Business Insurance RMIS Article

"Last Word: Sure, Collect and Store Data, But Then Do Something With It"

May 17, 2004

by Paul Bradley

Due to the economics of technology, the commercial insurance industry is able to collect and store information on nearly every interaction with clients, suppliers and internal operations. According to a Forrester Research Inc. brief in 2001, Global 3,500 enterprises spent, on average, $664,000 annually on database systems. Unfortunately, the ability of companies to effectively use this collected information to support strategic business decisions lags behind their ability to collect and store it.

What's more, the very economics that allow commercial insurers to collect and store data are making it more difficult to leverage this asset to strategically improve their business and operations.

In 1964, Gordon Moore, who later co-founded Intel Corp., advanced "Moore's Law," stating, roughly, that computer processing power doubles every 18 months, for a fixed cost. The result is that we can easily purchase computers today with processing power dwarfing that of machines available even five years ago.

But computer storage manufacturers have outpaced their processor-building colleagues. The amount of computer storage that can be purchased for a fixed cost doubles, roughly, every nine months.

The combined effect of "Moore's Law" and the new storage economicsis that the means of accumulating information and storing it far outstrip a company's capacity to process, sift through, analyze and use this data toward competitive business advantage.

Moreover, as time passes, the gap between being able to store data (as measured by the amount of storage a corporation can obtain) and being able to process, prepare and analyze this data (as measured by the amount of processing power a corporation can obtain), grows at an exponential rate. If a corporation has not put processes in place to close this gap, information overload will continue. Data assets quickly become data "tombs"-data is simply stored and never sees the light of day.

The commercial insurance industry faces "information overload" hurdles similar to those in other industries. But data mining technologies and processes, when applied correctly, effectively close the growing gap between the business decision-maker and the data assets, helping corporations make informed actionable decisions.

Some insurers are implementing data mining technology to gain business advantage, using data mining to provide prospective customers with better offers and to reduce overall operating costs. Others are using data analysis applications to estimate the likelihood that a particular set of claims is fraudulent or the result of collusion.

Historically in the commercial insurance industry, data mining technology resided in-house at companies with the resources to support the necessary IT and statistical analytic staffs. Even at those companies, though, the ability to use trend and pattern information extracted from data to improve marketing, pricing or targeting could be hampered by internal politics or other resource constraints.

The good news is that experts predict that in the next few years, more and more companies will put systems in place to benchmark the ways they measure and disseminate data. According to a recent study by META Group Inc., by 2005, most companies will have adopted scorecards for tracking ths information, and by 2007, leading organizations will undergo regular information audits.

Companies continue to give business intelligence initiatives higher priority as they realize the value of using their collected data to support strategic business decisions. An October 2003 Gartner Inc. study found that information democracy, corporate performance management and business activity monitoring are driving mass business intelligence adoption.

Still, only about 35% of Global 3,000 companies are aware that they need to maximize data use, and another 45% of businesses operate on a "reactive" data management mentality, using available data only in high-level strategic decisions and not spreading it throughout the entire business.

Is your organization ready?

Paul Bradley is principal, data mining technologies, and co-founder of Chicago-based Apollo Data Technologies L.L.C.