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.