Carriers Must Put Profitability Before Growth

Some thoughts on the subject of yesterday's Insurance & Technology webcast Applying Analytics to Unite the Goals of Growth and Profitability, featuring speakers from Duck Creek, Advisen, and SMA:In an insurance market where growth and even retention are harder than ever to achieve, it's easy to focus on numbers of customers as the secret to success. But while it's still true that the formula for success still depends on having solid underwriting and as many customers as you can, insurers need to think differently about what those things mean. Everybody has seen the T.V. commercials of a certain auto insurer who blithely shares the rates of competitors and invites customers to take the lowest rate even if it is offered by another insurer. The smiling spokesman exudes candor and humility, but his insurance competitors no doubt sense cunning and triumphalism in the message. Behind that spokesman's nonchalance about losing customers to other insurers was his company's ability to force adverse selection on his competitors, through superior underwriting, powered by sophisticated analytics. No wonder he was smiling. This is the competitive world in which carriers must operate today. Companies that effectively leverage analytics to refine their ability to segment risk, have a window into the profitability of customer segments. Those who lag behind in analytic capabilities are flying blind in this respect. And not only are they less able to gauge profitability, they are more likely to be stuck with the worst risks relative to their competitors. Given this reality, insurance carriers have to approach strategy in a new light. They can no longer simply be experienced players in the art of underwriting a given range of business lines; today they must be a data-driven company that identifies its particular strengths and refines its underwriting appetite and target market segments through data analysis and predictive modeling. Success today means knowing what kind of a carrier you are, knowing the markets and the customers in them, and knowing the distributors. The goal is not merely to increase one's presence in familiar markets through existing and new distribution channels; rather, it is to choose between risks, markets and distributors based on an empirically validated understanding of their profitability. Growth and retention remain essential goals, but profitability means retaining and securing only the more profitable customers; dynamic distribution strategies are more important than ever, but carriers must discriminate between various producers and channels on the basis of their profitability; sustaining and increasing presence in markets is the essence of the business - but only those markets that will gain, not lose you money.Companies that effectively leverage analytics to refine their ability to segment risk, have a window into the profitability of customer segments. Those who lag behind in analytic capabilities are flying blind in this respect. And not only are they less able to gauge profitability, they are more likely to be stuck with the worst risks relative to their competitors.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio