sigma 4/2019: Advanced analytics

Unlocking new frontiers in P&C insurance

The availability of digital data is growing exponentially as the use of sensor networks and digital platforms becomes increasingly widespread. At the same time, the ongoing development of advanced analytics capabilities affords P&C insurers the means to unlock untapped potential across the insurance value chain, our latest sigma says. By processing structured and unstructured data sources, insurers will be able to price new markets and risk classes, and make existing processes more efficient.

Most insurers aim for a success rate of one-third in operationalising pilots. Too high a success rate may mean that the use cases are not challenging enough.
Daniel Knüsli, Swiss Re's Head P&C Analytics, P&C Solutions

Data analytics can support important insurance business needs in the following areas: (1) enable growth by providing insights for insurers to better target markets and also improve understanding of consumer preferences and behaviours; (2) improve in-house portfolio value accumulation and steering through multiple linkages with external datasets. Insurers are targeting 2-5% improvement in loss ratios under real trading conditions; and (3) improve operational efficiency by automating underwriting and claims processing functions.

Commercial lines continue to lag personal lines insurance in the implementation of advanced analytics techniques. This is because personal line insurers have had access to better data quality and higher transaction volumes. Now larger and more stable commercial lines such as property are also benefitting from the explosion in data. They are seeing early signs that incorporating new data sources can reduce the length of risk assessment and improve risk selection. Combining multiple data sources in new ways can fine-tune risk appetite and underwriting strategy.

There needs to be more investment of time and resources on data curation. Many new data sources are not created for insurance, and owners of the data may neither understand insurance nor how to make the data usable for insurers.
Daniel Ryan, Head of Insurance Risk Research, Swiss Re Institute

The outlook is promising, but patience is crucial due to the inherent complexity of the insurance value chain. Challenges remain in the form of legacy systems, traditional mind sets and scarce talent at the intersection of data science, risk knowledge and technology. Nevertheless, we believe that as more insurers seek out differentiating capabilities, the ongoing development of industry-specific infrastructure, resources and knowledge will help unlock the full potential of analytics in P&C insurance.

Learn more about the new frontiers in the latest sigma.

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Facts & Figures

Range of loss ratio improvement in pilot conditions (%) across insurance lines of business
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Scoring for natural catastrophe risk
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Potential applications of new data in marine insurance
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Analytics project assessment framework
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sigma Advanced analytics: unlocking new frontiers in P&C insurance

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