-term success in a changing marketplace.
  3. 3. IBM Global Business Services 3The new agility – Information, analytics said they frequently lack information necessary to make criticaland optimization decisions. One half said they did not have access to thePressured by industry drivers, Insurers are seeking new models information required to do their jobs, or close informationto capture revenue growth and increased profits. While most gaps to reach business objectives.2are at the beginning of their journey, the trajectory fromcurrent state to future “best in class” position is clear – it is According to a recent study, many Insurers have plannedinextricably linked to how Insurers are organized and equipped investments in business intelligence and/or analytics over theto leverage timely, accurate information to ensure informed next 12 months. Why are Insurers undertaking thesebusiness decisions and actions. investments, even in a time of uncertain economic stability? They understand the need for faster, more informed decision-We believe insurers can make progress in terms of market making, and the need to ensure and track alignment toshare and profitability by moving in line with the maturity path corporate goals. Further, Insurers need to meet tighterwe have defined (see Figure 1). However, executives regulatory compliance requirements and manage informationresponding to a recent IBM survey acknowledged that when it better in a real-time, increasingly self-service environment.comes to data, they have significant blind spots – one in threeFig.1. Insurance Industry Maturity Path Profitability Margin Societal Agile Predictive Insurer Insurer P&C: 7 pts better combined ratio Life: 1.5 times higher profit Optimized Insurer Best in-class agile insurers leverage information for: - better focus on the customer - transforming processes Aligned - leveraging new business models Insurer Market Impact/Growth Aligned Insurer Optimized Insurer Agile insurer Societal Predictive insurer Consistent market approaches by Ability to embrace and implement Capability to enter new markets Creation of new business multiple business lines with modest holistic strategies leveraging successfully, build new models based on statistical and level of integration. Business / IT synergies that will increase distribution channels and launch analytical techniques that alignment is a desired state to operational efficiency while new products quickly. Ability to predict future events or behaviors capture more corporate efficiencies minimizing losses and monitor and adapt quickly based across the broader society. maximizing profits. on market responses to retain and grow market share.
  4. 4. 4 Using business intelligence and optimization to secure the future in the global Insurance marketFig.2. Drivers for Business Intelligence (BI) Investments among InsurersTo better manage a specific operational 10.7 process in a more timely fashion To better align with and track against 50.0 corporate strategies and objectives To ensure regulatory compliance 35.7 To speed up and improve the 71.4 organization’s decision-making ability To respond to user needs for data on a timely basis 39.3 To move users toward a self-service 39.3 model of information delivery To share information with customers, suppliers and partners 7.1 To decrease business costs and 25.0 improve operational efficiency To increase the organization’s revenue 14.3 0 10 20 30 40 50 60 70 80 Percentage of Respondents Question “What were the three most significant reasons in your organization to invest, if planning to use BI or to consider? Source: Gartner (February 2009)We believe winning Insurers will focus investments specifically but at the expense of margins. Industry winners are focusing onon putting the customer first, enabling agents to sell and serve, consumer segmentation, building trusted brands and offeringincreasing transparency and risk control and finally, building convenient multi-channel customer access to win new business.IT-enabled organizations where automation creates efficiency The fact is that insurance will one day be viewed as one ofand feeds predictive analytics for the future. many choices – instead of as a must-have product.Putting the customer first At the same time competition is increasing, consumer trust isDue to direct services and new industry entrants with slick at an all time low. So is the ability to predict customer behaviorbusiness models and lower price points, insurance customers to identify new revenue, reduce servicing costs, and reduce riskhave more choice than ever before. They want transparency – which will make ensuring customer satisfaction to buildand are becoming more demanding in how they interact with much needed relationships – near to impossible?their Insurers, the products they want and the premiums theyare willing to pay.3 This reality rings even more true in The reality is that most customers may seek interaction andemerging markets – where widespread need and customers’ information across several channels, based on their householdsophisticated use of online and mobile technology are creating demographic. Seamlessness, responsiveness, transparency andsignificant competition and opportunity. convenience – in addition to safety and fair price for value delivered – translate into customer trust. Post-crisis, trust andPricing strategies are still predominant, but are not sufficient transparency are table stakes for Insurers. Insurers that work toto create long-term value – they may maintain market share, close the trust gap will tap into new opportunities to create value.
  5. 5. IBM Global Business Services 5Applying business analytics and optimization can help Insurers adjusting sales tools, pricing, products, and other attributes toacquire a deeper understanding of customer requirements, to target the best opportunities to acquire, retain and growrapidly identify and adjust price as appropriate, target market customer relationships.their products to specific demographic segments, andultimately increase cross selling. Even with limited historical We partnered with a U.S. based P&C Insurer experiencing adata, Insurers can use business intelligence to simulate risk dynamic shift in their business – while selling insurance productsprofiles and optimize price-driven demand. All of this through agency owners and independent exclusive agents wascontributes to potentially higher product and service once seen as one of its biggest strengths, changes in consumerpenetration and a higher retention rate. buying habits required the company to enhance its channel strategy. It became critical for the company to present a singleCase in point, one of our US Insurance partners was operating face to the customer, regardless of their choice of on gut-instinct, rather than data-driven decisionmaking. We helped them launch a customer focused business Working across enterprise silos, we helped the Insurer developintelligence program to transform the company’s ability to a clear multi-channel distribution strategy. By aligning theimprove overall business performance, and ensure a stronger culture, technology, metrics, processes and incentives, thecustomer service experience in order to drive revenue growth. Insurer successfully arranged a model that supports the wayThey now have a roadmap to help them focus on achieving their customers want to be serviced. This type of multichannelvalue. In addition, they have operationalized business approach reflects the thinking that 79% of consumers willintelligence through a center of competency and data commit to a deeper product or service relationship with agovernance program responsible for creating and maintaining brand after a satisfying experience.4 With this approach theconsistent, contextual and accurate business data. By linking the Insurer exceeded sales targets in year one and customersprogram to the overall improved performance of the company, started over 2.5M quotes 2009.the Insurer drove a measurable cultural change focused on theavailability and improvement of both corporate information and Increasing transparency, controlling riskBI skills and now has formed mature BI solution development Dealing with a growing focus on regulatory compliance is thecapabilities to the point of self-sustainability. second largest concern of Insurers (52% of responders in a recent study).5 “Insurance regulation is being re-examined inEmpowering agents to sell and serve the light of the bailout of prominent US insurers, withThere is a growing need to empower agents to sell and serve international risk management standards likely to emerge.customers more effectively. But the inability to identify, recruit, Eighty-three percent of Insurers expect to increase spendingequip, and provide incentives to retain the best agents, as well on risk management activities by more than 10 percentas integrate and optimize agent information into Insurer annually, over the next five years. The Solvency II guidelinesoperations makes the customer relationship focus all the more are already weighing on European Insurers, and the financialdifficult to sustain. crisis has resulted in increased regulation across the globe.Business intelligence and optimization efforts can help Insurers Winning insurers are using these events as a burning platformstrengthen distributor relationships through modeling and in the drive to enhance enterprise control. Investments areoptimizing agent profiles for recruiting, retention, and required in underlying data management processes,compensation of “A Players.” In addition, Insurers can employ infrastructures and capabilities to enable sustainablebusiness intelligence efforts to enable success with customers transparency. A focus on financial and regulatory analytics canby automatically identifying potential new segments and help Insurers significantly improve risk aversion through
  6. 6. 6 Using business intelligence and optimization to secure the future in the global Insurance marketunderstanding risk posed by new products, globalization and Predicting the futureregulatory controls. In addition, Insurers can employ business Today, Insurers must make sense of the unwieldy amount andintelligence to reduce surprises in financial results and different types of information available in and outside of theproactively manage market changes. organization. Now many companies are applying analytics and optimizing the bottom line focused on consolidated reporting,External stakeholders demand transparent quantitative cost and expense management, performance management, anddisclosure of all risks and reporting or accounting on fair value fraud management. But soon early movers will emerge fromprinciples (IFRS, MCEV and Solvency II). We partnered with these exercises with strategies that focus on the top line - usinga leading European Insurer to improve the management and advanced analytics to pro-actively manage the pipeline,compliance to regulations through a holistic program focused offers and promotions, brand perception, customer careon standardized, accurate, auditable and transparent data and effectively sense market twists and turns before theirmanagement. As a result, enterprise data will be extracted from competitors.6100+ systems, uniformed, enriched and stored to be used incalculations and accounting. The end-goal for many insurers will be the ability to reduce lost costs and improve customer service with the use ofThis proactive approach enabled more awareness and advanced analytics. Predictive modeling can help Insurersresponsiveness to regulatory actions, better risk aversions improve organizational flexibility to react quickly to marketthrough integrated enterprise risk management, improved conditions and scale to address customer needs (in the case ofefficiency and performance through shared systems and catastrophe or other significant market change), analyze claimsprocesses across financial services. Today this Insurer benefits risk to decrease cost from losses or improve customer servicefrom better knowledge sharing through internal and external based on known indicators. We are starting to see insurers usetransparency with external partners, and is able to better predictive modeling to better serve their customers withrespond to market changes. No matter what the regulatory “customized products” based on individual wants-and-needsrequirements end up becoming, they will now be prepared to analysis and to deliver improved medical care managementmeet them. targeted to “at-risk” groups.Fig.3. Analytics and optimization areas of focus over the next 24 months Project scope Tactic • Pricing and offer strategies • Branding and reputation management Increase focus • Product/services market selection Next 24 months top 10 • Lead generation and pipeline management • Promotion and offer management • Logistics and distribution management • Customer segmentation and profitability • Demand forecasting and management Maintain focus • Enterprise goal setting and alignment • Budgeting and resource allocation Current top 10 • Reporting and performance measurement Re-assess focus • Cost/expense management • Career path and succession management • Fraud and financial risk management • Leadership development • Channel performance
  7. 7. IBM Global Business Services 7Healthcare Insurers are leading the way in analytics and riskmanagement by creating medical management predictive “The pressure to gain share in amodels. IBM is helping US health insurers use advanced sharpening market will not ebb.analytical tools to risk stratify their member population andensure appropriate and preventative care is coordinated and New regulations loom on the horizon.designed to assure good outcomes. Predictive modeling isused to identify “at risk” groups and to risk stratify them. The There will be no going back toinsurer can then match interventional programs with the level business as usual.”of risk and deliver them consistently and cost-effectively. As anexample, members at risk for coronary artery disease, canreceive education and preventative care in an attempt to avoid acatastrophic event like a heart attack. These new approaches to However, competitive business analytics and optimizationpromoting health and delivering care allow members to make capabilities require deep skills in business intelligence andbetter health and wellness choices and allow the Insurer to information management – which most Insurers lack today.deliver significant value and avoid subsequent costly health care. Strong business intelligence capabilities must also be backed by streamlined data governance processes that pervade theConclusion organization. In addition, Insurers must continue their focusFor many Insurers, the focus of the last few years has been to on smart streamlining, integration and consolidation across thekeep pace in a declining market. It now looks like things could organization – and well considered cost take out measures – tobe turning upward. But whether the benefits of the recovery fund differentiating analytics and optimization efforts.are felt earlier or later than analysts predict, the financial crisishas set in motion a “lean years” perspective that global leaders Though the customer must be the ultimate focus of businessand consumers won’t yield for some time. Trust has been analytics efforts, many insurers are finding that it is increasingthreatened. The pressure to gain share in a sharpening market regulatory issues which provide the perfect entry for drivingwill not ebb. New regulations loom on the horizon. There will buy-in for a focused business intelligence effort. These effortsbe no going back to business as usual. must top the chief executives’ (CEO, CFO and CIO) agendas to achieve full benefits. By starting small, generating short-Insurers must solve two key problems in order to secure their term proof of concept successes and scaling fast, leaders can befuture: getting meaningful products to market fast and successful in linking these efforts to their organization’simproving customer service. Their ability to leverage strategic business agenda, and catapulting their Insurers totechnology and information to drive business intelligence will front-runner status. For more information on pursuing a morebe a defining factor in their success. Some insurers will pull proactive approach to securing your company’s future, pleaseaway from the pack by focusing on the customer, through contact Lee-Han Tjioe, a business analytics and optimization lens to drivevalue and aligning business with IT to turn out meaningfulproducts, achieve more transparency, and improve serviceefficiently.
  8. 8. About the AuthorLee-Han Tjioe is the worldwide Leader of IBM GlobalBusiness Services’ insurance group, currently responsible forthe strategy, solutions and service development for Insuranceindustry, as well as client relationships and delivery -- from aheadquarters in Shanghai, China. He and his team havedeveloped a number of successful insurance specific solutionsand services.He has worked for more than 18 years in consulting forfinancial institutions, including as an Asia Pacific practiceleader for PricewaterhouseCoopers in Hong Kong. His © Copyright IBM Corporation 2010consulting work includes strategic and business process IBM Global Servicestransformation projects for clients like ING, Aetna, AXA, Route 100 Somers, NY 10589Fortis, Aegon, and Achmea. He is a specialist on insurance U.S.A.companies challenged with the design and successful launch ofonline and multi-channel distribution of Insurance products. Produced in the United States of America June 2010Mr. Tjioe graduated with an MBA at the Fuqua School of All Rights ReservedBusiness, Duke University in the United States. IBM, the IBM logo and are trademarks or registered trademarks of International Business Machines Corporation in the United States, otherFor more information countries, or both. If these and other IBM trademarked terms are marked on their first occurrence in this information with a trademark symbol (® or ™), these symbols indicate U.S. registered or common law trademarks owned IBM at the time this information was published. Such trademarks may also be registered or common law trademarks in other countries. A current list of IBM trademarks is available on the Web at “Copyright and trademark information” at Other company, product and service names may be trademarks or service marks of others._____________________________________ References in this publication to IBM products and services do not imply that IBM intends to make them available in all countries in which1 Bieck, Christian. “Growing trust, transparency and technology: Insurance IBM operates.customers’ perspectives in a global context.” IBM Global Business Services, inassociation with the University of St. Gallen Institute of Insurance. Please Recycle2 LaValle, Steve. “Breaking away with business analytics and optimization.”IBM Institute for Business Value.3 Ibid4 LaValle, Steve and Brian Scheld. “CRM Done Right: Executive handbook forrealizing the value of CRM.” IBM Global Business Services.5 IBM Global CIP Study 2009; Full sample n = 2598, Insurance n = 2126 Gartner (February 2009) GBW03116-USEN-00