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The Baby Boom Generation is the largest wave of self-reliant investors to enter the retirement period since the shift to predominance of defined contribution plans. For insurers, the demographic composition of the customer base is likely to be the least controllable factor in the coming years.

By Cynthia Saccocia, TowerGroup

US government sources project that nearly six million people per decade will turn age 65 in the coming years, and that those age 65 and over will constitute an estimated 13.2 percent of the population by 2010, and nearly 16.5 percent by 2020. By the time the last of the Baby Boom Generation (those born 1943 to 1960) hits age 65, a full 20 percent of the population will be 65 years of age or older, representing the highest proportion of retired individuals in American history.

Insurers face this period with uncertainty because the Baby Boom Generation is the largest wave of self-reliant investors to enter the retirement period since the shift to predominance of defined contribution plans. Lacking precedent, it is not easy to predict investor behavior with certainty. What is certain is that the population shift is likely to polarize the investment community into two camps broadly made up of investors under the age of 50 and investors over 50. Winning the support of older investors while balancing the needs of younger ones will be tricky.

For insurers, the demographic composition of the customer base is likely to be the least controllable factor in the coming years. The changing nature of an insurer's business, from traditional insurance company to diverse financial service institution, complicates this issue further. What insurers can control, however, is their most valuable asset—data.

Insurers have the opportunity to access a wide variety of demographics from their vast stores of customer data. Research indicates that firms that leverage customer data improve business execution because they quickly adjust strategies to enhance performance and outpace the competition. What is apparent is that certain firms in the financial services industry will overpower the competition by using the available technologies in business intelligence and enterprise reporting.

Business analytics has quickly matured from traditional data mining to advanced business intelligence enterprise reporting tools. Data mining is an automated process whereby various algorithms perform searches and queries against large arrays of data to ascertain patterns and project future behavior against historical results. Business intelligence has traditionally been associated with multi-dimensional analysis of complex data relationships arising from relatively disparate functions. Enterprise-reporting tools have traditionally focused on publishing business intelligence results. It is now common, however, to find business intelligence and enterprise reporting grouped together in a single offering.

Business intelligence environments are advancing toward large-scale Web-enabled information delivery platforms. This trend is due, in part, to the market demand for "light" analytics, such as simple analysis of key operating data for the population of business users whose most frequent need is to view and print prepared reports.

Second, the population of users who use the technology for "heavy" analytics to analyze relationships and understand trends, such as those supported by data mining and online analytical processing (OLAP) functions, is shrinking. As a result, "front-end" tools such as Web-based delivery and graphics are gaining focus. The latest technological innovations in Web-enabled business intelligence solutions can strengthen a firm's ability to facilitate accessibility and integration of information to many layers of the organization. The benefits are in the results—better, faster decisions bring about efficient and effective business processes.

Changes in today's competitive marketplace are driving the need for insurers to become more knowledgeable about their customers and distribution partners. The necessity to reduce operational cost places added pressure on managers to advance business performance. Therefore, it is imperative for executives and managers to have at their disposal the most current and accurate information about the company's activities to facilitate strategic and tactical business planning.

As insurers assess next steps to address the impending demographic shift, it is important for them to understand how customer data can enrich business performance planning. A well-orchestrated network of data gathering and information analysis can steer the development of highly competitive short- and long-term plans. Business analytics in strategic and tactical business planning focuses executives and managers on key metrics. The result is often well-articulated plans to direct resources to high-value segments of the enterprise and improvement in the bottom line.

Hear more from Cynthia Saccocia and other TowerGroup analysts about leveraging customer data at the upcoming Customer Service Leadership Forum, produced by Insurance & Technology, Wednesday, April 2, the Roosevelt Hotel, New York City. For more information and to register, visit

Cynthia Saccocia is Senior Analyst, Insurance Practice, at TowerGroup (Needham, MA), which provides a comprehensive range of research and advisory services focused on the financial services industry. Visit TowerGroup online at

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