Data Analytics News: Insurance Industry Disruptors

Market Share Consolidation Moves Quickly

It seems all too recently that Friday night meant a trip to Blockbuster to tangle with other anxious movie watchers excited to grab the latest new release, stock up on snacks and head home for a night of cinematic enjoyment. It was hard to imagine then that Netflix would emerge the leader one day, and eventually cause Blockbuster to close their doors. What did Blockbuster miss?

Brick and mortar retail stores continue to face an all-out assault and a new shopping paradigm, led by Amazon. In a world where it’s more challenging to compete, market share consolidation is very real and moves incredibly quickly. For property and casualty insurers there’s a significant divide between those who embrace data analytics to better compete and those who don’t. What sets them apart?

The Top 10
In analyzing the top 10 workers’ compensation carriers in 2016, the data provides a handful of indicators:

 

For the companies who have been on this list since 2009, many of their percentages indicate a positive increase in net premiums written and often those companies, like Berkshire Hathaway, are seen as profitable. It’s a safe assumption that they are leveraging advanced data and analytics to play in the market. Texas Mutual made the list in 2014 when the same study was conducted, but as of 2016 had been replaced. Companies like AmTrust and Old Republic, in turn, have since found their way into the top 10.

What similar lesson can we learn from Blockbuster? After being the leader, streaming services from the likes of Netflix changed the game. They came in and won with more sophisticated customer segmentation, a new pricing model and a different experience that recognized the need to eliminate late fees. Blockbuster had largely been profitable by penalizing customers for late fees, and when streaming services started to pose a threat, Blockbuster leadership did not want to adopt the same initiatives in order to compete.

Conversely, the top work comp carriers of 2016 show a commitment to combining a data-driven strategy with underwriting expertise to produce measurable outcomes.  Analytically-driven companies understand risk quality at the policy level, rather than making assumptions on particular classes, geographies, or other isolated factors. Being more granular allows insurers to compete and win the best risks and align price to risk, which ultimately drives higher profitability.

The companies who don’t adopt this more sophisticated approach will find themselves suffering from the volatility of market share consolidation, rather than benefiting from it.

What’s next?

At the beginning of 2018, A.M. Best upgraded their outlook for commercial lines from negative to stable. According to the briefing, much of this is credited towards the adoption and leveraging of predictive analytics by insurers “to better establish pricing at both the line of business/classification and individual risk levels.”  The briefing also notes the more widespread use of predictive analytics by carriers of all sizes, not just larger carriers with significant data and IT resources.

This points to an opportunity for insurers who are still on the fence to embrace change to better understand market conditions and cut into the competition. Without the fundamentals of a data-driven strategy, those insurers could find themselves victim to market consolidation at the hands of a better-positioned carrier.   To learn more about this, please read Valen’s 2018 Outlook Report.

In such a competitive world, it’s better to be a sought-after Netflix, rather than a distant Blockbuster memory.