By Dax Craig, CEO of Valen Analytics
Work comp carriers realize that predictive analytics is required to compete today, but initially tend to focus on the more technical or tactical aspects as they decide where to make crucial investments. Preoccupied with the “how” of using analytics, many forget the importance of “why” predictive analytics is needed. Without a solid strategic plan and measurable goals, analytics projects are doomed to either end in failure or reach only a fraction of their potential, wasting both time and resources. Most seasoned analytics decision makers know there are essential tenants to abide by:
- Select the specific business problem that analytics can solve
- Ensure buy-in from the C-suite
- Implement a clear strategy in both measuring and managing a predictive modeling project over its lifecycle
These ‘three commandments’ of analytics implementation work across any line of insurance and are incredibly important to a carrier’s overall success. To support these areas, there are best practices that help streamline the implementation process. No carrier will have the exact same experience as another because the way a company uses the model day-to-day must reflect each company’s own corporate culture. Here are a few ‘rules of engagement’ that will help carriers during implementation.
Focus is Everything
When key decision makers are told they must implement predictive analytics, their first question is often: Yes, but where exactly? Analytics is built on technology, but selecting where to implement it is purely a business decision. Carriers should start small, identify the biggest improvement areas within their company, and focus the analytics on addressing those issues. One carrier we worked with began expanding into new geographies and classes of business and realized their underwriting was deteriorating because of not having enough data to price these new risks adequately. They elected to use underwriting analytics to fill in their data and better match underwriting strategy to a variety of new risk considerations based on their expansion. A steady focus kept them aligned during the entire process and helped ensure the organization didn’t become too overwhelmed with the new changes.
Foster the Right Culture
Without visible support from the C-suite, there is little chance of getting buy-in with the entire organization, particularly from the front-line members who you will depend on to use analytics in their daily decisions. It’s critical to foster a culture that embraces innovation, while portraying the advantages of analytics and how they can become an invaluable weapon in an underwriter’s arsenal. A regional work comp carrier exemplified this by understanding that just a modest improvement in loss ratio equates to significant bottom line results for the entire company. To speed past competitors, they needed to implement predictive analytics. This carrier had a history of fostering a forward-thinking culture, which helped bring underwriters on board. A focus on culture allowed them to implement quickly and effectively to improve the overall risk quality of their portfolio.
Work WITH the Current System & Processes
If a carrier fosters a culture of innovation, then a system should be in place that allows for an iterative approach to implementing new technologies. For example, one work comp carrier we worked with prior to using analytics had amassed a group of expert underwriters in niche markets, which was critical to their success. They also knew equipping them with the right data tools to succeed in the future was necessary, so they introduced a predictive model initially as a tool to help “right-size” pricing. All risks were scored and put into 10 distinct buckets (bins) based on their assigned risk quality as indicated from the predictive scores. A range of credits and debits were allocated for each bucket based on their predicted loss ratios. The carrier’s underwriters could then price at that bin +/- 1 bin for new and +/- 2 bins for renewals. This flexibility to work within their current system created a process where underwriters could ease into the new technology, while still feeling empowered to make the final decision.
Support Your Own Growth
When a carrier decides to expand its business, there can be a lot of internal hand-wringing on the best ways to proceed. Implementing predictive analytics at a time of growth is what one carrier did to enormous success. With an already impressive history of underwriting performance, this carrier faced an urgent business reality that they needed to grow their own business in order to keep up with demand. The goal was twofold: support internal growth while continuing to deliver superior underwriting performance. Implementation at this crucial period ensured that the carrier had the appropriate alignment of price-to-risk while rapidly scaling their operation.
A successful analytics implementation can come in many different forms, though these rules of engagement apply to any work comp carrier. To create a sustainable, overarching predictive analytics strategy within an organization, carriers must be successful in making the case for predictive analytics initially, and follow through on the goals and strategies originally outlined to the team. You don’t build a skyscraper on a shaky foundation, and you don’t build predictive analytics projects on ambiguous goals.
About Dax Craig
Dax Craig is the co-founder, president, and chief executive officer of Valen Analytics. Based in Denver, Colorado, Valen is an advanced data and analytics provider for the property and casualty insurance industry. The company leverages its large consortium data assets to help carriers price insurance policies more accurately and achieve lower loss ratios.
Prior to founding Valen in 2004, Dax was founder and CEO of Xertex Technologies, which was acquired by global leader in the wireless antenna industry, Centurion Wireless. Dax proceeded to serve as vice president of global business development at Centurion, where he was directly responsible for global business development including sales, market definition, market segmentation, market research, strategic planning, and market development.
Dax graduated from the University of Tulsa with a bachelor’s degree in business administration and marketing. He earned his MBA in finance from the University of Colorado at Boulder.
About Valen Analytics
Valen Analytics is an advanced data and analytics provider for property and casualty insurance companies. We work with insurers who are actively looking to improve underwriting profits by driving growth and/or lowering their loss ratio. Our customers are focused on increasing competitive pressures, fighting adverse selection with innovative solutions, and raising awareness for the impending “experience gap” in underwriting with initiatives such as Tomorrow’s Talent Challenge. Our customers span many lines of business including Homeowners, Workers’ Compensation, Commercial Auto and Telematics, Commercial Package, Commercial Property, and BOP. Learn more about Valen at www.valen.com.