Analytics are Improving Carrier Success
Updated: Aug 25, 2020
I encourage agency personnel to read SwissRe's 4-2019 Sigma white paper regarding how analytics are being used and the ROI for carriers. It is the most solid report I have read and provides actual data rather than theory and wishful thinking.
The results achieved with analytics will affect insurance distributors materially and the possession of this knowledge will give you advantages if you harness some creativity. I already have clients using this information to their benefit and sometimes that benefit is defensive.
Key highlights that I noted:
Analytics will enable insurance carriers to engage more closely with clients, i.e. directly. The extra cost seems small relative to the ROI.
Assuming pricing remains the same, the use of external data about clients combined with the data contained on applications will cause loss ratios to decrease by between two and five full percentage points. That may not sound like a lot, but it is huge. Carriers' results are often measured in tenths of percentage points. Some tests show that for some lines, the improvement may be as much as 18%. That is humongous.
Analytics are identifying quite subtle differences in the way marketing is worded that entices potential clients to ask for information, quotes and even policies. In one study, these subtle differences reduced the cost per click by 80%. Again, this is a huge cost savings given that insurance clicks are among the most expensive of all virtual marketing industries.
By developing accurate analytics, carriers are pre-rating properties and commercial accounts, and then targeting advertising only to the accounts they want. This kind of precise targeting is incredibly valuable because it can:
Increase cross-selling success -- Perhaps this will finally put to rest the theory that force-feeding extra policies down insureds' throats will cause retention to increase. It is now obvious cross-selling only works well with insureds possessing certain characteristics.
Cause a 40% reduction in customer acquisition costs.
Bring about a 60% reduction in underwriting and distribution expenses.
Increase customer engagement scores.
If a carrier can become accomplished enough in their analytics skills, they won't need agents for certain client segments.
If a carrier masters their analytics skills and their peers do not, their peers most likely will not stand a chance of survival.
Evidence is already building within the workers' compensation and commercial auto liability lines that strongly suggests certain carriers possess good analytics and others possess completely inadequate analytics. The carriers with good analytics look ready to demolish the others. They are growing far faster with much higher profit margins. As an agent, are you aligned with the winning carriers?
Don't get complacent because you don't feel the effects yet. The estimate is that it will be 3-5 years before the industry sees the full effect. As Ernest Hemingway wrote, "How do you go bankrupt? Two ways. Gradually, then suddenly." We are in the slow part now. You have time. If you need assistance identifying the winners, and maybe the losers, let me know or look up our Burand MD®: Carrier Stability Analysis service.
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.