Analytics & Pricing in Workers’ Compensation

Advances in the way the workers’ compensation industry collects analytics are rapidly changing the way we do business. In this session at WCI’s 2017 Workers’ Compensation Educational Conference, Frank Pennachio, Agent at Oceanus Partners, provided a future outlook for workers’ compensation data analytics trends and how they relate to pricing.

The industry is experiencing dramatic change due to technological disrupters. Gordon Moore, co-founder of Intel, predicted that the processing speed of a computer chip will double every two years. This has happened. We have extraordinarily fast computers and massive data storage that is essentially free. In addition, the amount of data that is being created every minute of every day is incredible. The industry has quintillions of data available at its fingertips.

The future has arrived for insurance. Individual insurance companies are building their own data analytic models. They can quickly process millions of calculations and can make adjustments to models almost instantaneously. This is affecting workers’ compensation pricing.

The influence of big data is present in pricing through predictive models. Some utilize up to 1,300 data points. 67% of carriers currently use these models for pricing and underwriting. This is predicted to rise to 92% within two years. This incredible convergence of technology will dramatically change the future of underwriting. Internal data is now being merged with external ‘unstructured’ data from sites like Facebook, Angie’s List and Glassdoor. 

Carriers are also now able to use county demographic data in pricing, which is more predictive than state-wide data. Classifying occupations is no longer as generalized. In fact, class codes can now be ‘thin sliced’ for accuracy. All of this being used to determine rates.

It is very unlikely that carriers will share their data points so that agents can determine why pricing goes one way or the other. Where agents once served as the front line in risk selection and pricing, advances in predictive models are making this role obsolete. Agents will no longer be able to use influence on pricing (i.e. “I’ll get you the best rate”) as part of their value proposition with clients. It does not mean the agent is less valuable. In fact, it means the opposite. The agent is a necessary advocate for the employer and there are plenty of opportunities to make sure the employer has the proper coverage so they can protect their assets.