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Insurers rethinking risk, investing more in data and analytics


February 13, 2014   by Canadian Underwriter


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The risk management practices of polled insurers are becoming increasingly reliant on data and analytics, according to new survey results released Wednesday by State Street Corporation.

In all, 82% of insurance executives taking part in the survey cited data and analytics as a key strategic priority for their business, notes a press release from State Street, which provides financial services to institutional investors and operates worldwide, including in the U.S., Canada, Europe, the Middle East and Asia.

State Street commissioned the Economist Intelligence Unit to survey 400-plus asset owners and asset managers – including 67 insurance industry respondents – to gather insights into how they are using investment data and analytics.

Conducted last August and September, roughly a third of survey respondents were based in North America, a third in Asia/Pacific and a third in Europe. Survey results were supported by in-depth interviews with industry executives.

The findings show 81% of respondents reported they intend to increase spending on data initiatives in the coming years, notes the survey report, Rethinking the Risk Business: Data and Analytics in the Insurance Industry.

State Street points out, however, that just 13% of surveyed insurers considered their firms’ enterprise-wide data management to be a significant strength, and only 19% reported being confident in their multi-asset risk tools.

“Fundamentally transformed markets, a push into new asset classes and a more stringent regulatory environment are all accelerating change and contributing to a rise in demand for data and analytics capabilities amongst insurers,” Jeff Conway, executive vice president and head of State Street Global Exchange, says in the statement. “The challenge ahead is how to turn fragmented IT systems into a strong and flexible platform capable of adapting to the demands of a more complex investment climate,” Conway continues.

Scott FitzGerald, executive vice president and head of State Street Sector Solutions, Americas, notes that building an effective data-driven business for 2014 and beyond requires insurers to focus on building a stronger foundation.

“They can do this by improving risk tools with multi-asset class capabilities, developing solutions to manage regulation globally, accelerating investment decisions, and developing a scalable data architecture,” FitzGerald suggests.

“Today, insurers need a more dynamic approach to meet their liabilities,” the report states. “This often entails increasing allocation to more complex asset classes. To manage risk and optimize performance across a highly diversified multi-asset class portfolio, insurers need timely, accurate data and the ability to test multiple scenarios quickly and efficiently.”

Among the report’s key findings is that “data leaders” will dominate the industry, noting that 61% of insurance executives agreed data and analytics capabilities will be among their most important competitive advantages in the future.

But the overall survey “revealed a clear gap between ‘data leaders’ – institutional investors who are confident they already gain a competitive advantage from their data and analytics – and data laggards, who struggle to harness the full value of their data.”

Comparing data leaders to data laggards, a figure in the report lists data leaders’ “% confidence in capability” by specific task. For example, data leaders are better at integrating our performance analytics with our risk analytics, 72% confident in capability; investment data and analytics are keeping pace with the growth of the business, 92%; generating forward-looking insights from our data, 70%; and evaluating risk and performance in relative and absolute terms, 83%.

The “digital divide” among institutional investors is very clear in the insurance sector, State Street notes, with only 21% of insurers fall into the leader category. “As data leaders tend to have stronger tools for risk and performance management, as well as better platforms to act rapidly on new investment insights, their proficiency with data give them a sizable advantage over their peers,” the report adds.

It notes that the five building blocks of the data-driven business are as follows: improve risk tools with multi-asset class capabilities; develop solutions to manage regulation in multiple jurisdictions; integrate data to extract insight from multiple data sources; accelerate investment decisions; and develop a scalable data architecture that will grow with the business.


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