INSIGHT May 2010
Innovative technologies for the Insurance Industry
Business Intelligence (BI) and Business Performance Management (BPM)
The implementation of analytic solutions in the insurance
industry has been a medley of favourable and not so
favourable results. Insurance traditionally has been a
segmented industry. This holds true for not only companies
offering only single product lines, such as auto or life, but in
large multiline companies as well, where the different
business units function somewhat autonomously. While the
enterprise may offer revenue targets and other goals, the
sharing of data across units to facilitate cross-selling and
upselling leaves something to be desired for.
In the wake of immense competition, the insurance industry
today has moved on to adopt a customer-centric approach.
The product-focused approach to selling insurance products
that was used for the last 50 or more years no longer holds in
a customer-driven marketplace. Customers are now
demanding a portfolio of products from a single source that
will meet all their needs - from traditional insurance to
brokerage, securities management and banking. With
deregulation bringing down the barriers to entry and with the
Internet playing an increasingly predominant role as an
information/sales channel, with numerous new product lines
and financial services being offered, the need for more
accurate and timely analysis is paramount for an insurance
company's survival.
The strategic objective for any insurance company is to:

Gain a better understanding of the market and customers'
needs

Reduce operating costs through increased efficiency

Reduce customer churn and improve retention through
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better loyalty programs and customer service

Reduce and control risk

Identify opportunities to increase revenue by cross-selling
and up-selling
The BI and BPM opportunity in Insurance
So how do insurers address these challenges? What
technology can provide the payback required to address these
issues and accomplish their business objectives? The
technology being adopted by many insurers today is Business
Intelligence (BI) and Business Performance management
(BPM). So what makes BI and BPM more important than
other technologies especially for the insurance industry and
gives them a competitive edge?
A BI solution consists of using a data warehouse or data mart
as its base to integrate data multiple operational systems and
turning it into actionable information to drive business
performance.
The insurance business is data driven and people powered.
People who manage the business need the right data or
information to make informed decisions at all levels both
operational and strategic. Business intelligence, in essence, is
a set of enabling technologies that collects and presents the
"BI empowers organisations with perspective and
insight - derived from access to and analysis of
quantitative information sources."
- Gartner
 INSIGHT May 2010
data from disparate sources into views that are incisive and
fact based. It allows for more quality decisions to be made by
bringing in new insights and perspectives to questions and
answers inherent in the data.
With its massive amounts of data, ranging from basic
customer information to specific information on lines of
business, insurers are prime contenders for business
intelligence systems that will make a difference in maintaining
and growing competitive advantage. The industry needs to
take a look at itself, recognise this opportunity and then adjust
accordingly.
BI and BPM - Delivering value in turbulent times
The spirit of a BI strategy is the realisation that the various
business units or departments do not act in a vacuum. Data
is to be shared and maximised, not hoarded and used only for
a single purpose. Business rules for data elements must be
consistent across the enterprise. BI strategy must focus on
providing solutions to the business units in a way that makes
the multitude of business processes work in harmony with
each other. A BI strategy will detail processes for the
collection of business needs and the technological
alternatives for the solution.
An emerging area of BI is the analytic applications that
provide focused intelligence about the enterprise.
Applications like CRM, ERP and Supply Chain Management
initiatives have not only helped insurers eliminate the chaos of
operational systems and maintenance but also helped them to
derive value from implementing the analytical applications
that use the data from these applications. CRM analytics is
proving to be a boon for an organisation's CRM strategy.
Using CRM data to understand customer and product
affinities along with demographic data is allowing insurers to
fine tune new marketing programs, pricing plans and
profitable product baskets. In addition, predictive analysis can
help develop precise marketing campaigns based on customer
affinity analysis and prior campaign response rates.
A BI solution can also be used to analyse historical data on
policies, pricing, customer, event or incident information and
claims. This analysis helps identify policies and products with
the highest incidence of claims, compare actual loss ratios to
expected ratios and adjust pricing by customer segment.
Whether it is gaining easy access to facts without having to
access multiple application databases, performing
sophisticated analysis to view the data across multiple
dimensions, analysing sales information to identify trends,
analysing claims to reduce fraud, gaining better visibility into
enterprise expense structure or developing new insight by
combining data from multiple enterprise applications - BI is
the solution at the heart of each of these enterprise
objectives.
For example, when processing insurance claims, the insurance
provider must establish connections within a multi-source
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data entry process that deals with thousands of claims per
day. Claim processing moves a claim application from entry
to validation to authorisation to approval and ultimately to
payment. The company needs to manage the time it takes to
collate data from its many source points and to incorporate
rigorous screening checks. Process designers should identify
all points at which to customise claims, to perform additional
checks and to establish what authorisations and business rules
apply. To measure efficiency and effectiveness, process
planners need to analyse the business model, identify
bottlenecks and make improvements before executing the
modified business process. BI provides these analytics for
process efficiency and effectiveness by reporting on cycle
times and process constraints.
BPM complements BI
While BI provides insurance providers with tools to gain
insights into their existing data and to derive value from it,
BPM helps them to convert insights into action to gain a
competitive edge, thus, optimising the execution of overall
business strategy. Simply put, BI is enabling technology,
whereas BPM is a business process which leverages BI. Both
of these technologies complement each other and provide
value to an insurance organisation.
BPM is a four-step process split between strategy and
execution phases. Each step is enabled by various techniques
or technologies, depicted on the inner quadrants of the circle.
Nowadays, insurance professionals need to be flexible and
move quickly to respond to the conditions in their industry
and achieve three strategic objectives necessary to prosper in
a dynamic marketplace. These objectives are delivering new
services, increasing customer loyalty and achieving a lower
cost structure. Meeting these demanding objectives requires
the continual improvement of a portfolio of differentiated
financial services, which requires a significant investment in
transforming IT. Business performance management (BPM)
delivers the capabilities, enabling alignment from strategy to
operations, allowing access to all information within the
business context, analysing the information and enabling
action to be taken based on insights gained.
 INSIGHT May 2010
While processing claims insurance companies are faced with
meeting two seemingly conflicting performance objectives:
lowering the cost of claims from both a 'loss cost' and a
delivery (Loss Adjustment Expense) perspective and still
maintaining or improving their levels of customer
satisfaction. A high percentage of premium income goes to
claims, thus companies must lower these percentages to
improve profitability. At the same time, they need to address
customer complaints about the speed of processing claims,
accuracy and responsiveness. Many companies face
significant challenges in trying to balance these two
performance objectives.
The ability to model and simulate the claims process, from
notification of loss through its closure, is a key element of a
business performance management. Creating a model and
simulating the process enables business managers to have a
better understanding of the process structure and its
behaviour. This provides a view to managers to determine
where bottlenecks occur and decide costs and processing
times without ever deploying the process. Modelling
technologies enable "what if" scenarios to be performed to
compare and analyse structural choices as well as different
resource allocations. This modelling and simulation enables
consistency and predictability in the claims process for
different channels and products. BPM with analytic capability
(BI) provides another key dimension for insurance providers.
For example analysing the claims processes to understand
claims leakage i.e., the potential lost economic opportunity
within the claim payment and settlement process.
Precise identification and classification of customers is a
critical element for cost reduction and customer service
strategies. Insurance companies need integrated information
from various sources to build customer profiles. These
information sources can be the databases that hold policy
information, claims activity and personal data as well as
external information sources such as credit reports. BI
solutions enhance customer profile by identifying trends,
analysing claims history, determining product preferences,
identifying profitable customers and even applying a risk level
to customers based on certain patterns of behaviour, thereby,
improving the value of the integrated information. The
combination of information integration and BI allows an
insurer to have a clear picture of their customers and
potential customers.
Collectively, the components of a BPM solution i.e., process
modelling, monitoring, collaboration, analytics, and
information integration, allow insurers to align the strategic
initiatives of cost reduction and customer service. This
alignment enables all levels of the business to act on
contextual information and drive value for the insurer.
An ideal BPM solution automates flow of information,
notifications, and alerts with agents and customers, thus
allowing better and more up-to-date access to information. It
speeds up processes, reduces lag time, and ensures that tasks
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are completed on time. BPM allows companies to respond
quickly to changes in business demand, new opportunities,
and regulatory requirements. BPM improves coordination
among business units and functional groups in an insurance
company that otherwise might act as independent fiefdoms,
hoarding rather than sharing resources and information.
To Conclude…
Given the current economic climate, increased financial
pressures, and the evolution of information technology, it's
no surprise that BI and BPM are gaining traction now. These
two disciplines provide organisations with a new competitive
edge, helping them cement their new found efficiencies with
greater organisational effectiveness. Business performance
management (BPM) by itself is not:

A technology or software solution or a BI platform

Budgeting or planning or financial consolidation and
reporting platform

Scorecarding or dashboards

Forecasting and scenario modelling or key performance
indicators platform
BPM is a series of business processes and applications that
enable the execution of business strategy. BPM fosters good
management by making it easier for executives at all levels to
understand, communicate, and monitor the key drivers of
business value. To deliver a BPM solution, organisations must
integrate all of the above components in a seamless fashion.
To attain the process goals of efficiency, productivity, control,
response and improvement, insurance companies first must
understand their processes, the needs and skills of the people
who use them, the changes that affect them and which areas
need improvement. To understand these things, they need
relevant information and the ability to analyse and apply it.
Business intelligence (BI) tools provide this information, its
contexts and appropriate analytics. BI delivers information
that, when linked with BPM, gives people the input they
require to improve business processes and performance.
Ref: BI and BPM - Ventana Research
Why BPM - ebizQ
Best Practices in BPM - TDWI