An Honest Look at the State of Big Data in Insurance

Jeff Goldberg

With the recent publication of Novarica’s Analytics and Big Data at Insurers report, it’s time to take an honest look at the state of big data in the industry. One of the most telling–and disappointing–charts showed that of the insurers working with big data, seventy percent were using traditional computing, storage, database, and analytics technology, meaning they’re working with SQL databases in their existing environment. Of all the other technology options (Hadoop, NoSQL, columnar databases, etc) only a small percentage of insurers use them and almost no insurer uses them extensively.

big_data_adopt_2015

Compare that to the percentage of insurers who say they are using big data sources, which is significantly higher than the percentage of insurers using big data technology. This includes third-party consumer or business data, geospatial data, weather data at the top the list, with audio/video data, telematics, social-media content, and internet clickstreams lagging behind. But what’s really happening when those big data sources are loaded into a traditional structured database? Most likely, a few key elements are pulled from the data and the rest is ignored, allowing the so-called big data to be treated like “small data,” processed along with all the policy, claims, and customer data already being stored. For example, while a weather feed might be coming with minute-by-minute updates, most insurers are probably just pulling region condition along with daily temperature highs and lows, filtering it down to a subset that stores easily. While I’m not saying such reduced data doesn’t augment an insurer’s understanding of incoming claims (for example), it’s far from what we think about when we imagine how a big data analysis of the weather might impact our understanding of insurance claim patterns.

There’s no denying that there are a few exciting use cases of insurers truly leveraging big data, but it’s still extremely limited. The industry as a whole is getting much better at data analysis and predictive modeling in general, where the business benefits are very clear. But the use cases for true big data analysis are still ambiguous at best. Part of the allure of big data is that insurers will be able to discover new trends and new risk patterns when those sources are fully leveraged, but “new discoveries” is another way of saying “we’re not yet sure what those discoveries will be.” And for many insurers, that’s not a compelling enough rationale for investing in an unfamiliar area.

And that investment is the second problem. The biggest insurers may have the budget to hire and train IT staff to work on building out a Hadoop cluster or set up several MongoDB servers, but small to mid-size insurers are already stretched to their limits. Even insurers who dedicate a portion of IT budgets to innovation and exploration are focusing on more reliable areas.

What this means is that insurers–no matter how many surveys show they anticipate its adoption–will likely not see a significant increase in big data tech. However, that doesn’t mean the industry will let big data pass it by. Instead, much of the technology innovation around big data will need to come from the vendor community.

We’re already seeing a growing number of third-party vendors that provide tools and tech to do better analysis and get deeper understanding from big data, a second-generation of big data startups. Most of these vendors, however, expect that the insurer will already have a Hadoop cluster or big data servers in place, and (as we know) that’s exceedingly rare. Instead, vendors need to start thinking about offering insurers a “big data in a box” approach. This could means SaaS options that host big data in the cloud, appliances that offer both the analysis and the infrastructure, or even just a mix of professional services and software sales to build and manage the insurer’s big data environment on which the licensed software will run.

We’ll also begin to see insurance core system vendors begin to incorporate these technologies into their own offerings. The same thing has happened for traditional data analytics, with many top policy admin vendors acquiring or integrating with business intelligence and analysis tools. Eventually they’ll take a similar approach to big data.

And finally, some third-party vendors will move the entire big data process outside of the insurers entirely, instead selling them access to the results of the analysis. We’re already seeing vendors like Verisk and LexisNexis utilize their cross-industry databases to take on more and more of the task of risk and pricing assessment. Lookups like driver ratings, property risk, and experience-based underwriting scores will become as common as credit checks and vehicle history. These third-party players will be in a better position to gather and augment their existing business with big data sources, leveraging industry-wide information and not just a single book of business. This mean that smaller insurers can skip building out their own big data approach and instead get the benefits without the technology investment, and they can compete against bigger players even if their own store of data is relatively limited.

So while the numbers in Novarica’s latest survey may look low and the year-on-year trend may show slow growth, that doesn’t mean big data won’t transform the insurance industry. It just means that transformative change will come from many different directions.

On Tuesday, July 14th at 2 pm I’ll be hosting a Business Intelligence and Analytics webinar, which will review the recent report, go into more detail on big data, and cover how insurance is being transformed by the growth in available data and information both inside and outside the enterprise. For more information, visit:

https://attendee.gotowebinar.com/register/1692064099558513922

Related Report

Creating an Enterprise Blueprint and Roadmap for Insurance Carriers

Mitch Wein

On our most recent webinar: “IT Strategy and Architecture” we talked about how the demands on insurance IT have never been higher. Insurer IT groups are tasked with delivering an ever-expanding set of capabilities, including digital transformation, faster speed-to-market, better distributor and customer service, and better analytical capabilities.

Unfortunately, too many insurers are dealing with the challenges of overly complex IT environments and brittle or redundant systems that cripple their ability to deliver business value rapidly or cost effectively.

A vision is needed to address the business transformation, while leveraging technology trends and leading industry solutions. From this, a roadmap of projects must be defined to implement that vision, while keeping the business running.

Creating an Enterprise Blueprint and RoadMap for Insurance Carriers

Creating an Enterprise Blueprint and RoadMap for Insurance Carriers

All too often there is a disconnect between business and IT, but having a common purpose and common understanding throughout IT and other business units enables true teamwork. Novarica’s new IT Strategy and Architecture consulting offering can help insurers protect their long term investments, while guarding against Business/IT disconnect.

For more information, please view our webinar recording or email me to set up a complimentary 30 consultation.

New Webinars Announced for April

Business & Technology Trends: Specialty Lines
Thursday, April 16th from 2 – 2:30 p.m. (ET)
Presenter: Mitch Wein, VP of Research & Technology
Pre-registration required

The specialty lines marketplace continues to be extremely competitive and requires a significant amount of operational flexibility to meet the needs of the insurer and the insured. Across the industry, insurers continue to make investments across the Novarica Insurance Core Systems Map to drive growth and improve operational efficiencies. On Thursday, April 16th Mitch Wein will provide in-depth analysis on current business and technology issues in specialty lines, data about the marketplace, and examples on how specialty insurers are leveraging technology to help attract, retain and profitably serve clients.

IT Benchmarking for Insurers
Tuesday, April 21st from 2 – 2:30 p.m. (ET)
Presenter: Matthew Josefowicz, President & CEO
Pre-registration required

External benchmarking data is an important tool for insurer CIOs in both self-assessment and communication with senior business management. Benchmarking data can provide critical support for spending and budgeting decisions and can highlight potential areas of concern. On Tuesday, April 21st Matthew Josefowicz will present findings from the Novarica Insurance Technology Research Council Quick Benchmarking Poll, which takes a “Supply and Demand” approach to IT, allowing organizations to gain a better understanding of the significance of peer data.

Related Blog Posts

  • 5 Technology Initiatives for Specialty Lines Insurers in 2015
  • Commercial/Specialty Underwriting Automation: Cui Bono?
  • Related Reports

  • Business and Technology Trends: Specialty Lines
  • Quick IT Benchmarks for Insurers 2015
  • Special Interest Group 2015: Annuities

    Rob McIsaac

    Earlier last week, we hosted our first special interest group meeting focused exclusively on annuities. Increasingly we have found carriers value opportunities like this to spend dedicated time on very specific lines of business. We were certainly not disappointed this time! One carrier noted that “This is the first event I’ve ever been to that is focused only on annuities, and I’m very excited about that!” Indeed.

    For the event, we shared updated information from our Business and Technology Trends report series. The market continues to evolve as new products are brought to bear which improved competitive positioning for carriers but which may test existing technology infrastructures in ways that were not anticipated in the past. One of the key business drivers for the future is “time to market” for new and enhanced products and, in many cases, legacy systems are simply not up to the task of supporting new variations in product features or distribution channels. A variety of approaches for dealing with this were discussed by the group.

    Another key issue area relates to electronic applications and the broader subject of Straight-Through-Processing. We used the meeting as an opportunity to unveil new research that we’ve done highlighting carrier deployment patterns and experiences with both electronic applications and electronic signatures. This research will be part of a future Novarica publication but the preview at this session provided for a highly engaged interaction. One of the things that we were particularly pleased with was our ability to share “lessons learned” with the various vendors which can provide key information to other carriers as they put together their own implementation plans.

    Another area which prompted lively discussion was security. No doubt fueled by concerns associated with recent breaches at places like Target and Anthem, CIOs are acutely aware of the potential risks and challenges. In addition to talking through some of the characteristics of current environments, we explored a range of best practices which carriers can consider in their future investment plans. The use of ethical hacking as a means of exposing, in a controlled manner, important gap areas was particularly interesting.

    This was the third in our series of special interest group meetings and we are particularly pleased with the level of interest and engagement that they are providing. If you would like to review the agenda or discuss the research material we shared at the session, please let me know. You can reach me directly at email.

    Our next webinar for a specific line of business will be on Wednesday, March 18th at 2 p.m. (ET), and will focus on the business and technology trends we are seeing in the group insurance space. If you would like to participate, please make sure to pre-register today to secure your spot.

    This is also a good time to remind Research Council members that our annual meeting is coming up at the end of April in Providence, RI. We already anticipate that there will be time dedicated to a follow-up discussion between the annuity carriers that participated in last week’s session. We look forward to seeing you there!

    Webinar: Group Life/Annuity/Voluntary Benefits

    Rob McIsaac

    In my last blog post I wrote about seven key findings from our Business & Technology Trends: Group Life/Annuity/Voluntary benefits report. In this post I would like to quickly highlight some of the top technology priorities, which I will be covering in more detail during our webinar on March 18th at 2 pm (ET).

    Technology is playing an ever larger role in insurers’ ability to attract, retain and profitably serve clients in the group life, annuities and voluntary benefits space. Some of the top initiatives include:

    • Solid product design that attracts a broad audience
    • Tools to help plan sponsors or enrollers to sell, market, or enroll individuals
    • Robust flexible group administration capabilities
    • Multi-channel marketing and sales
    • Administrative capabilities such as the ability to quickly and efficiently process and post payments

    Novarica research has concluded that success for carriers will revolve around these technology priorities. To learn more about these initiatives in more detail, as well as the latest trends and issues in the Group Life/Annuity/Voluntary Benefits space, pre-register for our webinar on Wednesday, March 18th at 2 pm (ET). I look forward to seeing you there!

    2015 Vendor Selection Best Practice for Insurance Carriers: Simplified vs Extensive RFI

    Martina Conlon

    In my last vendor selection blog post I highlighted a few best practices, one of which included using a simplified Request for Information (RFI) that was easy for the vendor to complete and for you to score. I’d like to delve into this topic more and explain why a simplified RFI can make or break the vendor selection process. A simplified RFI will get you through the vendor selection process much faster, and will help your selection team focus on what really matters – your unique requirements.

    From a functionality perspective, don’t inventory the ordinary; instead focus on areas that are specific to your business. We know that any insurance application that is in production with several insurers will support basic transactions. For example, all policy systems have a new business, policy change and cancellation transactions so there is no need to spend time and focus on them. Instead, dig into features that matter to your business. Perhaps you need robust premium audit features to support your workers comp business, or you need advanced reinsurance capabilities to support your middle market commercial business. Ask questions in the areas where you may be stretching the capabilities of a vended solution.

    Having been involved in over 50 vendor selection projects (rating, policy administration systems, claims, billing, agent portals, business intelligence, etc.), Novarica recommends that during the RFI phase the focus should be on discovering reasons not to consider a particular vendor (the “deal-killers”). Novarica’s experience has shown deal killers generally fall into one of four areas: Staff, Organization,Functionality, and Technology, easily remembered by the acronym SOFT.

    Staff

    • Do the staff have the right skills and experience?
    • How well are they likely to understand your needs?
    • What resources are available for implementation and support?
    • What assurances will you have that the staff you meet during the sales process will really be the staff that you work with?

    Organization

    • How stable is the organization?
    • Is it big enough for your company to do business with?
    • Is there a conflict in the company’s ownership (i.e., are they owned by a competitor)?
    • Who are their other clients?
    • How much of a role do clients have in product development?

    Functionality

    • Does the solution support the lines of business, states, and high-level functionality that you need?
    • Which functions are actually live at reference clients?

    Technology

    • Is the solution’s technical architecture compatible with your enterprise standards?
    • Does your IT staff have the skills to support it?

    The typical Novarica RFI includes 100-150 questions. The typical response for 30-50 pages takes 2-4 hours to score. Your time is valuable – don’t waste days reading and scoring complex RFI responses full of information you probably already know. This simplified approach will typically allow you to narrow the range of potential suppliers in any particular solution category to 2-3 candidates much more quickly and effectively than with a large dense RFP.

    For more information about vendor selection best practices, make sure to register for our upcoming Vendor Selection Best Practices webinar taking place Thursday, January 29th at 2 p.m. (ET) or send me a note at email.

    2015 Vendor Selection Best Practices for Insurance Carriers

    Martina Conlon

    Over the last few years more and more insurance carriers have forgone custom software development projects and turned to the vendor marketplace to find solutions to their most pressing problems. While there are many advantages to leveraging vendor solutions, many insurance IT departments are not experienced in finding and evaluating solution providers to meet their needs.

    The traditional methods used by insurance carriers for selecting vendors can limit success and take an inordinate amount of time, leading to challenges long before a project even begins. By focusing on asking the right questions and engaging business leaders and users early in the process, insurers can streamline the traditional process while providing far better results. Below I have highlighted a few vendor selection best practices, including:

    • Get business commitment to the process upfront.
    • Limit purchasing/sourcing departments control until the contract negotiation stage.
    • Focus on strategic needs rather than current practices.
    • Use a simplified RFI that is easy for the vendor to complete and for you to score.
    • Set the agenda of demos and evaluation meetings, rather than letting the vendor drive.
    • Focus on where your organizations is unique, don’t over analyze the ordinary.
    • Question vendor pricing models and negotiate for what you think is a fair partnership deal.

    The best practices above are a sampling of the lessons learned during years of Novarica vendor selection projects and conversations with experienced CIOs. For more information about vendor selection best practices, register for our upcoming Vendor Selection Best Practices webinar taking place Thursday, January 29th at 2 P.M. (ET) or contact me via email.

    The Future is Here, it’s Just Not Evenly Distributed

    Matthew Josefowicz

    The WSJ today reports that Google has secured insurance agent licenses in 26 states and deepened its relationship with CoverHound. Yesterday, Accenture released a study of independent agents showing disintermediation by online distribution was their number one fear.

    On Tuesday, January 13th at 2 p.m. (EST) we’ll be presenting a webinar on Hot Topics for 2015 for insurer CIOs based on surveys of our Research Council members. With customer expectations changing across the industry, driven by changes in the technology ecosystem within the industry and across the economy, insurers need to plan to incorporate these paradigm shifts into their business and technology strategies for 2015. Or else plan to be taken by surprise.

    Related Novarica Reports

    Related Novarica Blog Posts

    Novarica Webinar: Change, Legacy, and Disparity

    Matthew Josefowicz

    If you missed yesterday’s webinar on Change, Legacy, and Disparity in Insurance Technology, you view the replay here. Novarica clients can also download the presentation slides.

    The webinar examines the themes of change, legacy, and disparity in the way insurers are reacting to rapid evolutions in the technology landscape. It includes a high-level summary of data from Novarica’s 2015 Insurer IT Budgets and Projects study, and concludes with four guidelines for insurers to thrive in this new age.

    Big Banks, Small Banks

    Lee Kyriacou, head of bank industry research

    Interesting piece by Meredith Whitney in American Banker today on bank stocks, basically saying that in the current weak revenue environment, large banks (which are precluded from M&A) must improve returns by getting smaller, while smaller banks must improve returns by getting bigger. I agree more or less, but there’s an additional layer of complexity. Let’s break the problem into industry issues, and then look at M&A specifically.

    The industry issue is not weak revenue or even low net income – in fact, both are at or near record levels. Rather, the core issues are: (1) ROA and ROE remain well below par, (2) top-line revenue growth has been lacking, and (3) huge fixed branch costs are no longer sustainable.

    The first is largely about low interest rates and high capital usage; the second about lack of loan demand and one-time regulatory “hits” to fees; the third about technology and customer behavior catching up to free checking.

    These industry issues require banks – both large and small – to:
    (1) out-compete for superior loan growth or fee revenue,
    (2) dramatically restructure their branch costs while investing in e-channels, and
    (3) reduce their excess capital.

    Now let’s translate these issues to large and small banks, and then add M&A. Large banks can do all three: win lending, restructure branch cost, and reduce capital. In fact, without M&A the large banks must live or die on how well they can out-compete – some will thrive, others will suffer. The mid-sized banks that thrive will create shareholder value by turning to M&A. However, for many smaller banks, the hunt for loans and branch cost reduction may prove too difficult, and as a result the exodus of the smallest banks will likely continue.

    I’ll be publishing more on the different challenges of large and small banks this quarter, and I look forward to discussing this on our free webinar Thursday at 2pm ET on trends and issues for 2013. You can pre-register online here.