Valen’s third annual ROI study highlights the importance of goal-driven analytics.
Susan, the new head of underwriting for a regional insurer, was brought in to shake things up. Her new company had a mandate to grow, but was suffering from high loss ratios and a team resistant to change. As the head actuary of a top-ten insurer, Tom knew he had a problem. The management team was bullish on growth in workers’ compensation, and they often had to contend with a known analytical competitor. Unfortunately, they didn’t have the data required to build a predictive model that would enable profitable growth into new states, and he couldn’t take the risk of suffering the new business penalty with high loss ratios. And finally, there’s Bill. Bill had an expense problem, a growing concern of many insurers, and needed to focus his limited underwriting resources on policies requiring their attention. Straight-through processing driven by analytics was the only way to achieve lower costs without negatively impacting profitability.
We hear these stories often. As you read the results of our third annual ROI study, the most important takeaway is that starting with a specific business objective is the only way to achieve market leading results like what we’re reporting below.
ROI Study Results
Valen customers are bucking the trend and continue to grab market share, demonstrating the undeniable value of applied analytics. In the third year of our annual ROI study, the results once again show our customers are able to outperform the market and grow at almost 3x the industry average.
Here’s what we learned.
Insurers with profitability issues reduced loss ratio 35 points,
and continue to beat the market
For the subset of customers with profitability problems (primarily with a loss ratio greater than 60), the results are swift and significant. Collectively, the group improved loss ratio by 21 points within the first year. It’s also worth noting that the advantage of predictive analytics did not end when the immediate danger went away. With data-driven decision-making now integrated into their underwriting workflows, these same carriers continued to remain profitable. As a result, this group of Valen customers outperformed the market, experiencing loss ratio improvement of 32 points when compared to the rest of the industry at 17.9. That’s roughly 1.9X better.
Valen customers outperform the market every year since 2012
Insurers evolve their analytic capabilities to consistently beat market profitability.
The second part of the analysis looked at the trends of a larger group of Valen customers, those with a mixed set of goals including loss ratio improvement and growth. As the graph shows, they collectively maintain a competitive edge in loss ratio every year. Even in 2017, measuring against a significant market improvement, Valen customers solidly remain 4 pts ahead of the game.
These insurers have improved risk selection and pricing, helping them both protect their current business and win new business. This opens the door for them to undertake aggressive growth strategies and lower costs through greater efficiency, all while maintaining a loss ratio advantage.
Valen customers experience top-line premium growth,
even when industry growth stalls.
Making profitable pricing and risk selection decisions allows insurers to grab market share, even when the market is flat.
Finally, we looked at how Valen customers’ growth compares to the market. Looking at 2017, the industry has leveled off but Valen customers continue to grow aggressively. At 53%, compared to 18%, Valen customers were growing at a rate 2.9x top-line market growth.
This study demonstrates that whatever your goal, analytics can support it. Whether the aim is to grow, improve profitability, protect market share or reduce expenses, analytics provides a superior way to achieve it.
To see our latest Infographic and learn more about this study, visit our Applied Analytics Resource Center.