Insurance carriers are in the business of selling policies that hedge against the risk of contingent loss. The challenge is how to adequately price policies to be both profitable and attractive to the market. Price too low and a carrier will see their loss ratio escalate and profits diminish. Price too high and a carrier will have a difficult time winning or retaining business. Determining the optimum price is the “holy grail” of underwriting mastery.
Predictive analytics is the solution to this challenge. By using multivariate, nonlinear modeling, predictive analytics applies statistics against past experience to generalize conclusions about future outcomes. Specifically, for underwriting, predictive analytics would take past claims experience, combined with indicators about a policy, to estimate of losses for prospective policies that are written. In doing so, predictive analytics will enable your underwriters to price-to-risk more accurately than your competition.
Similarly, for premium audit, predictive analytics would look at past audit experience, combined with fraud indicators about a policy, to spot upcoming policies that are in need of audit.
To help you confront this challenge, StoneRiver teamed up with Valen Technologies to provide a prepackaged predictive analytic solution that bolts-on seamlessly to your StoneRiver policy administration system.
Why Predictive analytics?
“80% of the effort to building a predictive model is preparing, cleansing, and enriching the data for analysis.” says Dan Bankson, SVP of Analytics at Valen Technologies, “and once you’ve built the model, you’re only halfway there to successfully deploy it into your business operations.”
With Predictive Analytics, powered by Valen, create a statistical grade dataset for use in modeling is as simple as invoking StoneRiver’s Modeling Data Extractor (MDE). The MDE performs statistical validation checks to ensure that the data is scrubbed and of statistical grade. The MDE also pulls matching keys to enable you to easily enrich data with Valen’s EDW™. Valen’s EDW contains hundreds of additional personal, firmagraphic, geographic, industry, and econometric indicators that can be used to provide an additional boost to the performance of your model.
Worried that you don’t have a credible amount of data? No problem. With Valen Networks™ your data can be augmented with consortium data to boost the credibility of the analytics, enabling your company to profitably grow into market segments where you might not have a great deal of historical experience. StoneRiver’s MDE not only takes the majority of the effort out of preparing a dataset, it has been specifically tuned to provide a solid foundation of data to support a robust predictive model.
Even when a model is developed, there's no guarantee that it is being practiced in the field. That's why it's important to integrate predictive analytics into your business operations. Rather than adding another system for your underwriters to use, Predictive Analytics, powered by Valen, provides a single place for your underwriters to schedule rate, quote, and bind a policy. With seamless integration with StoneRiver’s policy administration user interface, a predictive model can be deployed to your underwriters without requiring a large IT project. With built in business rules and workflow needed to support analytically-driven straight through processing, risk selection, tier placement, company placement, and schedule rating, Predictive Analytics powered by Valen ensures that your business will reap the benefit of predictive analytics by helping you improve underwriting discipline and consistency.
Why buy now?
The insurance market historically has consistently oscillated between hard and soft market cycles. A hard market is followed by a period of generally flat rates, which precedes a soft market, then another period of flat rates and--coming full circle--another hard market. The cause, depth and duration of each period may vary, but the cycle does not.
Insurers should not fall prey to having their underwriting decisions completely dictated by the soft market cycle. As a result, an insurance carrier risks putting short-term results before long-term financial health. Gaining market share in a soft market by dropping prices is a gamble. It can boost an insurance carrier's top and bottom line in the short term. However, over time, the result is inescapable--greater exposure with poorer margins. To lessen the impact, carriers need to maintain underwriting discipline in the face of pressures to slash premiums. Enabling that discipline is Predictive Analytics, powered by Valen, which will empower your underwriters with indications where to cut premiums without sacrificing long-term financial health.