P&C ‘can catch up with’ personal lines to leverage advanced analytics for growth: Swiss Re Institute

Commercial lines “can catch up with” personal lines when it comes to the increasing use of advanced analytics to “unlock tangible value”, the Swiss Re Institute's latest sigma report has found.

The report said personal lines currently use analytics more extensively to exploit the rapid explosion in the number and breadth of structured and unstructured data sources. But commercial P&C lines can also “grow and optimise existing portfolios and become more efficient” if it uses advanced analytics that combine data science, extensive risk knowledge and industry expertise.

It said that past successes in improving expense ratios had driven the impetus for new investment and pilots as improvement in loss ratios became more visible, and insurers could better see underlying loss drivers.

But the report said the true potential “will only be realised through co-ordinated efforts between developers and users”. It also warned that the expectation of success in all projects could “limit adoption and constrain a virtuous circle of trial and improvement”.

Daniel Knüsli, Swiss Re's head P&C analytics, P&C solutions, said: "Most insurers aim for a success rate of one-third in operationalising pilots. Too high a success rate may mean that the use cases are not challenging enough".

While there are opportunities for advanced analytics to positively impact the insurance value chain, challenges remain in the form of legacy systems, traditional mindsets and scarce talent at the intersection of data science, risk knowledge and technology.

But even with these barriers to development the Swiss Re Institute said it expects spending on data and analytics to rise within static IT budgets “as more insurers complete core systems updates over the coming years and seek out differentiating capabilities”.

It added: “Advanced analytics should be considered from the perspective of business capabilities rather than technologies.”

Researchers estimated that insurers can target at least a 2-5 percent improvement in loss ratios under real trading conditions by using advanced analytics.

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