Data: Asset or Liability?

Data is a natural by-product of insurance transactions and processes that can be either a valuable asset or a costly liability.  It is the life blood of a company, feeding information throughout the underwriting cycle to generate policy premiums, manage and pay claims, and help maintain compliance with regulatory obligations.  Data is also one of the most frustrating parts of doing business.  The rewards of quality data collection and utilization are great and the penalties of not handling it right can be costly.

The quality of the data collected enables a company to be nimble in responding to market conditions and to efficiently comply with governmental regulations without taxing the bottom line.  Quality data meets the following criteria:

• It is the “right” information that is in sync with its intended use.  What is “right” will vary by line of business and state, as well as by type of insured entity (carrier, self-insured, RRG, etc.). 
• It is accurate with controls and edits close to the source of data entry.  Single entry of transactions while they are being underwritten or quoted enables data to effectively “flow” from and through underlying business processes. 
• It is maintained correctly for ease of access by all users for an appropriate duration of time.    Data can quickly become voluminous and a challenge to manage so it must be handled in a way that allows it to remain accessible since data from one business process enhances other processes.

Data is collected by a carefully choreographed process largely managed by a variety of software systems and ERM policies and controls that must be supported on an organizational and individual level.  Over time, the types of data and its uses evolve.  Software systems are updated or new ones are implemented.  Conversion of data into new formats often creates imbalances or errors unless the appropriate consideration and controls are utilized. 

Actuaries are uniquely qualified to work with all insurance staff (underwriters, claims adjusters, accounting, compliance, etc.) to develop comprehensive and effective data strategy, as well as processes and procedures to collect and utilize data.  Predictive analysis widely used in other financial industries is emerging as an effective tool for insurers.  Actuaries are highly trained in analysis of data to identify trends, identify how the trends will impact an insurers’ book of business, and to develop new strategies to make the most of the information.  Often, problems areas are revealed as a result of this analysis so that corrective action can be taken.

Complying with governmental regulations is a necessity for all insurance entities yet compliance is often regarded as a “red-haired” stepchild or a necessary evil.  Quality data improves the bottom line by minimizing the cost to compile and report the data to the various statistical or rating bureaus and to avoid costly fines or assessments due to erroneous or late reporting.

Tell us how your company handles data.  Do you have a formal process in place to share information across business processes?  Do you maintain your data with an eye toward compliance requirements?

Kathy Kettering is a consultant at Merlinos & Associates.