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Q&A with Michael Reilly: Shaking up insurance portfolio management

High-performing carriers are using new analyses, data sources and analytics and visualization tools to reinvent insurance portfolio management.
Michael Reilly
Michael Reilly
managing director
Accenture’s Insurance Strategy Practice
"As important as new tools and techniques are, the critical advance lies in the speed and methods with which portfolio management can act."

Insurance portfolio management has traditionally been a slow, sleepy, backward-looking process. Michael Reilly, managing director in Accenture’s Insurance Strategy Practice believes that faster and better insights will give insurers the ability to better understand what is going on in their portfolios and improve their speed in responding to potential issues.

Q: Managing the portfolio effectively is critical to a carrier’s profitability, yet it remains a slow and inefficient process in many carriers. Why is this the case?

While we have seen step changes in the technology and processes of many insurance functions, little about the portfolio management process has changed in the last three decades.

Many carriers continue to review individual lines of business each month, quarter or year, usually relying on outdated data spread across multiple spreadsheets in an effort to show the growth, profitability and claims trends.

Managers regularly examine their portfolio’s performance to determine the actions that are required. Less frequently, actuarial does a more thorough analysis to assess pricing.

Q: Why should insurance providers be paying more attention to portfolio management?

Portfolio management is a critical, yet neglected function at most carriers. It is the key to profitable underwriting. A carrier that can respond quicker than its peers to emerging threats, or aggressively pursue profitable sectors of the market, will significantly improve its underwriting profitability.

If you review the performance of the top 50 commercial carriers over the past decade, you’ll find a consistent set of winners. The difference in performance between them and the rest of the market is primarily due to world class loss ratios while achieving above-market growth rates.

The high-performance insurers created substantially more economic value than their peers through consistent profitable growth across market cycles. This indicates that the ability to manage a portfolio of business over time can be a source of competitive advantage.

Q: How should carriers evolve portfolio management to become more profitable and competitive?

We recommend that they emulate the high performers and utilize new analyses, new data sources, and new analytics and visualization tools to explore and assess portfolio opportunities and deficiencies. The best carriers will be able not only to better assess their portfolio’s performance, but to act appropriately.

When it comes to new analyses, insurers must consider how automation, predictive models, and complex operations and distribution structures affect the portfolio. Carriers need to understand not only how the portfolio has performed historically, but how each of these innovations affects the portfolio.

Another great opportunity lies in enhancing basic data with new external sources. This can include new demographic information on companies, individuals, or neighborhoods. This type of data can help the carrier not only better understand its current portfolio, but also look forward to possible actions in the future.

The new analyses and data are accompanied by new tools to assess and analyze the data, including analytics engines, machine learning and data visualization. These tools better assess enhanced static views of performance. They also enable continuous, exploratory assessments of the portfolio to identify areas of risk and advantage in a test-and-learn approach.

Q: How do insurers leverage new tools and technologies to maximize opportunities and reduce risk?

As important as the new tools and techniques are, the critical advance lies in the speed and methods with which portfolio management can act. We recommend that insurers embed the new tools and methods in the portfolio management process so that the insights they produce can be rapidly integrated into ongoing operations to improve performance.

Let’s consider this from three perspectives. Firstly, in developing rules-based workflows for underwriting, portfolio management needs to be built out as a feedback mechanism.

This feedback should be used to constantly evaluate and adjust the workflows for optimal efficiency and effectiveness in terms of flow, path and outcome.

Secondly, when measuring underwriter performance, advances in portfolio management can produce analytical insights into an underwriter’s strengths and weaknesses. This can be used for feedback and coaching on specific areas for improvement.

Thirdly, insights into the profitability of different types of business from a specific broker can help underwriters and business development leads identify where they should expand or restrict business with the broker. Here, the most important change to make is to decentralize the insights generated by portfolio management.

This evolution is not just about having better data and analytics. It is about improving the nervous system of the underwriting organization to be able to sense, assess, and respond to the market faster to produce superior underwriting results.

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