The Path to High Performance in Transforming Distribution and with Predictive Table of Contents

Introduction 3

Distribution: A Cornerstone of Growth 4 for Today’s Insurers

Transforming Distribution through 6 Predictive Analytics

Five Steps Toward Stronger Analytics 9

Laying a Foundation for Profitable 10 Growth

2 | The Path to High Performance in Insurance Accenture’s 2010 Multi-Channel Distribution Executives Survey shows that insurers are relying on customer acquisition and retention, as well as more cross- and up-selling, to drive their growth in years to come. Yet, according to the same research, many insurers believe their existing distribution capabilities prevent them from providing a differentiated customer experience—a critical component of successful customer acquisition and retention strategies. Not surprisingly, then, our research also reveals that more than half of insurance customers are willing to leave their present providers when they buy their next policy.

While the customer experience will For a growing group of leading global be a critical element of insurers’ insurers, predictive analytics is providing efforts to retain and sell more and novel solutions to these challenges. different products to their customers Predictive analytics allows insurers to in the coming years, insurers face a convert data into usable insights on significant challenge: Consumers are customers, agents and markets, as well embracing an ever-widening array of as craft effective, fact-based strategies channels and technologies, and agents that drive sustainable growth. By often leave a given insurer before they mastering predictive analytics, insurers have generated substantial business can understand and realize their greatest value. With channels and agents market opportunities, create a sales in flux, optimizing the customer force optimized for long-term growth, experience becomes significantly provide valuable tailored offers to more difficult. their best customers and, overall, make substantial gains against the competition.

3 Distribution: A Cornerstone of Growth for Today’s Insurers

Insurers in many countries are struggling Transforming the distribution channel Focusing on customer to determine how to reignite profitable is critical to achieving these growth responsiveness growth in the wake of the financial ambitions. In particular, there is crisis. For half of insurance executives, notable agreement among insurers Eighty-four percent of insurers told us growth will come mainly from new participating in the Accenture study that changes in customer needs and customers. According to Accenture’s that tomorrow’s market leaders will channel preferences are a key driver 2010 Multi-Channel Distribution succeed in four key areas: of their investment decisions—rated Executives Survey, 50 percent of the second only to the emergence of C-suite insurance executives interviewed Building meaningful new technologies. said their primary driver of growth in differentiation the next three years will be improved Providing customized customer acquisition. The remainder With nearly two-thirds of insurers experiences are split between the belief that improved reporting their current distribution retention will generate most of their model will not allow them to perform According to 89 percent of insurance growth (28 percent) and that growth at a higher level than their competitors executives, customer acquisition and will result from an increase in cross- in most areas, providing differentiated retention over the next three years and up-selling (22 percent). customer experiences will be a will depend heavily on their ability to formidable challenge. deliver customized experiences to their different customer segments.

4 | The Path to High Performance in Insurance Seizing market share Demand is expected to remain soft for the foreseeable future, with continuing resistance to premium increases from customers. In this environment, the insurers that grow the fastest will win share from competitors, attracting new customers to their ranks while minimizing attrition.

In other words, to achieve profitable growth today and in the future, insurers must develop multi-channel distribution models that are more versatile, better integrated, and have the inherent flexibility required to adapt easily and quickly to ongoing change—which is the only certainty most insurers face.

5 Transforming Distribution through Predictive Analytics

Figure 1. How insurance companies can use analytics to drive competitive advantage.

Interact differently with the customer Optimization “What’s the best that can happen?”

Predictive modeling “What will happen next?” Predictive analytics /extrapolation “What if these trends continue?” (the “so what”) Competitive Statistical analysis “Why is this happening?” advantage Alerts “What actions are needed?” Manage the enterprise differently Query/drill down “What exactly is the problem?” Descriptive analytics Ad hoc reports “How many, how often, where?” (the “what”)

Standard reports “What happened?”

Sophistication of intelligence

Source: Competing on Analytics: The New Science of Winning (Davenport/Harris)

Advanced analytics can play a key role When it comes to insurance distribution, Understanding customers in these efforts by providing much the use of predictive analytics is still Consider first the ways in which deeper insights into customers, agents, evolving. However, it offers tremendous analytics can boost customer value. markets, channels and marketing potential to enable leading carriers to At a high level, predictive analytics campaigns, thereby helping insurers focus on the “so what” of their operations empowers insurers to invest in the best plan, execute and sustain distribution rather than simply the “what” (Figure growth opportunities by using data transformations that make the most of 1). In other words, while descriptive from across the enterprise to make precious attention and resources. analytics enables insurers to understand accurate about customer the state of a particular situation, behavior. Insurers can, for instance, Indeed, Accenture’s ongoing research predictive analytics can help insurers use predictive analytics to segment into the characteristics of high- determine the impact of that situation their customers into homogeneous performance businesses has revealed on their business and devise appropriate groups sharing similar traits, needs that robust analytical capabilities are ways to respond. When applied to and expectations. Such segmentation essential to success, and that top- insurance distribution, analytics helps allows insurers to develop different performing companies are five times insurers determine which customers strategies, or “treatments,” optimized more likely than lower-performing offer the best growth opportunities, for specific customer needs, attitudes companies to have identified analytical which markets they should focus on and intentions. Predictive analytics is capabilities as a key element of their and, ultimately, which agents they particularly valuable in determining strategy. Accenture research also should hire and deploy to unlock their which customer characteristics are most shows that companies that invest full performance and growth potential. significant and represent the best heavily in advanced analytical opportunities for differentiated treatment. capabilities outperform the S&P 500 on average by 64 percent, and recover more quickly from economic downturns.

6 | The Path to High Performance in Insurance The top 10 reasons insurers should integrate analytics into their distribution strategy

1. Adjust to the changing behavior and 6. Develop a transition strategy for expectations of the new generation of your aging agent population. insurance customers. 7. Gather insight into target markets. 2. Focus on retaining customers in this difficult market landscape. 8. Align customers to the right channels.

3. Elevate your customers from "Silver" 9. Align customers to the right products. to "Platinum" by cross-selling and 10. Align agents to the right customer, up-selling. in the right market, for the right product. 4. Focus on making agents relevant to your new breed of customers.

5. Ensure agents are focusing on the appropriate market segment.

Predictive analytics also allows insurers coverage, which he perceives to be Targeting the right markets to understand which of these customers superior to his own. Using predictive In addition to enabling growth strategies are likely to generate the largest analytics, the insurer is able to offer tailored to such specific customers profits, which are most amenable to the customer a more competitive and segments, predictive analytics up-selling and cross-selling, which will policy that will cover his wife as well. empowers insurers to optimize their be the most loyal, and which are at The insurer also is able to provide market share, customer mix, and territory the greatest risk of desertion. The end scenarios of people in similar demo- development plans. For instance, result: The insurer knows with more graphic brackets and the choices they insurers can utilize predictive analytics certainty whether or not a customer is have made, as well as portfolios of to perform what Accenture terms fair worth keeping, how much investment multiple insurance products (auto, market share analysis, which illuminates in that customer is justified, and how home, etc.) that could be used in the size of a given customer pool and to fortify strategies for winning and concert to provide the new couple the ways in which it can be segmented. retaining the most valuable customers. with better overall coverage. Indeed, Fair market share analysis also helps Armed with such information, insurers predictive analytics is a powerful way determine whether the insurer has the can make better decisions about of pinpointing such opportunities for right portion of the available customer marketing campaigns, customer cross-selling and up-selling. It may, pool, and how producer resources relationship tactics, and customer for instance, uncover an opportunity should be allocated to improve share. and product segmentation strategies. to sell a larger life insurance policy or additional coverage that matches And, once the potential of a given Consider, for example, a customer who lifestyle changes—for example, having territory is known and broken down calls his auto insurer to cancel his policy. children and buying a larger home. In by segments, insurers can use predictive When asked by the insurance company other words, predictive analytics not analytics to determine the optimal why he is canceling his policy, the only can help the carrier retain this customer mix and drive the development customer reveals he recently married customer, but boost its share of his of their marketing strategy. For and is planning to join his wife’s wallet as well. instance, predictive analytics can

7 How predictive analytics can transform end-to-end distribution management for a forward-thinking insurance carrier

When Joe Armstrong, a 35-year-old Via predictive analytics, the carrier products, but also 529 plans for the salesman from Atlanta, learned his utilized this information to present new baby’s education and long-term wife would be having a baby, he knew Joe with a variety of options that care insurance for Joe’s aging parents. his life would change in many ways. were tailored to his specific needs, In particular, Joe became aware of his and informed him that a local agent In sum, thanks to predictive analytics suddenly greater responsibility to take would soon be in touch. Joe received highly customized and care of his young and growing family. relevant service, while the carrier was Aware that life insurance could help Indeed, the next day Joe was contacted able to leverage specific, high- him provide long-term support for his by Anita Campbell, a representative up-sell and cross-sell opportunities. family, Joe began an Internet search close to Joe’s home who was completely for coverage. aware of his insurance requirements. Anita was able to send Joe several One carrier stood out from the rest due detailed scenarios that would address to its provision of “people like you” his requirements using a variety of scenarios involving people that Joe insurance products. Impressed by the could relate to in terms of key demo- degree to which Anita understood his graphic factors and circumstances. So needs, Joe arranged an appointment, when the carrier asked him to provide during which Anita used her tablet more information about his situation device to not only discuss life insurance and goals, Joe was pleased to oblige. help insurers determine which Hiring and deploying the what conditions, allowing insurers to products should be offered to which right agents place the correct agent in the correct customer segments within a territory, territory (and serve the right customer as well as how marketing resources Perhaps the most powerful impact of segment with the right products), and can be allocated optimally. predictive analytics is the way leading thereby maximize revenue. An additional insurers can use it to transform their benefit of such analytics is the way Accenture’s Fair Share Analyzer is an approach to hiring, training, and in which it enables an organization example of one such analytics-based deploying agents. As alluded to earlier, to determine which qualities are tool that can help insurers gain insights for many insurers high agent turnover most important for success in a given into which markets are over- and compromises returns on HR investments. territory, and tailor recruiting and underserved, and on how the insurer Furthermore, lacking clear insights into onboarding practices accordingly. can adjust its strategies accordingly. which hiring and staffing strategies For example, an insurer may discover will help them make the most of their One analytics tool that can improve that while one territory has significant best opportunities, insurers sometimes agent performance is Accenture’s revenue potential for life insurance, are forced to take a haphazard approach High-Performance Sales Force Analyzer the insurer has only a fraction of its to staffing and agent development. (HPSFA), which can give insurers competitors’ shares in that region. a detailed profile of the specific Conversely, an insurer can identify Using predictive analytics, leading characteristics of their best agents where it is over-represented in territories insurers can overcome these hurdles. on a territory-specific basis. Insurers that have limited revenue growth Insurers can use the approach to then can use this profile to hire and potential. Such insights allow the determine which specific agent retain high-potential agents who insurer to create highly targeted, fact- characteristics drive revenue growth, match that profile, as well as institute based market development strategies. and then develop recruitment and training and performance management training programs to disseminate those programs that encourage and enable qualities throughout the sales force. all agents to emulate the behaviors, Predictive analytics also can indicate attitudes, and attributes of high which agents are successful under performers within their organization.

8 | The Path to High Performance in Insurance Five Steps Toward Stronger Analytics

Unfortunately, most of today’s insurers • Insurers also must cultivate a strong with the right skills to staff the lack the capabilities required to improve focus on business problems instead organization. This is an important their distribution capabilities using of on technology. This means step toward eliminating a “silo” predictive analytics. Indeed, while developing a solid business case approach to analytics, which can insurance companies pioneered the based on business needs, driving impede an insurer’s ability to look use of predictive analytics in the areas analytics through a transparent across all of its data sources to make of pricing, mortality and reserving for modeling environment, incorporating better decisions for the enterprise risk, they have fallen short of consumer business insights back into business as a whole. product companies in aggregating processes, and viewing technology • With these four foundational steps customer information and using it to as an enabler for the needs of behind them, insurers ultimately tailor products, prices and channels to the business. should consider the intelligent use specific customers. To begin building • Similarly, when it comes to the third of outsourcing. Working with a a robust analytics capability, insurers critical step—selecting appropriate dedicated analytics specialist can should consider following an approach technology—it is vital to focus not help insurers reduce their costs, gain that includes five basic steps. on “bells and whistles,” but rather access to a stable yet scalable pool • First, insurers must understand their on which functionalities are essential of seasoned talent, and dramatically data, ensuring high quality levels to achieving business goals. Overall, shrink the amount of time required for internal data and using creative insurers should use simplicity as a to begin benefiting from cutting- approaches to sourcing external data. driving principle of their technology edge analytics capabilities and tools. In many cases, insurers can benefit strategies. Importantly, analytics outsourcing from adopting an enterprise-level • Along with simplicity and a strong vendors should be selected based on data sourcing approach, along with business focus, insurers should take their alignment with the insurer’s a standardized insurance data model. an enterprise approach to analytics, business strategy and on their deep creating a formal enterprise analytics insurance business process knowledge— organization, and hiring professionals not just their technology talent.

9 Laying a Foundation for Profitable Growth

Growth will not come easily for many To do so, they will revamp their existing of the world’s insurers in the next few distribution capabilities and gain years. Accenture research shows that the ability to provide differentiated customer loyalty is weak at best. At value. They also will hire agents on a worst, customers’ willingness to switch strategic basis, and not haphazardly, providers will undermine many insurers’ and strive to integrate and utilize the plans to boost customer revenue and data they possess regarding customers, loyalty. However, the ways in which agents, and markets. insurers distribute their products is an important bulwark against customer Predictive analytics can help. This attrition, and is a critical foundation powerful approach to transforming of growth. By deploying the right data into usable insights can enable products and agents against their most insurers to win and retain the best promising opportunities, insurers can customers, improve the effectiveness separate themselves from the competition of their agents and other channels, and achieve sustainable growth. optimize their customer and product segmentation strategies, and provide customers with additional products that meet their wants and needs. In sum, by incorporating predictive analytics into their operations, leading insurers can lay a strong foundation for profitable growth and high performance.

10 | The Path to High Performance in Insurance 11 Copyright © 2011 Accenture About Accenture Analytics About Accenture All rights reserved. Accenture Analytics delivers the Accenture is a global management Accenture, its logo, and insights that organizations need to consulting, technology services and High Performance Delivered make better business decisions, faster. outsourcing company, with more than are trademarks of Accenture. Our extensive capabilities range from 215,000 people serving clients in accessing and reporting on data to more than 120 countries. Combining predictive modeling, forecasting and unparalleled experience, comprehensive sophisticated statistical analysis. We capabilities across all industries and have more than 20,000 analytics- business functions, and extensive skilled people with deep functional, research on the world’s most successful industry, business process and technology companies, Accenture collaborates experience. At the intersection of with clients to help them become business and technology, Accenture high-performance businesses and Analytics enables organizations to governments. The company generated achieve the business outcomes that net revenues of US$21.6 billion for the drive high performance. For more in- fiscal year ended Aug. 31, 2010. Its formation about Accenture Analytics, home page is www.accenture.com. visit www.accenture.com/analytics.