October 17th - 19th, 1999
Hyatt Regency Baltimore, MD

Electronic Excavation: What Datamining Reveals About
Non-Customers:
Gavin Blair, VP & Actuary, Liberty Mutual Insurance Co.
Christopher Geiger, VP Sales & Marketing, Tessera Enterprise Systems
Tuesday, October 19th, 2:00 - 2:50 p.m.

"Actuaries Face an Information Boon"

Through technology, actuarial departments soon will be able to work with more data and analyze it better and faster, said Gavin Blair, vice president and actuary for Liberty Mutual Insurance Co., Boston.

"There's been dramatic industry changes in the past couple years, with greater demands put on actuarial departments and information services departments to use all the information that is available," Blair told A.M. Best Co.'s 12th annual Insurance Information & Technology Conference in Baltimore. Liberty Mutual ffers personal auto and homeowners insurrance in the United States and Canada.

"In the future, more and more customer information will be available--we'll be able to purchase more," Blair said. And "our information--what we retain in our files and most importantly today, what we have in our computers--" is an insurance company's most important asset, he said.

Blair outlined how Liberty Mutual mines its ever-increasing data--not just to track current customers but to develop information about noncustomers, or those who have decided not to purchase a policy with the company.

With noncustomer information, Liberty Mutual employs a key tool: the closure rate, or the number of sales at a given site, divided by the number of solicited risks. So if a sales force sold 10 policies after having solicited 100 customers, its closure rate would be 10%, Blair said.

"But just looking at the closure rate doesn't tell the whole story," he said. "You have to dig into it."

A more-detailed analysis could pair loss ratio and closure-rate information to help show, for example, what segments of auto insurance are unprofitable but nevertheless selling well. This could lead an actuary to ask himself if he is underpricing here or failing to look at all the risks, Blair said.

Data mining also can identify trends. "If closing rates are steady over time and then suddenly drop, that might be a sign of new competition," he said.

Sharing the podium with Gavin was Christopher Geiger, a founder and member of the management team at Tessera Enterprise Systems, Boston, a data warehouser and data miner. Tessera provides customer relationship management (CRM) solutions that can improve the profitability and quality of an organization's relationships with their customers.

CRM provides tools that allow insurers to precisely target their most profitable customers with products best suited to them at the time they are most likely to buy and through the channel they are most likely to use. The foundation for the software is the vast amount of data that insurers and other businesses have about their customers.

Earlier this month, iXL Enterprises, which offers strategic Internet services, said it would acquire Tessera for $120 million.

Geiger's most recent work at Tessera has involved helping companies such as global insurer, American International Group Inc., as well as Dell, Amazon and Charles Schwab Corp., create intelligent customer engines for e-Commerce-based clients.

"The Internet has changed business and the way we interact with our customers," Geiger said Oct. 19. "And there's a customer marketing frenzy out there, including the financial services field."

As one dramatic example, he pointed to Schwab's announcement in July that it had 2.8 million active on-line accounts as of June 30, up 56% from a year earlier. "This is a sea change," Geiger said. "It went from No. 10 to No. 1 in market cap just because it moved its business to electronic trading."

By Marilyn Ostermiller
Editor, Best's Review