Analytics & Insurance

By Richard Clarke

Actuaries using advanced math and financial theory to analyse and understand the costs of risks have been the stalwarts of the insurance business forever. Indeed, the analytics performed by actuaries are critically important to an insurer’s continued existence and profitability. Over the last 15 years, however, revolutionary advances in computing technology and the explosion of new digital data sources have expanded and reinvented the core disciplines of insurers.

Consider how this has affected underwriting in personal auto insurance. Instead of relying only on internal data sources such as loss histories, auto insurers started to incorporate behaviour-based credit scores from credit bureaus into their analysis when they became aware of empirical evidence that people who pay their bills on time are also safer drivers.

While the use of credit scores in private-auto-insurance underwriting has been a contentious issue for the industry with consumer groups, the addition of behavioural and third-party sources was a significant leap forward.

A new wave of innovation and applications of advanced analytics is emerging in all types of product lines and business functions. Life insurers and property-and-casualty insurers have lagged behind other financial services sectors, but they are now catching up in their adoption of predictive and optimisation models in business processes such as sales, marketing and service.

From “Unleashing the Value of Advanced Analytics in Insurance”