300 Years of Data Analytics in Life

Insurance
Matt Ralph and Avanti Patki
© Matt Ralph & Avanti Patki

This presentation has been prepared for the 2016 Financial Services Forum.

The Institute Council wishes it to be understood that opinions put forward

herein are not necessarily those of the Institute and the Council is not
responsible for those opinions.
Data analytics in life insurance is old news…

…300 years old!

 When did the Life Insurance industry stop being the juggernaut of data analytics?
Bill of Mortality kept DeMoivre discovered

Sophistication of data analytics

weekly in London and more innovative
large cities on the analytics techniques
John Graunt’s Worker’s comp
Continent of Europe to 1662 work on
England: Friendly innovation,
warn the upper classes mortality tables,
Ancient Greece: Societies Telematics,
when the incidence of the birth of
Benevolent established Internet of Things
societies.
plague was starting to actuarial First life assurance
(likely little use of for P&C
Pensions (likely
increase so they could analytics company based on
formal analysis)
little use of
leave the city for the actuarial science
formal analysis)
supposed safety of the founded (the
countryside Equitable)

BC 1600 1700 1800 1900 2000

Athenian,
Babylonian and
Chinese traders First P&C insurer, GLMs and Empirical
bought/sold and business First offering of Bayes (a.k.a. credibility)
maritime insurer Accident techniques start being
insurance (likely established Insurance based used to price general Life
little use of (likely little use of on basic insurance contracts
formal analysis) formal analysis) analytics
General
What does data analytics look like in Life Insurance today?

350 years
ago
What does data analytics look like in General Insurance today?

• Modelling need became the mother of invention (e.g. auto, flood insurance)

• Alternatives data sources (IoT e.g. telematics in auto insurance)

• Workers Comp (analysis vests)

• P&C Insurance (risk analysing drones)

What does data analytics look like in other industries today?

• McDonalds: automated drive thru menus

• Tel Aviv Highway 1: higher tolls at busier times

• LA crime watch: algorithm to predict where crimes are likely to occur

• Southwest Airlines: speech analytics used on customer calls

• Morton’s steakhouse: real time response to (joke) customer requests

How do these industries compare in their customer appeal?

LIFE GENERAL OTHER

INSURANCE INSURANCE INDUSTRIES
We all know there’s value for Life Insurers in the data analytics space…
• Targeted marketing • Unstructured voice data analysis and
learning
• Robo-advice • Predict what customers want
before they ask for it
• 360 degree view of customer behaviour on
• Agent recruitment and social media
monitoring • Continuous real-time
underwriting
• Retention focus on high value customers,
• Leverage social media for employees, brokers
customer knowledge and • Leverage human digital
direct distribution (WeChat in records to tailor services
• Customer wellness and care management
China)

Sales & New business Product Claims Customer

Distribution underwriting Management Management Interactions

• Fraud detection using predictive analysis

• Customers now understand their
own risk much better (wearables,
apps e.g. MyFitnessPal, Pinterest)
• Shorter, less intrusive underwriting
• New predictors of health, using
data other than population
studies (23&Me)
• Shorten claims cycle times:
o higher customer satisfaction
o optimised instant payout limits
o reduced labour costs
o faster turnaround times for customers
• Easier classification of claims complexity
• Reduce and management litigation costs
…but life insurers still haven’t taken the leap!

What is stopping them?

DATA
AND
INFRASTRUCTURE

• Quality
• Usability
• Quantity
• Non traditional data
• Modelled variable
• Legacy systems
• Customer delivery
REGULATION
AND
UNDERINVESTMENT
• Compliance
• Insights ‘legal’?
• New infrastructure
• The right talent
• Customer delivery
• Longer payback period
• Tangible bottomline impact
INSULAR
AND
COMPLEX
INDUSTRY
• Why fix what ain’t broke
• No challengers (till now!)
• Fintechs: disruptors, not
opportunities
ETHICS
AND
PRIVACY
• Different “purpose”
compared to GI
• Stealth pricing
• Convenient vs creepy
CUSTOMER
COLLABORATION
• Customers uncomfortable
providing data
• LI not perceived as
innovative
• Customer trust
INTERNAL
CULTURE
• Box ticker BAU?
• Set up for real-time insights
…a plethora of issues – the funnel of doom

Data & Infrastructure

Investment and Resources

`
Environment

Ethics

Customer Collaboration

Internal Culture

$#!@
Despite this, analytics-focused innovation is creeping into the life insurance
industry

Bought by Many
An example of how niche markets are being tapped into using data analytics, addressing underinsurance
in the Australian life insurance market

LIME: Life Insurance Made Easy

An example of how ‘data-driven’ doesn’t just mean adding more systems…it’s a complete facelift for the
entire value chain

Beagle Street
An example of how the customer view of life insurance is being totally transformed
Build our Start saying Embrace our ‘If I had asked
own yes! legacy, people what
fandoms Join the become the they wanted,
fintechs, analytics they would
take the gurus once have said
investment again faster horses’
leap - Let’s stop
building faster
horses…