LIMEWOOD: How to use predictive analytics to fight negative phenomena in life insurance portfolios and monitor the real quality of production in the sales channel

28 April 2016 — Adina TUDOR
Lapses represent a significant business risk for all life insurance companies, because of their negative impact on the cash flow and costs. Often, lapses even represent fraudulent behaviour of the clients or members of the sales force.

"Our research shows that within the first 5 years, on average 35% of life insurance policies typically lapse and 20% of life insurance policies are cancelled due to unpaid premiums. It means that, on average, more than 50% of the portfolio is gone after 5 years and leaves unsolved issues in the accounting and relationships with sales force. Hence, knowing reasons of lapses is very important for mitigating risks of negative impacts as well as for fine tuning of the product portfolio and compensation schemes", LIMEWOOD representatives explained.

Figure 1 - Management dashboard with contract status broken up by geography (map), distribution channel (treemap bottom left) and the contract status for the selected geography (with relative contribution by the channel selected in the treemap)

"Under these conditions, it is inevitable for the management of the insurance company to know the reasons and see ahead of the curve. The actions to be taken have to be supported by relevant data which are actual and precise. The problem resembles us with finding the needle in the hay stack. It is obvious that for a quick managerial reaction the classical approach of statistical analysis is not further sufficient, since managers expect quick, reliable and explainable answers to their problem and not a hard to understand output of statisticians resulting form a time consuming itterative process", LIMEWOOD representatives added.

Due to the recent advances in the analytical tools and technologies, leveraging big data technologies, it is now possible to connect the whole production portfolio with real time analysis using the predictive logic based on advanced statistics and forecasting models. This enables management to visualize and understand the phenomena in life insurance portfolio and sales networks on fly and take corrective actions instantly, the company pointed out.

Figure 2 -Visualization of the lapse impact on the portfolio by individual product (individual tile represents a product, tile size represents number of lapses relative to total lapses, tile colour represents total lapsed premium in mil Eur)

How can insurers address lapses using the Big data technology? According to LIMEWOOD, the combination of new technologies enables a radically different approach, which includes:
  • Instant analysis of the whole contracts portfolio, i.e. no sampling, using in-memory technologies. This means avoiding the time gap between rising the request and processing the answer using traditional statistical approach;
  • In depth analysis using multi-correlation models and matrices in real time, which enables the deployment of unlimited internal and external factors, such as the structure of the sales force, macro-economic data etc.;
  • Identification of outliers and trouble making factors with one click of the mouse; 
  • Advanced managerial statistical reports at hand, available for users without statistical know how using friendly compiled visualization objects such as treemaps, heatmaps, geomaps, network diagrams etc.;
  • Decision trees for numerical and categorical variables to identify factors influencing negative phenomena;
  • Outputs for product design to fine tune the life insurance products based on multiple criteria as defined by the output of the main risk factor analysis common for the whole portfolio;
  • Outputs to adjust compensation schemes of sales force based on relevant underlying data defining the behavior if the particular sales force or particular agent.
Figure 3 - Example of a decision tree model grouping the portfolio by individual factors influencing lapsation relative to their impact, analysis performed in real time on the whole portfolio

"The outlined set of tools, method as well as the whole approach, enables a radically different strategy to manage the insurance business, by providing deep actionable insight in real-time, so measures can be taken to positively impact the bottom line instead of extensive approaches targeting only the production quantity without understanding the real impact of channels, markets and individual salespeople on the business profitability", LIMEWOOD representatives explained.

More details about LIMEWOOD's solutions, as well as information regarding the company's activity and further plans can be found out directly from LIMEWOOD's representatives, who will participate between May 15th and May 19th at FIAR - The International Insurance-Reinsurance Forum. LIMEWOOD supports this year's edition of the event as a Partner and its representatives will be available for discussions throughout the event.

FIAR 2016 takes place between May 15 - 19 in Brasov, Romania. More details are available here.

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