Similar to many companies, Hartford Life Insurance Co., an operating unit of Hartford Financial Services Inc., Hartford, Conn., wants to know what its customers are going to do-even before they do it.And the provider is largely succeeding at that, while also building a formidable variable annuity business that generated record sales in 2003 ($16.4 billion, up 42% from 2002). Practically, the company has turned the volatile variable annuity business into a science by using predictive analysis technology.
Using a grid computing solution known as Condor, which was developed at the University of Wisconsin-Madison, the company has been better able to provide income protection guarantees to customers by using Condor to calculate risk.
Hartford Life's Principal First product guarantees owners of annuities will generate income from their principal investment of up to 7% a year, even if the principal is affected by fluctuations in the equity markets.
But it's not enough to make a guarantee: Insurers such as Hartford Life also have to detect trends to remain profitable. All told, Hartford Life has 1.5 million contract holders.
"We model against these trends and come up with an unexpected risk scenario of the guarantees we offer," says Victorio Severino, CIO at Hartford Life. "We also model risk based on a policyholder's behavior."
With annuity products, investors are notorious for fund activity. Hartford Life believes it's critical to anticipate when this activity will occur. "If I know that Jane Doe always calls Hartford at the end of the quarter to find out about the value of her annuity, then we can anticipate this ahead of time and react," Severino says.
One customer tendency that Hartford Life detects is the tendency to liquidate contracts in favor of other investment options-perhaps outside Hartford Life. The company uses the analysis to retain customers with what could be best described as a pre-emptive strike.
"We can tell when a person might be inclined to shift money from our annuity to another program, based on how their assets have performed," explains Severino.
"They might have held an annuity with us for seven years. We've seen behavior where people will shift money at that point. As a result, we can get on the phone with their broker and make efforts to retain the business."
Hartford Life admittedly has collected a lot of data over the years. "But frankly at one point, we did not know how we were going to use it," says Severino.
"The way we collected data was not unlike a pack rat. But at some point you realize that there's gold in that collection-and you have to mine that gold."
