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Data as Insurance DNA

Mark Gorman May 1, 2008

Better data utilization and analysis results in better performance for insurance organizations.

In a recent research note, I referred to data as the DNA of an insurance company. While I thought I was being clever, I actually missed the broader implications of the analogy. The point was that just as DNA helps define the molecule—which becomes the cell that forms the tissue that becomes an organ that leads to a body—so too does data help define the information that leads to the tasks that become activities that are part of processes that define business operations. From an operations standpoint, good data is a key building block for cost-efficient and organizationally effective insurance transactions.

Missed was the tremendous impact that DNA research and analysis is having on medicine. Identifying changes in the structure of DNA promises to revolutionize the diagnosis, management and treatment of disease.

Better understanding of the impact of small changes in DNA provides the basis for determining healthier behaviors that add vitality to longevity, earlier diagnosis of potential problems to minimize risk and better management of treatment to speed recovery.

So too does the focused analysis of data lead to determining the health, well being and ultimate treatment of the modern insurance company. Effective use of data analysis, business intelligence and predictive analytics has had a transforming effect on the insurance industry and most other industries today. Like the impact of a better DNA understanding on medicine, better data utilization and analysis leads to a healthier, more dynamic and more agile insurance organization.

Not surprisingly, initial activity in data analysis has been focused operationally, with pricing precision, fraud identification and straight-through processing as examples. Data as the basis for enterprise performance management is now gaining importance.

Applications including enterprise risk management, demand management, distribution channel management and product management are all being actively pursued by the insurance organizations with which I’m familiar.

The exciting opportunities are in the more aggressive utilization of data as the basis for strategic decisions. Product innovation, market segment extension and distribution channel expansion are examples of the emerging utilization of data analysis to improve the competitive health of the insurance organization. This more strategic utilization of data holds significant hurdles for the traditional insurance company. Some of these difficulties include:

* Too much data with no common data lineage and no single authoritative source. In other words, even if insurers know where the data came from, not much may be known about how it’s changed over time.

* A single term can have multiple meanings, leading to poor data quality.

* The lack of strong centralized enterprise data governance processes. Individual business units often don’t often understand the risks involved with distributed data governance — with disparate groups managing the data, and the issues filtering down the chain. This needs an enterprise approach.

* Insurers are not capturing all relevant data for analysis. One insurer I visited reported that 90% of all data stored is unstructured, while 10% is structured. Only structured data in a data warehouse is available for analysis.

For more information on related topics, visit the following channels:


Data Management

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