Predictive Analytics: Chase Results, Not Unicorns

Predictive Analytics: Chase Results, Not Unicorns
Marty Ellingsworth –

The secret to effective analytics is to apply it as a process, not a project. That essential strategic nuance gives hope to industry laggards while making the leaders look over their shoulders. Simply put, anyone can adopt a well-understood process, assuming executive commitment, strong communication, and diligent change management. However, if you believe analytics is a project that can make everything better, you’ll wind up chasing unicorns.

Equally critical, you should adopt several proven processes simultaneously to further improve performance — compounding the synergistic effects in each part of and across your enterprise.

In my last post, I mentioned this seven-level framework for evaluating where you are competitively in terms of relative capabilities for creating value via analytics (for more, see another article I wrote on the same topic).

Where Do You Fall in the Spectrum of Predictive Analytic Capabilities?

Figure 1

Companies vary widely in their abilities to create and use predictive information to manage their customer portfolios. There are seven stages of development for predictive analytic capabilities in insurance, and each has a level of investment and an expected return. The companies with the most mature capabilities will have invested in all seven stages shown in the illustration and, depending on individual jurisdictional restrictions, will have deployed analytic models to serve their customers and compete for others.

I noted you can apply the framework as a roadmap for each part of your organization (pricing, underwriting, marketing, sales, distribution, finance, and claims) that aims to improve itself using analytics.

If you think of your organizational chart as rows and columns on a spreadsheet, then overlay my framework of data-driven decision improvements on your org chart to create a multidimensional map of how everything your company does relates to improving profitable growth at a customer level. In pursuing such an approach, you must decide your pace and progress in each area of your company — how far up the seven levels to drive each area now and in the future.

Determine what you want to change before planning how to change it. To do that, look around you — if you deem your peers are ahead in pricing, marketing, claims, and distribution, then you need to make those process improvements broadly and, perhaps, quickly. If you believe you are ahead of the pack, then you need to reach for the next rung toward Level 7 to try to extend your lead. Ask your partners how you’re doing: If you’re a carrier and want an honest assessment of where you are in different categories – talk to a panel of independent agents.

Consider claims as a prime target to undergo the process described here, since the claims segment lends itself to a process-minded flow focusing on severity of loss, intensity of service, or frequency of occurrence, not to mention fraud and subrogation. Another perfect candidate is pricing, since multiple rating factors interact during a risk-based rating process.

It’s been said “dreams are the playground of unicorns.” I would suggest analytics is the playground of real-life workhorses.

Marty Ellingsworth is president of ISO Innovative Analytics (IIA), a member of the Verisk Insurance Solutions group at Verisk Analytics (Nasdaq:VRSK). Mr. Ellingsworth and IIA develop advanced predictive modeling tools for the property/casualty insurance industry.

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