Life/Annuity Insurers Focus Analytics Efforts on Customer Acquisition

Analytics is playing an increasingly important role in customer acquisition for the life/annuity industries, according to a new study from Strategy Meets Action, as insurers across all sizes were found investing most heavily in analytics for product development (70 percent), new business/underwriting (64 percent) and marketing (54 percent).

While SMA’s survey found that about one in four insurers are spending 10 percent or more of the IT budget on data and analytics (26 percent of group companies, 25 percent of individual), about the same amount were found allocating less than five percent. According to SMA, “these companies will find it difficult to compete in coming years as their competitors gain new levels of insight.” The average life/annuity insurer invests approximately 8.5 percent of the IT budget on data and analytics. Approximately the same amount is invested by business units—with funds coming from their own budgets. In total, life/annuity insurers in North America spend almost $5 billion per year on data analytics, and 67 percent of life/annuity insurers plan to increase analytics spending over the next three years.

The focus of these investments for life/annuity insurers is on basic business intelligence capabilities such as reporting, dashboards and ad-hoc analysis. Investments have only recently seen a spike in predictive analytics. In terms of customer acquisition, the most valuable insight, according to insurers, was easily real-time cross-sell/up-sell opportunity identification, with 60 percent of individual and 59 percent of group insurers citing it. Life event triggers for new product needs followed with about half as many insurers citing it, as well as baselining and risk of defection alerts.

Conversely, the top challenge to utilizing analytics cited by insurers surveyed was data quality and completeness, with 66 percent of individual and 60 percent of group insurers listing it as a concern. Among challenges, next were legacy core systems, followed by a lack of business sponsorship and lack of an overall strategy for data.

Group life/annuity insurers are slightly ahead of individual insurers in terms of analytics usage, and when it comes to size, large insurers (over $1B) and smaller insurers (under $1B) allocate similar percentages to data and analytics, but the emphasis varies considerably across the value chain—e.g. large insurers have a broader portfolio and are investing more in segmentation and understanding channel/agent performance.

Product development and claims investments are the most mature at this point, with pilot programs and implementations being heavily outnumbered by programs already in use. In contrast, marketing investments are relatively immature, where the number being piloted or implemented comes close to matching the number of programs already in use.