Predictive analytics is the practice of extracting information from existing data sets in order to determine patterns and predict future outcomes and trends. Insurance companies can use these sophisticated tools to increase accuracy in risk selection, pricing, and claims handling. With proven models and expert interpretation, carriers are more equipped than ever to make intelligent business strategy decisions that raise revenue and lower costs.
Here are some of the ways the use of predictive models has been proven to help insurance companies enhance their profitability.
Deciding which risks to write and which to avoid was once an art. With predictive analytics, it’s now a science. The use of predictive models eliminates the guess-work that arises when a company must decide whether to write a particular demographic or whether it makes sense to try to offer a competitive product that is trending in the marketplace. Predictive models can compare data from various demographics, locations, weather, crime statistics, previous claims and other touch points that reveal an accurate picture as to whether each risk is worth writing. Understanding this before binding policies can generate significant savings by not heading down the path of unsuccessful products.
Pricing models help insurance providers segment the market on an astonishingly detailed level, accounting for hundreds of variables that were not able to be measured with such a high degree of accuracy in the past. Equipped with this information, insurance companies can develop pricing strategies for their products that reflect the true value of the risk they are covering.
Insurance carriers can also enhance their profitability by improving the claims handling process. Predictive models help identify and reduce fraud and slow down claims leakage. By relying on predictive modeling, companies can be sure that they’re paying claims at the right cost. These tools provide additional accuracy that improves claim assignment to claims adjusters to get the right experience needed for the type of claim, thereby helping with the company’s bottom line.
Many insurance companies lack the capital to support an entire predictive analytics department and therefore feel that this resource is beyond their reach. However, actuarial services companies like Perr&Knight understand the tremendous value offered by these models and provide these services for companies who want to increase profitability and compete on a scale with larger insurance providers.
For companies that have never undertaken any type of predictive analytics, we recommend reaching out to third-party support services to discover previously unseen opportunities available through the use of predictive modeling. Actuarial services companies with predictive analytics departments have extensive experience running insurance models on relevant data, integrating outside data and providing the results of the analytics in a usable format that clarifies decision making.
For best results, it’s very important to note that predictive modeling should be applied on an ongoing basis. It’s not a “one-and-done” process. Companies should look for early indicators of marketplace change and be proactive about adjusting pricing and claims handling strategies. By staying on top of these fluctuations with regular monitoring, insurance companies can not only increase profitability but can maintain their edge over time.
Predictive analytics reduces the risk in the risky business of insurance. With the vast amount of data pouring in today, many companies realize the advantage of letting high-powered computers synthesize information with lightning speed. Once the computers have run their algorithms, actuarial services staff can apply their valuable expertise to interpreting the results. This is not only a more efficient use of manpower, but it frees up staff to focus decision making on additional profit-enhancing strategies.
If you would like to learn more about how predictive analytics can help your company, contact Perr&Knight at (888)201-5123 x3 and we’ll outline all the ways that predictive modeling can enhance your organizations’ profitability.