Analyze This

By Bob Violino  |  Posted 2009-03-02

Many insurance firms are turning to technologies such as business intelligence (BI) and business analytics (BA), enterprise risk management and virtualization. Experts say these three technology areas are especially critical for success in today’s insurance market.

A subset of BA called predictive analytics is “very hot in the insurance industry, and we think it will remain hot even in this financially strapped marketplace,” says Barry Rabkin, senior research analyst for insurance at Financial Insights, an IDC company. A recent study by the Framingham, Mass.-based firm reports that a growing number of insurance companies are using analytics for applications such as price modeling, underwriting for business acquisitions, and identifying the most profitable customers, agents and territories.

“In claims, business analytics applies to straight-through processing for certain claim categories, subrogation, litigation management, reserve setting, vendor management, catastrophe management, compliance and fraud detection,” says Karen Pauli, research director at TowerGroup, a Needham, Mass., research and advisory firm focused on the financial industry. In call centers, BI and BA support up-selling and cross-selling, while in sales, these technologies can help identify where to place agents or other distribution points, she says.

Another technology that’s essential for insurance companies is enterprise risk management. These software platforms—which help manage areas such as regulatory compliance and workflow—“will be an imperative in 2009 due to increased regulatory scrutiny at both the state and federal levels,” Pauli says. “Rating agencies will be looking to see, in detail, how carriers are managing risk.”

Experts say risk management is especially important during a down economy. “The financial crisis is driving insurance companies to better understand their financial risks as well as their transactional risks—the risks they bring in to put on the books,” says Financial Insights’ Rabkin. “Enterprise risk management will need to evaluate both internal and external risk.”

Virtualization is also high on the list of crucial insurance technologies. In addition to providing a way to consolidate servers, decrease costs and provide greater agility in server allocation, this technology also can enable insurance employees to work more flexibly.

“Agents and brokers must be able to conduct business anytime, anywhere without having to return to an office to execute,” explains TowerGroup’s Pauli. She adds that consumers expect to be able to access their agents and brokers whenever they need them.

Here’s a look at how insurance firms are using these three critical technologies.

Business Intelligence, an online independent auto insurance agency in Solon, Ohio, has used BI software since 2004. In 2008, it deployed IBM Cognos Now!, a BI application that allows continuous monitoring of operational metrics.

The firm, which allows consumers to link directly to the rating systems of more than a dozen insurance companies, depends heavily on its Internet delivery model. So it needed an application to monitor all IT systems and ensure that they are running at peak performance, says Scott Noerr, director of IT services. uses information gathered from its BI system to identify potential performance issues before they affect critical business systems. Aside from ensuring systems reliability, the BI technology is used to optimize computing capacity in the company’s sales center, which operates seven days a week and is staffed with insurance agents licensed in 47 states.

Prior to using the IBM Cognos software, used a homegrown application that monitored systems health and generated event logs when there were issues. But it couldn’t integrate data from various systems, and IT struggled to determine what was causing issues, who had taken ownership of them and whether they were resolved, Noerr recalls.

“The starting point for us was to monitor the performance of our technology platform—the engine for [comparing] car insurance quotes from our 15 insurance company partners,” Noerr says. Alerts from multiple sources, such as third-party vendors, insurance companies and internal systems, were integrated, and rules were established for notifications.

The interface was customized to provide reports with different views for different users. The IT staff is able to respond quickly to issues because the dashboard pinpoints issues quickly and precisely, says Joe Singleton, vice president of IT at

With the BI application, the firm can monitor all critical applications in its production environment and get an accurate view of system performance. Dashboards provide up-to-the-minute key performance indicators, such as Web traffic throughput, business throughput and general traffic data.

Enterprise risk management

Another technology, enterprise risk management (ERM), is critical for many insurers, including Nationwide Mutual Insurance Co. The Columbus, Ohio, provider of life, property and casualty insurance uses the OpRisk Management software suite from SAS, which runs on IBM WebSphere Web and application servers.

“Nationwide is in the risk management business, and a lot of good operational risk management was being done before ERM came along,” says Allan Dudek, senior consultant of enterprise risk management. “But a standard way of collecting, measuring, analyzing and reporting didn’t really exist.”

The firm uses the SAS tools to help integrate risk management processes across risk types and risk management programs, as well as throughout the risk management cycle. One component, SAS OpRisk Management, focuses primarily on operational risk, but Nationwide also uses it to support market/credit, strategic and product risk as well, particularly for qualitative assessments, key risk indicators, and issue and action plan tracking.

Because the company uses the platform across risk management programs, it has eliminated the duplication of systems. For example, the Information Risk Management, ERM and Office of Privacy (Legal) functions were all looking for automated systems at the same time.

“By purchasing and implementing one solution, we were able to control costs and provide a great opportunity for increased standardization and information sharing across programs,” Dudek says. Nationwide plans to roll out the platform to additional risk management programs this year, he adds.

Dealing with complexity was a major challenge of implementing ERM. “SAS, like most enterprise software solutions, is a powerful and complex collection of components,” Dudek explains. “It is also highly configurable and customizable. Initially, learning how to put all the pieces together to best meet our needs was a challenge.”

The firm developed expert knowledge in-house rather than depend on outside consultants for the implementation. This slowed early progress, Dudek says, but has paid off in the long run as Nationwide continues to refine its ERM capabilities.

Coordinating resources from various functional areas also proved challenging. The company is trying to establish a support model that more effectively takes into account the close partnerships needed to best leverage ERM. To that end, it created a special Operational Risk Alignment Committee to help coordinate and steer the various groups toward commonly understood and sanctioned goals.


XL Global Services, a Stamford, Conn., provider of fire, marine and casualty insurance, is among the organizations discovering the benefits and challenges of virtualization. The company began using virtualization in 2005, when it deployed VMware software to provide file, print and domain controller services for users in regional offices.

In 2006, XL Global Services began using the virtualization software in its data centers and labs, mostly for lightweight applications and R&D work, says Howard Fingeroth, vice president of infrastructure architecture, capacity and configuration management. A year later, it made a bigger move to virtualization, migrating many applications to virtual machines in its data center. By the end of 2007, the company had deployed more than 200 virtual machines.

The key drivers for virtualization were the desire to reduce server sprawl and reliance on physical servers, and to cut real estate, power and cooling costs. A study of the firm’s computing resources showed that its utilization of servers was low, “so we were a perfect candidate for virtualization,” Fingeroth says.

XL Global Services generally has multiple versions of insurance products being worked on at any time, and environment sharing wasn’t always possible. Virtualization “allowed us to maximize the use of physical servers and share the resource without the applications coexisting in the same operating system instance,” Fingeroth says.

The technology enables the company to fully utilize all its computing resources. As a result, turnaround time for new environments has been drastically reduced; redeployment of older hardware is now possible for nonproduction environments, extending their use and delaying the costs of procuring new hardware; and there’s increased availability of applications hosted within the virtual environment. In addition, XL Global Services is able to avoid the cost of maintenance and service contracts on physical servers.

Of course, there were some challenges. For example, since XL Global Services was an early adopter of the technology, it had a tough time selling virtualization to its application developers. “Several proof-of-concept conversions and lots of testing were done to prove that applications function the same in a virtual guest as on a dedicated server,” Fingeroth recalls. The company has “spent a great deal of time building this environment and getting user buy-in.”

Still, it was worth the effort. “Virtualization has allowed us to provide a better quality of service to our users,” he says. This has been done by reducing the time required to provision new environments and by offering higher availability.

This is likely to be a challenging year for insurance firms, but IT can help identify ways to improve services and business processes, manage risk, reduce costs and increase agility.