A shift from predictive to prescriptive insurance analytics

Prescriptive analytics provides you with data-backed decision options that you can weigh against one another.

While data and analysis have always been at the heart of the insurance industry, analytics is becoming an increasingly essential component of every insurance profession and business.

The technologies and practices of analytics are advancing every day — and insurance carriers and insurance professionals would do well to understand and keep pace with advances in the application of analytics.

The speed of business, in general, is accelerating and the pace of decision-making must keep up. Data is becoming ever more abundant and advances in technology have opened new opportunities to create and capture value through analytics.

Underwriters and claims professionals are constantly challenged to make the right decisions quickly, and most realize that they can no longer rely on professional judgment alone.

Today, insurers need to leverage data-driven predictive insights that augment human intelligence to deliver superior business outcomes whether in pricing, claims, underwriting, operations — or sales and marketing.

One of the primary shifts we’re seeing in best-in-class insurance companies is the use and integration of analytics into business processes and decisions. Concurrently, at best-in-class companies, we are seeing evolution to — and focus on — moving from predictive analytics to prescriptive analytics.

Predictive analytics leverages AI and machine learning algorithms to build predictive models. Prescriptive analytics goes beyond predicting options to suggest or recommend a range of prescribed actions — and pairs that with information on the potential outcomes and consequences of each decision or action.

Predictive analytics provides you with the raw material for making informed decisions, while prescriptive analytics provides you with data-backed decision options that you can weigh against one another.

Let’s look at a sample use case of how predictive analytics and prescriptive analytics work in an insurance setting.

Currently, an insurance professional in any given line of work might get a couple core analytics to help guide their decision-making process. However, the amount of data and analytics available is growing rapidly, and it is not uncommon for a professional to have three, four or a half dozen or more analytics on their dashboard.

So, the growing dilemma is how to manage and make sense of all this information; how to interpret and apply the analytics. What action should I take? What decision is best for my organization?

Let’s look at this challenge from a customer retention standpoint, as an example. Predictive analytics might tell me that 85% of my policy lapses may come from 10% of my customers.

Prescriptive analytics puts a prescription, a recommendation, on top of the prediction. It may tell me the policy profitability, price sensitivity and price recommendation as well as cross-sell opportunities for a set of customers or an individual customer.

So now I have prescriptive data to help guide my decision-making and interaction with that 10% of customers — and specific advice for specific groups or customers. Put that information in the hands of underwriters, marketing and sales and we see that those companies increase their retention.

So, what does that equate to in growth and profitability? The average retention rate in the insurance industry is 84%, but best-in-class companies are beating that average by more than 10%.

If you compare two companies, one using baseline analytics and the other using prescriptive analytics, the outcomes in terms of growth and profit profitability are quite stark.

If we compare Company A and Company B, both with $1 billion in revenue or a $1 billion line of business. Company B (baseline) has an industry average 84% retention. Company A, using predictive and prescriptive analytics, achieves 91% retention. The growth after just one year is Company A increases revenue by $100 million and Company B has negligible growth. After just five years, Company B grows to $1.16 billion while Company A has grown to $1.6 billion. A difference of more than $400 million.

That’s a bottom-line view of the power of prescriptive analytics.

Taken from https://www.propertycasualty360.com/2022/04/01/a-shift-from-predictive-to-prescriptive-insurance-analytics/

Specific Technologies Driving Insurtech Investment in 2024

Understanding the Funding Decline The decrease in funding does not necessarily spell trouble for the insurance sector but instead highlights a strategic shift, the report suggests. “The insurance industry, like many sectors, is focusing on the most promising ventures with substantial insurance potential,” the report explains. “Insurers are directing their investments toward key areas and current trends such as embedded insurance, employee benefits, and cyber risk management. This strategic investment approach signals a forward-looking mindset within the industry.” Three Key Insurtech Trends for 2024 The report identifies three major trends shaping insurtech investments in 2024: Public Insurtech Companies: Financial and Growth Strategies The report also notes that public insurtech companies are prioritizing revenue growth as their main goal. These firms are restructuring their financial strategies to boost cash flow and capitalize on rising revenue streams. Their growth prospects are supported by expanding asset portfolios and strong market demand. “Public insurtech companies are focusing on revenue growth and optimizing their financial frameworks to increase cash flow,” the report states. “The growth potential for these companies is driven by increasing revenue opportunities, broadening asset bases, and a robust market for their services.” In summary, while global insurtech funding saw a decline in 2023, the industry’s focus on GenAI, digital process management, and connected insurance technologies is setting the stage for a dynamic and forward-looking 2024.

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Insurer Secures Unanimous Supreme Court Victory in New York Choice of Law Dispute

In the world of sports, a clean sweep, a shutout, or a perfect game is the ultimate achievement. In the legal arena, a unanimous decision from the U.S. Supreme Court is equally rare and significant. In a notable legal triumph, Great Lakes Insurance SE achieved a unanimous 9-0 victory in the Supreme Court on February 21, 2024. This victory follows a protracted legal battle that began in the District Court of Pennsylvania, advanced to the U.S. Court of Appeals for the Third Circuit, and culminated in the Supreme Court’s decisive ruling. Background of the Case: Great Lakes Insurance SE v. Raiders Retreat Realty Company The heart of the dispute was the insurance contract’s clause selecting New York law to govern any future legal conflicts. Although the financial implications of this case were relatively minor compared to the broader marine insurance industry, the insurer’s determination to uphold a crucial maritime legal principle has significant long-term implications for marine insurance. Faced with the insured’s counterclaims—including allegations of breach of fiduciary duty, insurance bad faith, and violations of Pennsylvania’s Unfair Trade Practices Law—the insurer was confronted with serious risks. Such claims could lead to the shifting of attorney’s fees, treble damages, and more, which might normally encourage insurers to settle rather than risk pursuing justice. However, Great Lakes Insurance, supported by The Goldman Maritime Law Group, opted to challenge the Third Circuit’s decision and seek clarity from the Supreme Court. Supreme Court Ruling: A Landmark Decision In a landmark ruling, Justice Brett Kavanaugh affirmed that choice of law provisions in maritime contracts should be upheld by default. This ruling is a major victory for establishing a consistent federal standard in maritime law and avoiding a patchwork of state laws that could complicate marine insurance disputes. The Supreme Court’s decision overturned the Third Circuit’s earlier judgment, which had questioned whether Pennsylvania’s public policy concerns might override the insurance contract’s choice of New York law. By upholding the New York choice of law clause, the Supreme Court eliminated the extra-contractual bad faith claims under Pennsylvania law, thereby ensuring that the dispute could be resolved based on the merits of the insurance claim itself. Significance of the Supreme Court’s Decision This ruling represents a significant advancement in maritime law, affirming that choice of law clauses in maritime contracts are generally enforceable. The decision establishes a clear, uniform legal framework for resolving maritime contract disputes, which will streamline the process and ensure fair adjudication of future insurance claims. Justice Clarence Thomas’s concurring opinion was particularly notable for its criticism of the 1955 Wilburn Boat v. Fireman’s Fund Insurance decision, which had previously influenced maritime insurance law. Thomas argued that Wilburn Boat was incorrectly decided and stressed that a uniform and enforceable set of rules is essential for the development of maritime law. Impact on the Marine Insurance Industry The Supreme Court’s decision sets a “bright-line” rule affirming that choice of law clauses are valid unless there is a strong argument against the selected jurisdiction. By endorsing New York’s insurance laws as a reasonable choice, the ruling supports a more consistent and predictable legal environment for marine insurers. This decision represents a major step forward in maritime law, helping insurers better assess risks, determine premiums, and ensure fair and efficient resolution of maritime insurance disputes.

A shift from predictive to prescriptive insurance analytics