Data and Doom

I know the title of this post seems a bit of a downer…

But it doesn’t have to be. Bear with me.

Over the last year or so, I’ve been hearing more about insurance companies increased capabilities in the area of data analytics. As data mining and analysis gets more sophisticated, businesses of all kinds and sizes are increasingly able to look at their business results in more ways and insurance carriers are taking unprecedented advantage of this to analyze and evaluate their independent agency force.

One of the results of so-called “smart systems” and multivariate rating platforms over the last decade has been that agents were taken out of their traditional role of front end underwriting in personal lines and small commercial. Another result was that pricing became based on the interplay of a number of fixed and known variables. In other words, pricing was a function of a system – and if one understood the system, one could manipulate it.

And many agents have. They have done this to write business at prices the carriers did not intend. One result of this is that loss ratios have risen. As insurance companies have caught on to these practices, they have begun to develop the data analytics capability I mentioned earlier. And they are using it to find those who manipulate their systems.

What’s going to be the result?

Well, they are going to find and fire the cheaters!

I grew up in the independent insurance agency business believing that the secret to success was taking care of your insurance companies and your customers.  So, I view finding and eliminating cheaters to be a good thing. For those of us who play the game straight, this is going to mean fewer competitors and a much more level playing field. I look forward to that!

For the cheaters it means doom.