Analytics for Insurance. Tony Boobier

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      In particular, I want to thank Terry Clark and Stuart Hodgson at Robins who gave me the foundations of insurance, Garry Stone and Stuart Murray who both started me on the analytic path and Francesca Breeze who gave me the confidence to write.

      In addition, I would like to thank all those who helped me on my journey in the technology sector, provided essential comradeship and shared their insights into industry trends. These especially include Craig Bedell, Owen Kimber and Vivian Braun at IBM, but there are many more there who have played an important part and to whom I owe a debt of gratitude.

      Throughout my career I have depended on professional institutions to provide me with a window into their industries and professions. To that extent I would like to thank the Institute of Civil Engineers, the Chartered Institute of Marketing, the Chartered Institute of Loss Adjusters (these three institutes awarded me with Fellowship status), the Chartered Institute of Supply and Procurement, and last but not least, the Chartered Insurance Institute.

      Many thanks to all those at Wiley who provided comments, suggestions and guidance, especially Thomas Hykiel. I first met Thomas at a conference in Amsterdam and I am extremely grateful to him for helping turn an idea into reality.

      Last but not least I have my family in the UK, Chile and China to remember. Michelle for her support, patience and belief in my ability to finish this task. Chris for his unflagging support and for introducing me to new markets and cultures. Tim for his constructive suggestions when I started to run out of steam. And Ginette for always being in touch and keeping my feet on the ground.

      ABOUT THE AUTHOR

      Tony Boobier BEng CEng FICE FCILA FCIM MCIPS has almost 30 years of broad-based experience in the insurance sector. After over 20 years of working for insurers and intermediaries in customer-facing operational roles, he crossed over to the world of technology in 2006, recognizing it as one of the great enablers of change in an increasingly complex world.

      Based in Kent, UK, he is an award-winning insurance professional holding Fellowship qualifications in engineering, insurance and marketing ‘with other stuff picked up along the way.’ A frequent writer and international public speaker, he has had many articles published over three decades on a wide range of insurance topics ranging from claims management to analytical insight, including the co-creation of industry-wide best practice documents.

      His insurance focus is both broad and deep, covering general insurance, life and pension, healthcare and reinsurance. He is particularly interested in the cross-fertilization of ideas across industries and geographies, and the ‘Big Data’ agenda which he believes will transform the insurance industry. ‘I lie awake at night thinking about the convergence between insurance and technology,’ he says.

      CHAPTER 1

      INTRODUCTION – THE NEW ‘REAL BUSINESS’

      ‘The real business of insurance is the mitigation of countless misfortunes.’

– Joseph George Robins (1856–1927)

      The purpose of this book is not to create a textbook on either insurance or technology, so those who are looking for great depth of information on either are likely to be disappointed. Others who need to know the ins and outs of legal case law such as Rylands v Fletcher, or the detailed working of a Hadoop network are also likely to be disappointed, and will need to look elsewhere. Indeed, there are many books which already do good service to that cause. Perhaps helpfully, a list of recommended other reading is shown in Appendix A. This book is somewhat different as it seeks to exist in one of the exciting interfaces between insurance and technology which we have come to know as the topic of Big Data and Analytics.

      Readers are most likely to come from one of two camps. For those whose origins are as insurance practitioners, they are likely to either have taken technology for granted, perhaps turned a blind eye or simply become disaffected because of the jargon used. After all, isn't technology something which happens ‘over there’ and is done by ‘other people’?

      The technologist might see matters in a different way. Their way is about the challenges of data management, governance, cleansing, tooling, and developing appropriate organizational and individual capabilities. The language of ‘apps’ and ‘widgets’ is as foreign to the insurance practitioner as are terms like ‘indemnity’ and ‘non-disclosure’ to the technologist.

      The practice of insurance, and the implementation of technology should not – and cannot – become mutually exclusive. Technology has become the great enabler of change of the insurance industry, and will continue to be so especially in the area of Big Data and Analytics which is one of the hottest topics in the financial services sector.

      So there is the crunch: 21st-century technology and how it impacts on a 300-year-old insurance industry. To understand the future it is necessary to think for a short while about the past, to allow current thinking to be placed in context.

      1.1 On the Point of Transformation

      The starting point of this journey is over 350 years ago, in 1666, when Sir Christopher Wren allowed in his plans for rebuilding London for an ‘Insurance Office’ to safeguard the interests of the leading men of the city whose lives had been ruined by the destruction of homes, businesses and livelihoods. Some might even argue that a form of insurance existed much earlier, in China, Babylon or Rome. Before the end of the 17th century several insurance societies were already operating to provide cover in respect of damage to property and marine, and the insurance of ‘life’ emerged in the early 18th century. It might be argued that mutuals and co-operatives existed much earlier, but that debate can be put aside for the moment.

      The principles of insurance are founded on case law with the foundations of insurable interest, utmost good faith and indemnity being enshrined in the early 18th century, and remain substantially unchanged. Even some of the largest global insurance companies themselves have their feet in the past albeit with some name changes. Royal Sun Alliance can trace their history to 1710 and Axa to about 1720. Those walking the streets of London will be familiar with names and places on which are founded the heritage of the insurance industry as it is known today.

      It is against that background of tradition that the insurance industry now finds itself in a period of transition, perhaps transformation, maybe even radicalization. Traditional approaches for sale and distribution of insurance products are being cast aside in favor of direct and less expensive channels. The industry is on the cusp of automated claims processes with minimal or perhaps no human intervention. Fraudsters have always existed in the insurance space, but are now more prevalent and behaving with a degree of professionalism seldom seen before. Insurers are increasingly able to develop products suited to an audience of one, not of many. Quite simply, the old rules of engagement are being reinvented.

Coupled with this is the challenge of different levels of analytical maturity by market sector, by company, by location, even by department. Figure 1.1 starts to give some indication of the way the insurance industry is structured.

      But this is not just a book about an industry, or an insurance company, or department. It is as much a book about how individuals within the profession itself need to become transformed.

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