Friday, May 01, 2009

Prediction Markets in the Insurance Industry

A few weeks ago I wrote about some ideas we had for prediction markets for the logistics and freight industry. We're close to finishing similar write-ups for several other industries and I wanted to share a draft of what we've written for the Insurance industry.

Insurance companies we've worked with or spoken to are naturally worried about much more these days than business continuation plans and natural disasters. They're under tremendous pressure in the current financial environment to achieve sufficient return on investments, respond to increased claims and fraudulent activity, and keep attrition rates down, all while addressing increased competition and calls for a more stringent regulatory environment.

Here are some potential uses in a few key business processes:

Business Performance


  • Forecast quarter over quarter or year over year growth in individual policy areas;

  • Understand impact of marketing campaigns and new policy programs on new customer acquisition; and

  • Predict customer behavior: attrition, loyalty, and satisfaction levels



Company and Business Partner Health


  • Predict returns on investments to understand impacts on capital levels;

  • Forecast ability of reinsurance providers to write new business (or vice versa to understand need if you're a reinsurance provider);

  • Understand agency performance locally, regionally, and nationally

  • Predict metrics related to claim levels; and

  • Ramp up fraud protection activities by understanding what types of fraud will be most prevalent in a future timeframe



Competitive and Regulatory Environment


  • Compare market share performance and other publicly available metrics with primary competitors;

  • Understand impacts of changes in public policy, the likelihood of legislation passing, and budget allocation;

  • Leverage employees, partners, agencies, subject matter experts, and other players in the value chain to gain comprehensive view of sector trends; and

  • Predict impact in marketplace of competitor's marketing campaigns and other strategic moves

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