Insurance. White Paper. Business Intelligence Strategy for New Age Insurers

Transcription

1 Insurance White Paper Business Intelligence Strategy for New Age Insurers

2 About the Author Kanya Saraswathy C The author, Kanya Saraswathy C, heads the Knowledge Management and Capability Development function of the Insurance Domain Services Group.. She is a Commerce Graduate and a Master of Business Administration, specializing in Finance and Marketing. She has a rich experience of 27 years in Insurance. In the Insurance industry, she has worked in leadership roles with a top Property and Casualty Insurer in India, in core insurance functions, Accounting and IT implementation. In TCS, she has worked on diverse functions in the Insurance Practice including Consulting, Knowledge Development and Learning, Assets and Offerings creation and Pre Sales. She worked as a Subject Matter Expert (SME) for a large Business Intelligence Solution project with a world-leading insurer. She was also the Business Architect for India s leading Non Life Insurer s Core Insurance Solution, planning and coordinating the configuration of 300 insurance products in the project. She actively supports key wins in the Insurance Vertical, for insurers in various geographies, working with teams at multiple locations. She has created digitized training assets for inducting new recruits into the Insurance Industry Solution Unit.

3 Insurance carriers have witnessed exponential growth in recent times with focused introduction of innovative products supported by aggressive marketing strategies. This has brought about an increase in data volumes, and also a growth in diversity and frequency of use of data. Insurers globally continue to face the problem of processing data to get useful, meaningful and timely information that identifies users needs for improved decision making. High-performance organizations, as defined by the research firm Gartner, enable their employees with the right information to make intelligent decisions. Building a successful Business Intelligence (BI) system for an insurer involves free flow of information shared across the organization, in an actionable format, spanning all levels. BI, in a nutshell, encompasses a set of enabling technologies that collect and present the data from disparate sources into intelligent and fact-based views. A BI system results in bringing dynamism to obtaining information from the existing data. Need for a BI Strategy for Insurers While insures have been investing heavily in BI systems and tools, many have not realized the potential return on investments (RoI). This situation arises due to a lack of approaching BI in a methodical and planned fashion, and anticipating the success of the BI program by popularity of the tool alone. Insurers have experienced that some packaged intelligence solutions serve only as standalone systems, which when implemented, are not integrated with the existing BI systems. This results in a lack of information sharing across the organization, apart from addressing the information needs in all the business areas. In short, insurers can reap the full benefits of implementing BI systems only if it is preceded by a BI Strategy. Akin to many core business functions, insurers have their own unique sources and varied uses of business intelligence, making it critical for a comprehensive strategy and plan to be developed to meet the needs of each unique business situation. Some key points discussed in this paper include the benefits and goals of a BI Strategy, BI needs of insurers, the components or areas of BI strategy, and the scope of a BI strategy.

4 Contents 1. Business Intelligence Needs of Insurers 5 2. The Process of BI Strategy Development 6 3. Key Benefits of implementing a BI Strategy 6 4. Components of a BI Strategy 7 5. Key Steps in formulating a BI Strategy Lessons learnt - from the practitioner's desk Conclusion References 12

5 Business Intelligence Needs of Insurers Success for today s insurers depends on quick decisions taken on straightforward and actionable information. Stiff competition is forcing insurers to take steps in building closer ties with their customers. The key factors that drive the sourcing, collection and analysis of information are: Competition from financial partners: Financial services firms and banks that were once a great source of business, pose a new competitive threat by turning into new players in insurance. They take away large chunks of business in the commercial and personal lines space. Recessionary trends: The recent economic downturn in many developed countries has its effects in reduced spending on insurance. Insurance purchase is moving to a need-based approach, like auto insurance, from a savings-based approach. Customer-centric Market: The insurance market has evolved from a product-centric approach to a customercentric approach, even in developing countries in the Asian region, where customer-centric products and pricing to suit the varied segments is the need of the hour. Mergers and acquisitions: This is another key reason. When two insurers or reinsurers are merged it is important to have a unified view of the customer data base of both companies as well as the intelligence on other data on prospects, claims and accounting. The business needs of insurers have been classified according to the hierarchy of business users in an organization in Figure 1. Directors Managers Operational Supervisors Clear visualisation of data High Operational Staff Low Quantity of Users Figure 1: Business Needs of Insurers 5

6 The Process of BI Strategy Development The fundamental ideology of a BI strategy is that the various business units or departments do not act in silos. Data is to be maximized and shared across the organization, not hoarded and used for singular purposes only. It is important to look into key areas like BI Scope, Technical Architecture which would define the BI environment and Reporting Environment as highlighted in Figure 2. Addressing the information needs of an insurer involves development of a comprehensive strategy as well as an implementation plan for BI initiatives to deliver a BI solution that: Acts as a single point of access to all critical business information. For example, a BI system should be able to provide through single access, information on policies, claims, renewals and grievances of the insured. Provides core insight to the top management to aid decision making. Provides a platform for performance measurement across all business functions. Provides a foundation to monitor day to day activities and intelligence for quick course correction at various levels. Figure 2: Areas Evaluated for a Business Strategy Key Benefits of Implementing a BI Strategy It is essential to have a carefully designed BI strategy for combining the common business intelligence needs of all units and departments of an insurer under one group. It is also vital to study the existing technology infrastructure to determine its suitability to support strategic BI and recommend changes only if required. The long standing benefits of implementing a BI strategy include: Understanding strategic business initiatives and increasing visibility for BI to provide a high ROI in these initiatives. For instance, an insurer may be planning to enter new lines of business. The BI strategy could provide cross sell capability, tapping the existing customer base to position the new products successfully. 6

7 Developing a common definition for business rules for data elements across the enterprise. For example, timedout quote can be defined as: one month after issue, three months after issue, and so on. Providing solutions to enable the multitude of business processes to work in perfect harmony with each other. An insurer has various business functions like Product Development, Underwriting, Policy Administration, Claims Management, Human Resources, and Finance that need to work in tandem with a smooth flow of information among them. Evaluating existing BI activities to assess their support in achieving strategic business objectives. Drawing a BI Strategy roadmap for the insurer which will cover the business and technology implementation process, together with the investments involved. The investment in BI tools, human resources and technology setup for the BI implementation are outlined in detail. Components of a BI Strategy An insurer with widespread offices faces problems due to the lack of a common approach in assimilation, analysis and synthesis of information. The strategy will clearly convey to the entire organization that the top management is contemplating BI as the modus operandi to manage operations. It aims to put an end to securing varied systems in different functional units which only address short term business problems. While developing a BI strategy, it is important to plan for the long term needs of all the users of an organization, while responding to any user s immediate needs. A business strategy comprises of some technological and business components as shown in Figure 3, with certain key components elaborated further: Vision Approvals & Governance BI Needs Marketing Promotion E-Intelligence Technical Architecture Security Organization Figure 3: Components of a Business Intelligence Strategy 7

8 Business Components Vision At the end of a BI strategy exercise, the vision of an organization, together with the strategy, goals and objectives are discussed and finalized to provide a framework for the organization s BI. The vision of the company that BI has helped achieve can be determined by points such as the present and future territories in which an insurer operates, product lines in the past and future, and mergers and acquisitions in the offing. BI Objectives that form the guiding factor for a good BI exercise are drawn at this stage. BI Needs This involves a detailed study of various stakeholders across the insurance value chain and their BI needs. For example: Daily BI Updates This includes updates from Volumes, Revenues, Claims, Service Levels Conversion Rates, and so on. These are further analyzed by Trends, Alerts, Product/Channel, and Segments. Key Performance Indicators (KPI) dashboards - Details indicated include Volumes, Revenues, Expenses, Claims, Market Penetration, Service Levels, Conversion Rates, and Customer Satisfaction. These are measured by Required Available Gap (RAG) matrix, Trends, Year to Date, Year-on-Year, Exceptions, Ratios, Performance Indicators of Product, Channel, Segment, and Geography. Analytics Details studied include Volumes, Revenues, Expenses, Claims, Penetration, Service Levels, and Market Share. These are measured by Drill Down using power play cubes, Data Mining, and Analytical Models. Operational - Owner or task-specific metrics like Response Time (such as time to attend a customer call), Output Quality (like volumes of claims handled), and so on within customer-facing departments. These are measured by detailed reports and summary reports designed according to office, product, and channel based on individual user needs. Governance This group will provide counseling, support and guidance to the entire BI activity while aiding in strategy development along with the solution provider. Organization The activity involved is identifying the organization for the proposed BI system. Key questions include - Who is going to manage the data warehouse?, Will a separate BI group exist within the business and IT teams? and so on. A BI team, usually framed from key business and Information Technology teams of an insurer, will work on planning and managing BI activities along with the BI solution provider. 8

9 Marketing Promotion An Insurer could use BI for many themes like Profitability Erosion Identification of profitable business It could be a new line of business like group health insurance for a specialty business underwriter or entering new geographies which could be profitable for existing lines of business. Strategy to combat price competition An insurer faces the effect of volatile capital markets, where investment and returns are heavily impacted. Price competition exists with the educated and highly price sensitive insurance customers today. This calls for the need to have a strategy to read market movements and react quickly with premium changes. Customer retention It is imperative for an insurer to understand the key factors which drive satisfaction for his customers. Timely claims settlements, hassle free assessment of risk, on-time renewal of policies are important factors. There is need for a strategy to retain the profitable customer segments through targeted schemes. Revenue Maximisation An insurer likes to make sure that the marketing promotions focus on the right target groups for offers of cross sell and up sell which needs planning of BI capability. For instance an insurer may like to sell home insurance at a discount of 20 per cent to those auto insurance buyers who have been with the insurer for more than two years, with an average claims ration of less than 25 per cent. BI strategy is needed to plan what information would be required by various marketing channels to follow on the promotional offers being made. The crux of marketing promotion is that like highlighted above, the needs of the various functional units in an insurance organization like underwriting, sales and marketing and claims needs to be anticipated, brainstormed with the functional teams. The BI customers are not only current BI users who log onto the system, they would include: The decision makers - comprising those who rely on data and analyses, but who may not log on The gatekeepers - who provide custom reports and create spread marts Technical Components E-Intelligence This involves deriving synergy with business intelligence. An example would be adding click stream data which includes insurance prospects to existing BI data on customers to enable cross sell of multiple lines of products. Technical Architecture This task focuses on drawing up the conceptual architecture required to support the BI efforts. Strategy pertaining to building data marts and the enterprise data warehouse is finalized at this stage. A view of the external and internal sources of data as well as the time period into the past until when meaningful data is available across the business functions helps make decisions. 9

10 Security Creating a centralized architecture for a BI solution means that a lot of potentially sensitive data of the insurer is aggregated in one place and used by many. An attacker if successful, can gains access to vast quantities of data; there if treat that the insurer s information could be altered. Insurers similar to banks have a lot of customer specific and sensitive data and are bound to protect them by building adequate security as a key feature of the BI systems. Insurers could surmount this by adopting some precautions like: Selective Access - Users should only be provided access to data on an as-needed basis. For instance an insurance claims manager could be restricted access to the records pertaining to the area assigned to him. De-identification It is an irreversible process towards security that strips data of elements which represent personally identifiable information (PII); for an insurance customer it could include data such as names, phone numbers, property address, vehicle number, social security number, and credit card number. Tokenization - This process which is a method to implement de-identification involves substituting sensitive data with tokens that provide reference to the data present in some other external database. In effect only tokens are exposed to BI users, and additional privileges are required to access the underlying data. This could be used in the call centre of insurance companies for the representatives to use needed information though tokens. Key Benefits of implementing a BI Strategy The key steps for a vendor working on a BI solution are: Conducting interviews with Directors and key business users. Carrying out research on BI best practices and the Insurance Market environment in the country involved. Defining proposed business solutions and a high level logical data model. Defining governance models, structures and resources to deliver. Drawing amended Data Warehouse Architecture to support delivery. Defining the strategy to support solutions delivered and the implementation plan. Formulating a BI strategy for an insurer requires a thorough understanding of the business process along the core and noncore insurance functions and the underlying and interconnected activities and data models. A BI implementation following the BI strategy often involves a high investment, which has to be supported with a corresponding high Return on Investment (ROI). This requires great care to work with the insurers to understand the exact data flow between various functional units as well the external agencies such as credit score providers, driving history providers and health. This information on the data flow with the details on the underlying components of data needs to be mapped with the information needs of the various functional units such as underwriting, policy Administration and similar functional units of the insurer. Having a thorough understanding of these for an insurer before the commencement of a BI Strategy or implementation exercise is important, while it will be suitably adapted to the particular insurer the BI partner is working with to take care of variances at a company or geography level. 10

11 Lessons learnt - from the practitioner's desk Any BI Strategy creation effort would be successful if it is a very focussed and combined effort from both the team of the external BI consultants and the key stakeholders from the business and IT organization of the insurer. Representation from all functional groups such as underwriting, sales and marketing, policy administration, claims management along with accounting and reporting is essential. Some lessons learnt from our experience in BI strategy implementations which provide a guideline for a successful BI strategy creation and adoption include: Discussions on business objectives, problems, and challenges that are being targeted for resolution Collect all relevant documentation available from the insurer The boundaries of the target system need to be clearly defined The consultants would need to further capture all relevant diagrams like data flows Activities Recommend implementation roadmap in a phased approach Figure 4: Best Practices - BI Strategy Development While working with the current environment and current BI vision, the BI consultants also need to ensure that there is enough flexibility to accommodate to changing needs of an insurer who operates in a scenario with many regulatory, market and customer preference changes. 11

12 Conclusion What is the scenario in the insurance markets today which makes it important to have a BI Strategy? What would be the risks of not having a BI strategy but directly investing in BI tools or technology? With deregulation in many insurance markets leading to intense competition, the internet playing a predominant role as a sales/information channel and with more products lines and financial services being tagged with insurance, the need for more accurate and timely analysis is vital for an insurance company s survival. However, the ability for insurers to seamlessly deliver this analytic capability has been far from ideal. Why cannot insurers with massive amounts of data turn that data into information that is sharable and useful? Most often, the cause can be traced to the lack of an overall business intelligence strategy. For instance an insurance organization s CIO who heads the IT department, more often has an IT strategy, a data warehouse strategy or even a data storage strategy. Yet, everything will not be completed covered. There needs to be a way to integrate those disparate knowledge silos. For instance claims and underwriting may not know what is happening with each other's business. The agency force and marketing department may not function in synch. There is a need to fit in all of this in the market insurers operate today. The purpose of a BI strategy for an insurer is to appreciate and ensure that the various functional units to not operate in a vacuum. A well planned BI strategy for an insurer will result in data being shared and maximized across the organization without being hoarded and used for a single purpose. This will help achieve the ultimate objective of making the BI environment an integral part of the decision making process. To quote John D. Rockefeller, "He who has the most information wins." A full-fledged Business Information System proves to be the heart of an insurer s body by constantly pumping in information, leading to more and more wins. [1] Business Objects, Business Intelligence: Insight for the Insurance Industry, accessed 19th December, [2] Information Management, The Need for a Business Intelligence Strategy: A Critical Analysis for the Insurance Industry, June 2000, accessed 2nd December, [3] Enterprise Business Intelleigence [4] RCG Global Services, Business Intelligence for the Insurance Industry: Driving Bottom Line Results, 2011, accessed 30th November, [5] Collaborative Consulting,Mobile Business Intelligence Strategy, accessed 7th March, [6] 12

13 About TCS' Insurance Business Unit With over four decades of experience in working with insurers globally, TCS delivers solutions and services to help insurers meet rising customer and agent expectations, address non-traditional competitors, manage low investment yields, and drive growth in emerging global markets. TCS has built an unmatched track record in enabling insurers transform, enhance business agility, improve operational efficiencies and increase customer engagement, while ensuring regulatory compliance. 7of the 10 world's largest insurers and over a hundred insurers globally partner with TCS. Our state-of-the-art innovation labs and global solution centers, and cutting edge solutions and technologies set clients apart from their competitors. We leverage the combined expertise of our industry trained and certified (LOMA, LIMRA, CPCU and so on) consultants to support the entire value chain for Life, Annuities and Pensions, Property and Casualty, Health, Commercial and Reinsurance companies. Contact For more information about TCS' Insurance services, visit: global.insurance@tcs.com Subscribe to TCS White Papers TCS.com RSS: Feedburner: About Tata Consultancy Services (TCS) Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure, engineering and assurance services. This is delivered through its unique Global Network Delivery ModelTM, recognized as the benchmark of excellence in software development. A part of the Tata Group, India s largest industrial conglomerate, TCS has a global footprint and is listed on the National Stock Exchange and Bombay Stock Exchange in India. IT Services Business Solutions Consulting All content / information present here is the exclusive property of Tata Consultancy Services Limited (TCS). The content / information contained here is correct at the time of publishing. No material from here may be copied, modified, reproduced, republished, uploaded, transmitted, posted or distributed in any form without prior written permission from TCS. Unauthorized use of the content / information appearing here may violate copyright, trademark and other applicable laws, and could result in criminal or civil penalties. Copyright 2013 Tata Consultancy Services Limited TCS Design Services I M I 10 I 13 For more information, visit us at