IBM’s SPSS Acquisition May Speed Insurers’ Adoption of Predictive Analytics

After a six-month period of negotiations during which SPSS played hard-to-get, IBM finally secured a definitive merger agreement to acquire the business analytics vendor in an all-cash transaction of $50 per share — amounting to a deal value of about $1.2 billion. The vendor has characterized the deal as a horizontal play, whereby it expands its "Information on Demand" software portfolio and business analytics capabilities, including the range of products and services available through the vendors newly minted business Analytics and Optimization Consulting organization and network of Analytics Solutions Centers. However, the deal has resonance for the insurance industry in particular.

From IBM's perspective, the acquisition opens up significant opportunities across industries. Researcher IDC (Framingham, Mass.) estimates a global market for business analytics reaching $25 billion this year, constituting a 4 percent increase over 2008. But the technology area is a hot one for the insurance industry specifically, according to Matthew Josefowicz, director of Novarica's (New York) insurance practice.

"Our research shows that business intelligence is a top priority for insurers in 2009 and 2010, and one of the main drivers is to build a foundation for predictive analytics," Josefowicz comments. "While IBM no doubt had a broader perspective in mind, this should certainly give them another strong offering in their portfolio for insurers."

That strength resides not merely in SPSS as another arrow in IBM's quiver, but in the synergy between the analytics company and earlier acquisitions, according to Jonathan Steiman, a New York-based analyst with Datamonitor. For example, IBM's 2007 acquisition of Cognos gave IBM a lead in the performance management segment of the business intelligence (BI) market, he says.

"Performance management is less about predictive analytics and more about synthesizing disparate data into easy-to-digest information — performance management looks very much at the 'now' and not the future," Steiman comments. "SPSS, which uses data to predict trends or 'next best actions,' will further round out the offering."

Another way of putting it is that IBM needed to fill a conspicuous absence of functionality. "A big part of IBM's story is the promise to make data more actionable — more than just BI and decision making, it is about providing pervasive, real-time analytic capabilities to a company," says Kimberly, Harris-Ferrante, vice president and distinguished analyst, Gartner (Stamford, Conn.). "This is about filling that gap at IBM."

IBM faced a dearth of options for meeting that goal, according to Harris-Ferrante. "From an insurance point of view, there's little in the way of industry-specific predictive technology solutions available in the market that come with prebuilt industry models," she says. As a cross-industry play, IBM really had only two choices according to Ferrante: SPSS and SAS. "SAS had technologies that could fill that gap, but SAS is a large private company that has been very outspoken about having no intention to sell. SPSS had both extensive experience working with insurance companies and a solution that came with industry models that would allow IBM to quickly fill this gap."

To the extent that IBM follows through on its commitment to industry verticals, the acquisition can help fill a gap in the insurance industry itself, Harris-Ferrante argues. Predictive analytics remains a relatively unrealized technology area within the insurance industry, she opines. "There are fewer companies using this technology than aren't," she says.

One of the adoption challenges for analytics is the fact that the tools themselves don't put companies in a position to successfully use the technology. Insurers have lagged in analytics both because of concerns about the data that feeds analytic operations and because they lack the necessary skills to build predictive models, Harris-Ferrante notes. That being the case, IBM's industry-specific intellectual property and domain-competent consultants may spark an acceleration of the adoption of analytics, she speculates. ' "IBM is providing pre-built models for insurance-specific processes and pairing that with implementation services to help companies assess data quality, assess availability and tweak the pre-built models to suit their needs," Harris-Ferrante says. "You can see how this offering will be much more compelling than simply selling the tool in and of itself."

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