outside the boundaries, you are toast.”
For the last seven years, carriers
utilizing modern core systems have been
able to integrate with a predictive model
that sits outside the system and returns
a score, explains Conlon. A few carriers
also have rules engines embedded that
allow the insurer to develop a full predic-
tive model.
“Carriers may put some basic under-
writing rules in the system, but if they
have a complex predictive model based
on lots of different information and may
refer to other databases, you do see them
building them out into a separate system,
which could be a rules engine,” she
says. “Sometimes you see them develop
predictive models in their rating systems,
but it’s not as common given some of the
complexity of the models. The system can
support fairly complex models, but most
carriers do develop them externally.”
Conlon believes the bigger issue is
not necessarily the core system technol-
ogy, but the challenge in coming up with
a predictive model to answer questions
such as: What are the steps and the
rules? How do you know how to score?
“The vendors are stepping up in that
space in the form of consulting services
and actuarial services that are available
for the mid-size carriers to lean on to
develop models that are customized to
their business,” she says.
Some core system providers are
partnering with analytics firms to get the
tools in the hands of the carriers. Others
are buying traditional tools and embedding them, according to Karen Pauli,
research director for CEB Tower Group.
“Vendors are all over the place.
There’s not necessarily a trend,” she says.
“The Guidewire situation is an import-
ant capability. (Guidewire bought the
analytics provider Millbrook in 2013.)
The core system is what comes first and
the analytics comes later. I don’t think
people are buying core systems for the
analytic tools.”
Outside the Insurance World
Pauli believes there is much the industry
can learn about practice, procedure, and
attitude perspective from retail businesses.
“Retail uses analytics and models
literally across everything,” says Pauli.
“As an industry, insurers tend to use
analytics on personal lines coverage,
primarily auto, but there is no one in the
retail business that would make that kind
of a limiting decision. There’s something
to be learned everywhere.”
Pauli believes a second area insurers
need to study is what retailers do with a
particular product or product line: Retail
companies look at processes and try to
determine what can be done better.
“The insurance industry looks at
[products] differently to figure out why
something isn’t working,” she says.
“There’s value in that, but the retail atti-
tude is in optimizing things. Let’s get bet-
ter. Retail looks at how to make things
even better than they were last week or
last month and insurers can learn a lot
from that view of getting more out of the
things that are working for them.”
Some insurers have hired from the
retail industry to help change processes.
“We’ve gotten into thinking there are
things we can’t do because of regulation,”
she says. “Rather than figuring out how
to make it work from a regulatory perspective, we are allowing the regulatory
environment be the boundary of our
horizon, which is the way it’s been done
in the past.”
Other than the large direct writers
on the P&C side, insurers are not fast
followers in picking up most technology, admits Conlon, but most insurance
organizations are mid-sized and small
and aren’t leading the way as technology
innovators.
“[Insurers] tend to follow other
financial services and retail businesses,”
she says. “There aren’t an awful lot of
insurers doing interesting things with big
data, so we looked at other industries. A
lot of what those businesses are doing is
around analytics. Most of the interesting
work is related to big data.”
Retail businesses are taking analytics
to the individual consumer level, points
out Fowler. He recounts a story about
how Walmart was looking at their data
and noticed that before a major winter
storm, many Walmart stores sold out of
beer and strawberry Pop-Tarts. So, as
storms show up on the radar, they start
shipping more beer and strawberry Pop-
Tarts. As for insurers, Fowler believes
carriers need to see where trends are
starting to emerge.
“What kinds of quotes and cover-
ages are being asked for?” asks Fowler
“We might be maintaining four or five
coverages that no one ever uses, but if I
can look at my data I can start to learn
what consumers are asking for through
their agents.”
By looking at data and transactions
as a way to see what people are doing,
you can learn what is going on with cross
products or in certain geographies and
“If I can look at my
data I can start to
learn what con-
sumers are asking
for through their
agents.”
Bryan Fowler,
Oregon Mutual
