Accenture 2012 Risk Analytics Study: Insights for the Insurance Industry

Insurers see risk analytics as a way to help them meet current challenges and achieve competitive differentiation.

This report focuses on the responses of insurers that participated in the Accenture 2012 Risk Analytics Study, and identifies steps they can take to improve their risk analytics capabilities as part of an overall drive to achieve high performance.

The 2012 Risk Analytics Study—conducted by Accenture Risk Management—is based on a survey of 465 managers and executives from all major geographic regions. Respondents were from the insurance, banking and chemicals industries, and all held corporate positions in which they were responsible for developing or utilizing industry-specific analytics capabilities.

The purpose of the study was to assess the relative maturity of risk analytics methods, tools, technologies and processes; to determine their effectiveness in driving business, customer and market insights to support better decision making; and to identify current trends. This report presents results from the insurance industry and compares them with overall survey findings.

Given ongoing regulatory and economic pressures, insurers are looking to improve their risk management capabilities. Property and casualty (P&C) insurance companies are seeking to improve their ability to respond quickly to risk events and, even more important, to anticipate them before they occur. Life insurers and annuity providers—who must deal with the long tails of their portfolio and the ongoing ramifications of the financial crisis with its low interest rates and reduced investment returns—are working to define new products, optimize their overall portfolio and improve asset performance.

The key insights we discovered include:

• Only 16 percent of P&C companies rank their capabilities as among the best in their industry, while 26 percent of life insurers assign themselves that rating.

• Sixty-five percent of life insurers affirm the value of risk analytics, compared to the survey average of 57 percent.

• Sixty-three percent of life insurers and 62 percent of P&C insurers foresee increasing their investments in risk analytics by more than 10 percent over the next two years.

• In North America, insurers see the most important reasons for risk analytics as: risk selection and pricing (63 percent), fraud (61 percent) and investment portfolio optimization (50 percent). In Europe and Asia, the priorities are: investment selection (67 percent), fraud (64 percent), loss reserving (59 percent) and risk selection and pricing (58 percent).

• In general, insurers are not highly confident in their modeling capabilities: only 55 percent rated themselves as above average or excellent.

• Insurers, especially P&C insurers, scored below the global average for using stress testing that is integrated into strategic decision making for large projects.

• Top challenges for Solvency II laggards are availability of data and data quality (47 percent each).

• Sixty-five percent of P&C insurers and 56 percent of life insurers perform data quality controls when collecting historical data.

• Only 54 percent of life insurers rated themselves either above average or excellent in their reporting and dashboard development capabilities. The situation with P&C insurers is better, with 63 percent rating themselves either above average or excellent, and over a quarter rating themselves excellent.

The drivers behind investments in risk analytics in insurance include:

• Dealing with regulation. Solvency II directive has been a focus area for insurers across most European geographies. Even given the current postponement of the Solvency II implementation, firms should consider ongoing investments in their quantitative and qualitative capabilities to achieve Solvency II readiness.

• Driving growth. Insurers are managing financial instruments that are complex and volatile; hence, continuous measuring and monitoring these risks is necessary to align them with the company’s risk appetite.

• Transforming the operating model. Firms can benefit from a companywide integration of risk management so that information used to assess risk in one core insurance process is available to assess other business opportunities from a risk/reward perspective.

As insurers look ahead to advancing the maturity of their risk analytics capabilities, what are some important steps they can take?

• Integrate risk processes and capabilities. Integration of specific analytics capabilities across claims, underwriting and distribution is seen by survey respondents as a key to effective risk management.

• Integrate risk analytics with management processes. Overall, risk management can be improved by considering risk in the decision-making process and analytics play a vital role in this.

• Integrate risk models. Outputs of risk models are generally better for a firm when the model can provide a fully aggregated view of all types of risk.

• Enable better integration. To address the challenge of siloed risk functions, companies can: Consolidate and standardize the IT environment, improve data governance, and integrate with strategic planning.