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How to monetize data and analytics in the Insurance industry



Many insurance firms collect a wealth of data, but few have found a way to monetize this asset. New “data as a business” models point the way forward.

Insurers have historically collected a wealth of data, but they have been slower to monetize this asset– by creating new business lines or models to capture the value of data and analytics. As more insurance consumers move online to interact, compare products and prices, and make purchases, the volume of available data is increasing exponentially.

Even more significantly, powerful new analytics technology enables insurers to use that data in ways they had not previously considered.

However, many insurers face organizational challenges to becoming data-driven companies. Others are waiting for business opportunities to emerge before enhancing their analytics capabilities. As a consequence, insurers have lagged behind other industries in their investment in and adoption of analytics.

As first movers among insurers create new business models and seek to harness the potential of their data, those that wait will be at a significant competitive disadvantage. To become a data-driven insurance organization, firms must rethink their approach to building and managing data and analytics assets and develop distinctive go-to-market capabilities that allow them to offer clients data-centric solutions.

Building and managing data and analytics business

However, the question often asked by insurance executives is, “Where and how do we start?” Insurers should follow a five-phase approach to design, launch and successfully manage a data analytics business (exhibit).

Phase 1—Define aspiration and set vision.

The first step in shaping a “data as a business” strategy is for an organization’s senior leaders to define a compelling aspiration for the new business.

Given the enormous economic potential the data hold, the aspiration should be bold and include business-backed, strategic use cases. A rallying cry for the organization could be, “Through launching a new data business, we expect to radically redefine the homeowner’s insurance market and double our market cap in three years.”

Creating a yardstick to measure progress will ensure that the organization is thinking boldly enough. A high-level business and economic model based on the aspiration should also be developed during this phase. Throughout the following four phases, these elements will be pressure-tested and adjusted as appropriate.

With the aspiration set, senior leaders must determine the most appropriate course to mobilize the organization to pursue it. This task includes appointing and visibly backing a leader to drive the next four phases.

Phase 2—Evaluate assets, capabilities, and value-creation opportunities

With the aspiration and strategic use case as the foundation, insurers must next determine which of their assets they can harness to build the capabilities required to achieve the strategic use case. This process includes not only understanding the types and value of existing data but also building the analytical and business capabilities needed to transform raw data into valuable insights for partners and customers.

Understanding the ecosystem of analytics partners is critical to generating impact from analytics. Carriers should identify best-in-class companies that deliver impact through data, analytics, and insights across the industry value chain. Equally important is finding “white spaces” in the market where no solutions exist. The key here is to understand how to create value in these opportunity areas and which analytical capabilities matter most to the solution.

For example, partners to evaluate can include those with:

  • Proprietary data sets, machine-learning models, and approaches to continuously improving the model
  • Flexible data and analytics infrastructure to execute high-priority use cases
  • Tools that allow customers to efficiently access, understand, and act on data and insights
  • Go-to-market capabilities including commercializing and pricing high-impact analytical solutions
  • Capabilities to quickly make improvements to meet customers’ changing needs and stay ahead of competitors

At the conclusion of Phase 2, management should align on the data assets and capabilities that best fit the strategic use case, the gaps that will need to be addressed and the high-level business case. To rally stakeholders, leaders need a compelling reason for the changes they intend to make, and must clearly describe the impact that analytics can have on the organization, its clients, and employees.

The key challenge is to ensure that these assets link clearly to business value; without this connection, the resulting assets will have no real impact.

Phase 3—Define specific use cases and business model

The next step is defining specific use cases and associated customer value propositions– in other words, the building blocks of the aspiration and strategic use case. Where applicable, management should consider further refining the list of potential use cases through market research with potential partners and customers.

This exercise gives the team a clearer understanding of potential demand for each use case and the primary monetization mechanisms (for example, price premiums for current products or incremental subscription fees for new data products).

As building the necessary capabilities might also require partnerships or acquisitions, insurers should conduct the external assessment with an eye toward this possibility. This assessment can help to identify potential business models

Phase 4—Conduct pilots

The team proves the value of the new business by piloting two or three minimum viable products (MVPs). Carriers should take an iterative, test-and-learn approach to pilots, with each lasting no more than 8 to 10 weeks. It is important to keep the scale of these pilots manageable and not attempt to perfect final offerings.

Also, metrics to gauge a pilot’s success should include a mix of learning and financial impact (with more emphasis on the former) as well as test-versus-control experiments where applicable to measure the incremental value delivered by analytics.

Phase 5—Establish new business unit and scale operations

Scaling successful prototypes and establishing foundational capabilities by recruiting talent and building the “data factory” will position an insurer to formally launch the new venture and begin the scaling process. The new venture will call for new roles in the organization, including not only data scientists who can analyse big data and solution architects to manage the delivery road map, but also experts who can translate business needs into analytics language.

As the data-driven business matures, firms should explore establishing a new branded unit based on its capabilities and revenue growth projections. Insurers should also establish and manage key metrics to assure implementation is on track and that the business unit is delivering anticipated value. The primary focus should always be on value delivered and on investments based on clear value realization milestones.

Building a data-driven business is often a multiyear journey requiring parallel efforts in such areas as data and analytics modelling and business building, along with a heavy customer engagement and go-to-market component.

Implementing an agile cross-functional operating model

Developing a data monetization business calls for strong go-to-market capabilities. Insurers must quickly develop the data analytics offerings, conduct tests with real customers, refine them in quick iterations, and price solutions based on the value delivered and the customer’s willingness to pay.

For most insurance carriers, this approach will represent a change from their traditional way of operating. However, leading digital companies around the world are using such agile approaches to deliver business and customer value quickly and effectively.

Carriers should consider taking the following actions:

Get close to customers and collaborate with them on solution design.

Instead of relying on the judgment of select stakeholders such as sales executives or on market research, insurers should base each step of a solution’s design and development on active customer engagement and feedback. This focus should also help inform the value at stake for customers and their willingness to pay.

Create cross-functional teams that own well-defined business and customer outcomes.

Typical insurance carrier silos such as sales and marketing, product, IT, finance, and HR create significant coordination overhead. Dedicated cross￾functional teams (preferably with dedicated resources) can own the solution end to end and focus on customer outcomes.

Adopt a test-and-learn approach and focus on launching in weeks rather than months.

Rather than aiming to build feature-rich, comprehensive solutions that take months and years to design, develop, and launch, carriers should focus on quickly delivering an MVP followed by subsequent releases to expand and improve on features, functionality, and reach. Each release should be based on meeting a set of milestones and success criteria agreed upon in advance.

Since this approach to developing and running a business represents a sharp break for most carriers, executives should consider establishing the new business so that it does not get burdened by the larger organization’s requirements and processes.

For example, a new business will need to attract different talent profiles and develop unique partnerships, so established processes and lead times (for instance, hiring processes) might not be effective. Senior leaders should proactively think about addressing these issues while building momentum, generating excitement, and celebrating successes.

In summary, the exploding volume of data available to insurance carriers is giving rise to new business models, revenue streams, and enormous opportunities to increase value. Embarking on the journey to monetize data requires insurers to rethink their approach to building and managing data and analytics assets and to develop distinctive go-to￾market capabilities to bring new data-centric offerings to their clients. Executives that can manage investments in analytics while identifying new business lines can capture significant rewards.

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How Much Life Insurance Should an Individual Carry?



Very few people enjoy thinking about the inevitability of death. Fewer yet take pleasure in the possibility of an accidental or early death. If there are people who depend on you and your income, however, it is one of those unpleasant things you have to consider. In this narrative, I’ll approach the topic of life insurance in two ways: First I’ll point out some of the misconceptions, then I’ll look at how to evaluate how much and what type of life insurance one needs.


Does Everyone Need Life Insurance?

Buying life insurance doesn’t make sense for everyone. If you have no dependents and enough assets to cover your debts and the cost of dying (funeral, estate lawyer’s fees, etc.), then it is an unnecessary cost for you. If you do have dependents and you have enough assets to provide for them after your death (investments, trusts, etc.), you still do not need life insurance.

However, if you have dependents (especially if you are the primary provider) or significant debts that outweigh your assets, you likely will need insurance to ensure your dependents are looked after if something happens to you.


Insurance and Age

One of the biggest myths aggressive life insurance agents perpetuate is “insurance is harder to qualify for as you age, so you better get it while you are young.” To put it bluntly, insurance companies make money by betting on how long you will live. When you are young, your premiums will be relatively cheap. If you die suddenly and the company has to pay out, you were a bad bet. Fortunately, many young people survive to old age, paying higher and higher premiums as they age (the increased risk of them dying makes the odds less attractive).

Insurance is cheaper when you are young, but it is no easier to qualify for. The simple fact is insurance companies will want higher premiums to cover the odds on older people, but it is a very rare that an insurance company will refuse coverage to someone who is willing to pay the premiums for their risk category. That said, get insurance if you need it and when you need it. Do not get insurance because you are scared of not qualifying later in life.


Is Life Insurance an Investment?

Many people see life insurance as an investment, but when compared to other investment vehicles, referring to insurance as an investment simply doesn’t make sense. Certain types of life insurance are touted as vehicles for saving or investing money for retirement, commonly called cash-value policies. These are insurance policies in which you build up a pool of capital that gains interest. This interest accrues because the insurance company is investing that money for their benefit, much like banks, and are paying you a percentage for the use of your money.

However, if you were to take the money from the forced savings program and invest it in an index fund, you would likely see much better returns. For people who lack the discipline to invest regularly, a cash-value insurance policy may be beneficial. A disciplined investor, on the other hand, has no need for scraps from an insurance company’s table.


Cash Value vs. Term

Insurance companies love cash-value policies and promote them heavily by giving commissions to agents who sell these policies. If you try to surrender the policy (demand your savings portion back and cancel the insurance), an insurance company will often suggest that you take a loan from your own savings to continue paying the premiums. Although this may seem like a simple solution, keep in mind that if the loan is not paid off by the time of your death, it will be subtracted from the death benefit.

Term insurance is insurance pure and simple. You buy a policy that pays out a set amount if you die during the period to which the policy applies. If you don’t die, you get nothing (don’t be disappointed, you are alive after all). The purpose of this insurance is to hold you over until you can become self-insured by your assets. Unfortunately, not all term insurance is equally desirable. Regardless of the specifics of a person’s situation (lifestyle, income, debts), most people are best served by renewable and convertible term insurance policies. They offer just as much coverage, are cheaper than cash-value policies, and, with the advent of internet comparisons driving down premiums for comparable policies, you can purchase them at competitive rates.

The renewable clause in a term life insurance policy allows you to renew your policy at a set rate without undergoing a medical exam. This means if an insured person is diagnosed with a fatal disease just as the term runs out, he or she will be able to renew the policy at a competitive rate despite the fact the insurance company is certain to have to pay a death benefit at some point.

The convertible insurance policy provides the option to change the face value of the policy into a cash-value policy offered by the insurer in case you reach 65 years of age and are not financially secured enough to go without insurance. Even if you are planning on having enough retirement income, it is better to be safe, and the premium is usually quite inexpensive.


Evaluating Your Insurance Needs

A large part of choosing a life insurance policy is determining how much money your dependents will need. Choosing the face value (the amount your policy pays if you die) depends on:

  • How much debt you have. All of your debts must be paid off in full, including car loans, mortgages, credit cards, loans, etc. If you have a $200,000 mortgage and a $4,000 car loan, you need at least $204,000 in your policy to cover your debts (and possibly a little more to take care of the interest as well).
  • Income replacement. One of the biggest factors for life insurance is for income replacement. If you are the only provider for your dependents and you bring in $40,000 a year, you will need a policy payout that is large enough to replace your income plus a little extra to guard against inflation. To err on the safe side, assume that the lump sum payout of your policy is invested at 8% (if you do not trust your dependents to invest, you can appoint a trustee or select a financial planner and calculate his or her cost as part of the payout). Just to replace your income, you will need a $500,000 policy. This is not a set rule, but adding your yearly income back into the policy (500,000 + 40,000 = 540,000 in this case) is a fairly good guard against inflation. Once you determine the required face value of your insurance policy, you can start shopping around. There are many online insurance estimators that can help you determine how much insurance you will need.
  • Insuring others. Obviously there are other people in your life who are important to you and you may wonder if you should insure them. As a rule, you should only insure people whose death would mean a financial loss to you. The death of a child, while emotionally devastating, does not constitute a financial loss because children cost money to raise. The death of an income-earning spouse, however, does create a situation with both emotional and financial losses. In that case, follow the income replacement calculation we went through earlier with his or her income. This also goes for any business partners with which you have a financial relationship (for example, shared responsibility for mortgage payments on a co-owned property).


Other Ways to Calculate Your Needs

Most insurance companies say a reasonable amount for life insurance is six to 10 times the amount of annual salary. Another way of calculating the amount of life insurance needed is to multiply your annual salary by the number of years left until retirement. For example, if a 40-year-old man currently makes $20,000 a year, under this approach, the man will need $400,000 (20 years x $20,000) in life insurance.

The standard of living method is based on the amount of money the survivors would need to maintain their standard of living if the insured died. You take that amount and multiply it by 20. The thought process here is the survivors can take a 5% withdrawal from the death benefit each year (which is equivalent to the standard of living amount) while investing the death benefit principal and earning 5% or better.


Alternatives to Life Insurance

If you are getting life insurance purely to cover debts and have no dependents, there is another way to go about it. Lending institutions have seen the profits of insurance companies and are getting in on the act. Credit card companies and banks offer insurance deductibles on your outstanding balances. Often this amounts to a few dollars a month and in the case of your death, the policy will pay that particular debt in full. If you opt for this coverage from a lending institution, make sure to subtract that debt from any calculations you are making for life insurance—being doubly insured is a needless cost.




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