TDWI Recommends Self-Service BI
In their latest quarterly best practices report, TDWI (The Data Warehousing Institute) presented a comprehensive survey which highlights the need for self-service BI in organizations.
Quoting some of the key sentences:
- “…enable BI users to become more self-reliant and less dependent on the IT organization”
- “…78% of respondents stated that they needed a faster time to value from BI solutions”
- “…companies are looking for alternative approaches to BI”
- “One approach is to set up an environment in which the information workers can create and access specific sets of BI reports, queries, and analytics themselves—without IT intervention”
- “Support for such sophisticated analyses, as well as making results easy to publish in the required format, greatly improves the productivity of a company’s information workers.”
InsFocus has been built from day one to be an insurance professional’s self-service BI. InsFocus’ clients are insurance company professionals, mostly business users creating their own reports and analysis and deriving real business value from the system’s built-in insurance analytics.
Read the complete TDWI report at http://tdwi.org/research/2011/07/best-practices-report-q3-self-service-business-intelligence/asset.aspx?tc=assetpg or learn more about InsFocus’ self-service BI capabilities.
Uri Taiber
CEO, InsFocus Systems
utaiber@insfocus.com
The need for performance analytics systems at insurance companies
All insurance companies have IT systems which they use to issue policies, manage claims, and other internal processes. Intuitively insurance executives and professionals know they must have “reports” to manage their business however that understanding is not formalized. In this short article I will highlight the reasons insurance companies require performance analytics systems and what are the functionalities they should look for.
The basics of insurance business profitability
Competition - Insurance companies in almost every market in the world face strong internal competition. The reason for such competition is in the insurance products themselves which are hard to differentiate. From the end customer’s point of view a motor policy is a motor policy, so insurance companies’ can only gain market share by price competition. In a free tariff market this can drive insurers’ prices down to uneconomical levels, eating into their capital and reserves and undermining their financial stability.
Segmentation - An insurance company’s portfolio is made up of a large number of segments, and can each have different levels of profitability. These segments can be defined by product, distribution channel, individual agent or intermediary, geographical location, characteristic of the insured personality or characteristic of the insured object. While the business in some segments can be positive, the business in other segments can be negative or even very negative, offsetting the gains from the positive segments.
Fluctuations - Profitability of insurance business is largely a result of claims experience which is a stochastic process. Thus an agent’s portfolio which may be negative one year can be positive the next year, all due to fluctuation in claims. Thus to determine an insurance portfolio’s profitability, measurements have to be taken over a large data sample or over a longer period of time.
Time delay - An insurance policy is usually issued for one year. A claim can happen any time during the policy’s coverage period, even on the last day of the policy. Claim reporting is not always on time, and handling also takes time, in extreme cases finalization of a claim can be years after notification. This process makes measuring profitability quite complex, as claims paid in a specific month can relate to different polices issued many months or even years before.
Claims reserves – Due to the above time delays, insurance companies are required to hold in their financial accounts reserves for future liabilities. These reserves are made of:
- Estimates for the cost of claims which have been notified and not yet settled. These are usually done on claim by claim basis.
- Estimations for claims which probably occurred but have not yet been notified (so called IBNR – Incurred But Not Reported). These estimates are done on overall portfolio basis.
If claims reserves are too low, claims paid in the future will create a deficit in the company’s results, whereas if they are too high they will create a surplus.
Cost ratios – Other than claims, insurance companies also have other costs. Broadly speaking they are divided into two:
- Acquisition costs - Agent commissions and other costs directly associated with obtaining insurance business.
- Administration costs – Costs associated with the ongoing maintenance of the insurance company’s operation.
Both type of costs need to be controlled, mainly in relation to the company’s volume of premium income.
Premium income – Last but not least, premium income is where it all begins. Insurance companies need to maintain a reasonably sized portfolio to be able to support costs and minimize fluctuation effects. To maintain premium volume companies need to acquire new business as well as not lose the business they already have.
What does an insurance company need to monitor to control the above factors?
An insurance business intelligence software must enable the following capabilities to support the necessary business analytics;
Monitor KPI’s - Insurers need to monitor their key performance indicators (KPI’s) in different views. The main KPI’s for insurance companies are:
- Loss ratio – the ratio of incurred claims (paid +outstanding) to earned premiums (premiums less unearned premium reserve).
- Loss frequency – the ratio between number of claims to number of exposed policies.
- Cost ratio – the ratio of agent commissions and company expenses to premium.
The company should be able to monitor KPI’s by all segments as defined above taking into consideration catastrophe costs which should be separated from premiums for the calculations.
It should be able to see these KPI’s on financial year basis or underwriting year basis, to detect any negative trends in the KPI’s and take corrective actions.
The same information when viewed by product rating factors should be used to indicate to the company any changes that need to be introduced into their pricing structure. Separating loss ratios and loss frequencies for each product by type of claim is also a useful tool for pricing calculations.
Control claims – A company should have reports showing claims trends by type of claim, to be able to spot as early as possible any changes in claims behavior.
Payments to claim service providers such as motor repair shops or hospitals and clinics, should be monitored on regular basis by claims department and costs should be compared between providers.
Claim payment information should be captured before and after deductibles (excess) so that the company can use this information to evaluate what would be the effect of changes to deductibles.
Reserves control – An insurer should control claims reserves by being able to see the relationship between reserves posted and ultimate settlements made (run-off). Such reports should be available both on global basis as well as on claim itemized basis.
Sales and Marketing – Insurers should obviously have reports for premiums in comparison to previous periods or to sales targets, however in addition they need to check two other measurements – new sales (separate from renewals), and renewal / lapse ratios – the rate of policies coming up for renewal that have been actually renewed.
Financial pro-forma reports on ongoing basis – Financial reports are compiled by insurers on quarterly basis. During the course of the quarter the captains of the company have little indication of where these are headed, and are unaware of any corrective action that needs to be taken. Reporting systems should be able to provide insurers with a daily report showing pro-forma profit and loss statement at the end of day compared with same day previous period. Such reports should be available both on Gross (before reinsurance) and on Net (after reinsurance) basis.
Conclusion
An insurer having the reporting and analysis tools described above, should be able to control profitability, better calculate pricing, verify that reserves are sufficient, sales performance and business retention are in place and ultimately improve profitability.
Learn more about InsFocus BI insurance software.
Uri Taiber
CEO, InsFocus Systems
utaiber@insfocus.com
The InsFocus Advantage for Insurance Companies
Hi,
We have just released a new marketing document named The InsFocus Advantage for Insurance Companies. This document summarizes what makes InsFocus' insurance software a unique business intelligence solution for insurance companies.
The document’s contents are:
- Company background and history
- Insurance-specific functionality
- Insurance content
- Reporting and analysis infrastructure
- User interface features
- Implementation methodology
I hope you find the document interesting and helpful. For more information, contact us or write us an e-mail to info@insfocus.com.
Uri Taiber
CEO, InsFocus Systems
utaiber@insfocus.com
Why is InsFocus BI better suited for insurance companies’ analysis and reporting needs?
Last week Hanan has published a blog post in CIO.com regarding our experiences with BI (business intelligence) in insurance, and what makes reporting and analysis different for this vertical. You can read the original blog post Here. In this post I will explain why we believe InsFocus BI is better suited to this job.
When we set out to build InsFocus a few years ago, we found there is a fundamental shortcoming in the way reporting and analysis is done in insurance companies. The main problem was that there was a clear separation between the tool and the model. Thus, a company would go into a process of choosing a tool that looked fit for the purpose (usually Cognos or BO). As a second phase, the company will hire professionals or use in-force persons to build the data model and the ETL processes.
The outcome, in many companies’ view, is disappointing. The tool, that had looked very nice on “demo” data (which is usually simple retail data), suddenly looks rigid and not flexible enough. The model, that is developed by BI professionals, misses the sophistication of insurance. Then, the company goes into endless cycles of data model improvements and enhancements.
So why do we believe that InsFocus BI is better? For a few reasons.
- Built-in data model – InsFocus BI ships with a comprehensive insurance data model, covering most insurance aspects available. The model includes earned and unearned premiums, deferred acquisition costs, outstanding claims, IBNR calculations, and a lot more. So basically, we know the end result before even starting. This alone saves tons of executive time, BI developer time and saves the company from making a lot of mistakes.
- A tool that is built for insurance – InsFocus BI is not just a shallow data model, but a sophisticated tool that is built specifically for insurance. So, unique insurance techniques, such as changing calculations according to the presented time base (e.g. underwriting, accounting), showing triangulation views, calculating run-off using claim filters, finding the sums insured at a specific snapshot date, and many many more, are already built into the tool.
- Granular reporting and advanced filtering – a unique characteristic of insurance reporting is the figures distortion that can be caused by a single event – one big claim can distort an agent’s full record if looking only at top-level averages. To support insurance analysis, InsFocus BI provides two important capabilities:
- Drill-down to any level – not just fixed drill-down. With InsFocus BI, you can drill-down to any level, including client, policy, claim and even the individual policy and claim transactions.
- Pre-filters – InsFocus BI allows easy creation of pre-query filter on the measurements themselves, enabling analysis such as “show me profitability ignoring claims above X” or “show me a list of the top biggest claims in the last 1 year”.
- Ad-hoc reporting – generic solutions have traditionally split users into two superficial types. One type is the so-called “simple user”, who presumably is not computer literate and only wants to see ready-made reports. The second type is the “power user”, who wants to do slicing-and-dicing and maybe alter some reports. In InsFocus, we decided we won’t do not agree with this distinction, and we enabled ad-hoc querying for all users.
This is especially useful as insurance information workers need ad-hoc querying, and a lot. New reporting needs arise almost daily – and going to the IT department for every new report is a huge waste of time and resources. Using InsFocus BI, we enabled all information workers to perform their own analysis using a very simple to use interface.
We will continue to improve InsFocus BI, and we are very dedicated to the insurance business.
Uri Taiber
CEO, InsFocus Systems