Get in Touch

Request a Consultation

Predictive Analytics in Insurance
Faheem Shakeel
Faheem Shakeel Updated on Jan 20, 2022  |  4 Min Read

Insurers have been leveraging the art of predictive analysis for centuries. In the early days, insurers worked with limited resources and reference points, which made policy pricing mostly intuitive. However, modern-day predictive analytics tools perform holistic and well-rounded analysis of several data points to make informed decisions on pricing and customizing policies. According to a survey, more than 80 percent of European life insurers that leverage predictive analytics reported a positive business impact. In this post, we will briefly go over the concept of predictive analytics in insurance and witness a few use cases in action.

What is Predictive Analytics?

Predictive analytics is a branch of data analytics that deals with interpreting and analyzing data to generate forecasts regarding the risks and probabilities of the events that take place in the future. From its very definition, it becomes abundantly clear that predictive analytics in insurance underwriting can find immense usage in several applications. Let’s take a look at how predictive analytics serves as a basis to develop models that can make predictions in insurance.

What is Predictive Modeling in Insurance?

Predictive modeling in insurance utilizes techniques like data mining, statistics, artificial intelligence, machine learning, deep learning, and more, to analyze and comprehend data. These findings are then available in the form of highly detailed reports that highlight the level of risks and other factors that may govern policy formulation and underwriting.

Applications and Use of Predictive Analytics in Insurance

Use of Predictive Analytics in Insurance

The following are some of the current applications of predictive analytics for insurance:

1. Policy Optimization

Traditionally, policy pricing followed a tiered approach where insurers would adjust the customer against specifications that they deemed them fit. However, as personalization takes the center stage, one can no longer follow the one-size-fits-all model.

With predictive analytics in underwriting, insurers can now customize policy plans by tapping into granular customer data. They can gain insights through analyzing historical data to understand customer preferences, price sensitivity, and behavioral signals.

For instance, predictive underwriting in life insurance can help insurers match the policy specifications and cost in line with the expectations of the customers.

Similarly, the policy can accommodate external dynamic factors, such as market conditions, associated risks, risk concentrations, etc. Resultantly, the insurers can then adjust the premiums on a case-to-case basis.

2. Risk and Fraud Detection

If you wish to address insurance fraud, predictive analytics can be of great help.

For instance, predictive analytics software can collect customer data to extract behavioral information that one can correlate with fraudulent or high-risk activities. It can flag down suspicious customer patterns and alert the insurance agencies in real-time. In fact, businesses can maintain a record of such instances to assign risk scores against problematic clients.

Predictive Analytics for Insurance

On the other hand, insurance agencies can also use it to tackle internal fraud and application manipulation. It serves as a forensic tool that points towards fraud. Businesses can make use of predictive modeling in insurance to implement transparency and accountability amongst all their employees.

3. Insurance Claims Management

Insurance claims management is a highly data-intensive limb of insurance processing and involves several variables and input points. According to US insurance fraud statistics, in 2020 alone, 18 percent of all insurance claims contained an element of fraud. By using predictive analytics for insurance claims management, insurers can automate, detect fraud, extend self-servicing options, and offer faster payouts. It streamlines and standardizes the end-to-end process with due consideration for disruptive exigencies. Advanced predictive analytics solutions can make the end-to-end FNOL process, involving claims triage, more quick and agile. Furthermore, such predictive analytics platforms can easily integrate with existing or legacy software, which furthers your attempt at digitalization.

Predictive capabilities also help businesses free up resources for more important processes like claims management. For instance, predictive underwriting in life insurance frees up the underwriter’s time and supports them to focus on more value-added tasks.

4. Dynamic Customer Engagement

According to a KPMG report report, customer experience has emerged as the most vital KPI to measure insurance business performance.

We have already gone into the specifics of how predictive analytics in insurance underwriting will set the stage for customizing services and optimizing policies. That, by itself, lays the foundation for a heightened customer experience and subsequent customer loyalty.

When it comes to boosting the customer experience, the use of predictive analytics in insurance is far-reaching. There are many ways through which companies can use predictive analytics to drive customer engagement. For example, predictive analysis can help comprehend user intent when they approach customer service. Similarly, predictive analytics-driven automation can streamline the claims settlement process and make it painless. As a matter of fact, one can even leverage predictive analytics to understand application abandonment issues and take corrective measures to fix them!

All in all, such proactive measures will improve customer engagement levels.

Final Thoughts

With the maturation of data-driven analytical technology, predictive modeling in insurance is bound to grow at an accelerated rate. At the same time, embracing predictive analytics in insurance could be the key to thriving in this highly competitive market. Companies that exploit this positive trend will naturally manage to be successful in increasing their market share while boosting customer loyalty. Connect with us to know more about how Damco can help your business unlock actionable insights and gain a competitive edge.

Faheem Shakeel

A specialist in Insurance Technology and services with over 15 years of experience in Software Development, Solution Delivery, Project Management and Business Consulting around Insurtech space. Built market leading COTS Insurance Platforms and successfully implemented for the insurers across the USA, UK, Caribbean Island & Indian subcontinent.

Faheem Shakeel Head - Insurance Practice

Let’s Connect!