As returning attendees know, each Insurity Valen Summit opens with a hands-on executive workshop to put theory into practice. At this year’s Summit, we continued that tradition by challenging attendees with a simulation to illustrate the value of data-driven decision-making throughout the organization. With aggressive goals and limited resources, attendees had to design a strategy to help their team outperform the competition. This year we focused on the power of straight–through processing (STP) and using predictive analytics at the point of underwriting.
Here’s how the exercise worked:
- Attendees were split into groups, each representing a unique insurance company in the fiercely competitive and complex market for avalanche insurance (a real thing, and especially necessary in the mountains of Colorado where we held this Summit!).
- Each insurance company’s board of directors has mandated operational changes in an effort to become more efficient and drive profitable growth using STP and advanced analytics.
- Each company is in a head-to-head competition with all the other companies in the room.
The “winning” team will be the one who develops and implements STP, successfully fending off the competition, increasing market share, and improving overall profitability through proven metrics such as increased underwriting efficiency, lower expense ratios, and improved quote response times. Likewise, they must strategize how to improve model– and underwriter–driven pricing, optimize their new and renewal pricing strategy, and control loss experiences on non-STP accounts.
Fortunately, each group was equipped with experienced underwriters and actuaries who relished both the complexity and the fun in this exercise. And, it was a lot of fun. In fact, one of our attendees remarked, “The avalanche STP exercise at the Summit conference was a great way to see analytics in action and the impact they can have on the bottom line. It also gets you interacting and having those insightful conversations with fellow attendees right out of the gate!”
“Insightful conversations” is exactly the goal that we had in mind with this exercise. The most successful teams recognize that STP is not the strategy—it is simply an essential part of it. It does not remove the human element, but rather complements it. And that is what we set out to prove. The effective use of analytics isn’t as much about reducing human underwriting involvement as it is about allocating and supporting resources effectively to achieve the best result. Those who leveraged predictive analytics alongside STP and allocated their resources most effectively, were the clear winners.
Here are a few key takeaways:
- There is no one right answer; the best decisions all must be made in the context of your individual situation and business strategy.
- STP can be a very beneficial addition to your business strategy, increasing the efficiency and effectiveness of underwriting, but by no means completely replacing it.
- Determining what should go through STP versus what can benefit from an underwriter review involves tradeoffs. You’ll need to carefully consider:
- How complex is the risk?
- Is additional information needed and available to the underwriter beyond what the model knows?
- Whether or not you utilize STP, it’s important that all pricing decisions are underpinned with a model recommendation in order to improve overall performance.
- For any advanced analytic solution, ongoing monitoring, assessment, and fine tuning are critical to optimizing results.
Dan Trotter, AVP Regulatory Compliance at BITCO Insurance Companies, summed up his workshop experience, stating, “This was my sixth year attending the annual Summit and obviously [I] feel it has been a worthwhile experience each and every time…I’m always amazed at how they tailor it to current issues surrounding the implementation and use of analytics. This year’s exercise focused on low frequency/high–severity exposures—something I think most insurers grapple with on some level. These exercises very quickly break down those barriers that often exist whenever any group comes together for the first time and really opens up the communication lines for the whole conference.”
Tune in next week as we discuss some of the key barriers that are holding insurers back from advancing their data analytics strategies, and what can be done about it.
Hear more from JJ Ihrke, Insurity’s vice president of applied analytics and chief scoring officer, at Connected 2020. Insurity clients: Visit connected.insurity.com to register. If you are not an Insurity client but would like to attend Connected 2020, please contact us at email@example.com.