Market Commentary - 4th Quarter 2020
Markets continued their advance over the quarter as accomodative monetary policy and multiple COVID-19 vaccine approvals bolstered the economic recovery.
Innovating new products and services is a key way to differentiate yourself against the competition. Carriers that innovate typically have a significant advantage over those whose products blend into the background. Innovation requires smart investments of time and resources. We have discussed many of them previously in our Innovate to Win series.1 In this installment we embrace the truth of our modern lives: data is king. Those who don’t have data covet it, those who do have it use it to build bigger and better capabilities. Data is a key component when you are attempting to identify opportunities and quantify the impact of innovative ideas. Whether pricing new benefits or trying to understand the effectiveness of new services and tools, data is necessary to assess value. But where can you get data? What happens if it’s imperfect or does not exactly reflect what you are looking for?
As you consider your data source options, the easiest data for you to access and analyze will likely be your own internal metrics. By systematically reviewing existing data resources, a carrier may be able to identify problems that need to be addressed as well as potential solutions and new opportunities for growth. If developing a new insurance benefit, data that has been mined directly from your own customer characteristics and product experience can help you understand consumer needs, preferences, and behaviors. If you are innovating a new servicing methodology, existing data metrics may help you identify servicing gaps and issues. When reviewing your internal data, a wide net should be cast, and all sources of data should be considered, including customer support call feedback and other operational data that may not immediately come to mind. When innovating, qualitative data can be just as important, if not more important, than quantitative data.
Can you determine which product features your customers currently value and which they do not? What are the current sources of customer and business partner complaints? It will be helpful to identify who your current customers are and determine whether you want to target new, different customers or to ensure the continued satisfaction of your existing customer base.
If you have difficulties using your internal data or feel it’s not relevant, can you get access to another carrier’s data through public insurance filings, financial reporting submissions, consumer complaints, or other publicly available data? Industry experience from another insurance carrier, even if it can only be obtained at a high level, may provide valuable insight.
These can be good launching points, but for truly innovative ideas where no precedent exists, carriers need to get creative.
Public sources of data may be useful in some instances. Do you want to identify the potential pool of consumers in a particular area? In that case, U.S. census data may be useful. Do you want to evaluate the prevalence of a particular disease or condition? Public health data from the Centers for Disease Control and Prevention (CDC) or the National Institutes of Health (NIH) might provide what you need.
When using public data, it’s important to recognize the population differences between a data source and your target market. For instance, most CDC health data reflects the U.S. population as a whole, only differentiating between certain categories such as age, gender, education level, etc. More subtle but equally relevant variations in the data will not be observable, such as portions of the population who currently own other insurance coverage or have exposure to particular insurance risks.
When an insurance carrier is selling a product or service, certain minimum income thresholds are often required in order to have access to disposable income for financial security purposes. Higher levels of income are often associated with better health and/or preferences for different benefit designs. As a result, population statistics would need to be adjusted to reflect the purchasing power of the target population. This type of targeted adjustment within a population is a common occurrence in the worksite benefits industry and experts in this market are familiar with utilizing population data with appropriate adjustments to reflect anticipated experience.
A wide variety of additional adjustments may be necessary to reflect differences between public data sources and your objectives, including:
While public data sources can be a helpful supplement to the data you have in-house, in many instances it’s useful to dig deeper by purchasing access to private consumer data. A wide variety of consumer data is available that can help a carrier customize marketing and target product offerings for maximum effectiveness. When using consumer data, it’s important to consider data privacy, ethics, and societal views. Data privacy has been an area of increasing public concern for good reason.
Much of our daily lives is now tracked and stored by a variety of entities. Numerous phone apps, websites, and other subscriber services offer free benefits to the consumer at the cost of tracking, storing, and selling their data. As a user of this data, it’s important to evaluate available data elements in order to determine what data you are comfortable using. For instance, some data elements may require individualized levels of authorization in order to utilize, which may not be feasible to collect and store.
In other instances the data itself may be available but not usable for certain purposes, such as applying for credit, without individualized authorization. Additionally, use of some data points may be illegal even with individual authorization, so knowledge of applicable laws and regulations is critical. A carrier’s ethics may prohibit the use of certain types of data such as race or data that it considers to be collected in an unethical manner. When evaluating external data sources, it's important to consider how the data is obtained, where it is stored, and how it is stored as well as the strengths and limitations of the data. Societal considerations are also a key factor as use of data elements that society feels is inappropriate can have a significant impact on a carrier’s reputational standing and brand image.
Ultimately, businesses need to consider three things when evaluating whether a data source should be utilized:
While these considerations are applicable for all data, they are especially important when considering use of potentially identifiable, purchased private consumer data.
For some, internal carrier and public data sources may be adequate to support innovation. For those looking for further sources of data, one example of a dedicated proprietary data source is Milliman’s Health Cost Guidelines™ (HCGs) suite, which contains a significant amount of health-related data specific to the working-age population. The HCGs include processed and aggregated health data, rather than individual-level data, which mitigates the ethical issues of individual consumer data. While the underlying data set for the HCGs is not made available to the public, Milliman consultants do have access to the underlying (de-identified) data and can query for specific items such as utilization by location of service, underlying diagnostic code, or other additional detailed health data.
Market survey data, discussed in a previous article by David Bahlinger,2 is another key data source to consider when developing innovative products and services. Market research can provide a carrier with the insight to innovate effectively and successfully. Primary data collected directly from consumers in the form of surveys and interviews can be particularly insightful.
While not traditionally considered “data,” the advice and input from trusted advisors is another key area of data support for organizations. Innovative ideas often need refinement and polish, which can sometimes only be seen by an unbiased expert. Often innovative ideas in their early stages are simplistic and expert advice is needed to develop the idea into a full-fledged plan. When engaging advisors for support with new products and services, it’s important to ensure that they are focused on innovation and see challenges more as obstacles that can be overcome rather than complete roadblocks. Innovation requires an open mind. Engaging experts who are accustomed to thinking beyond the box is essential to getting the most innovative result.
Data tracking is another key part of the innovation cycle. It should be implemented as soon as possible, ideally before launch, in order to better understand the full extent of an innovation's impact. Tracking data is critical to assessing effectiveness, from process efficiency to customer feedback to return on investment. Carriers with robust systems that can effectively track a wide variety of data have competitive advantages over those without them, as data enables an organization to measure the impact of an innovation and adapt or improve it.
Note that data tracking may involve upgrades or expansions of the existing systems and reporting routinely performed by a company previously. Improvements to data tracking can be complex and expensive, depending on your current information technology (IT) resources. Data governance is critical to ensure that data is reliably tracked and consistently accessible, so a holistic strategy to meet all necessary objectives should be created at the onset of any improvement project, and experts should be consulted to ensure an efficient and complete implementation.
When utilized properly, data can be the single greatest asset of carriers looking to develop new products and services. Ultimately, it is a powerful asset and tool for every innovator if used responsibly and ethically. Data can drive the need for innovation, support the development of innovation, and provide valuable feedback on the effectiveness of innovation. Taking advantage of accurate data that is available on a timely basis and suited to the purpose of analysis will provide a competitive advantage to carriers working to grow their business.
2Bahlinger, D. (May 26, 2020). Innovate to Win: Why Market Research Is Key to Insurance Industry Success. Milliman. Retrieved July 15, 2020, from https://www.milliman.com/en/insight/innovate-to-win-why-market-research-is-key-to-insurance-industry-success.