Considering that an insurance company’s main product, at essence, is analytics – a risk-adjusted assessment of a customer’s potential cost to the insurer — the insurance industry remains surprisingly dependent on gut instinct for pricing decisions. Traditional risk-based pricing is tied to actuarial tables and other historic charts but does little to account for real-time data such as Internet inquiries and rejected offers. Many pricing decisions continue to be made according to general risk assumptions rather than on up-to-the-minute market demand. As a result, most insurers rarely achieve the optimal mix of price maximization and customer satisfaction.
Earnix Ltd., an 11-year-old software company based in Ramat Gan, Israel, flips the equation by applying predictive analytics to the insurance and financial industries to identify various pain points—areas where clients can raise prices without impacting customer retention.
Taking a page from the hotel and airline industries, Earnix predicts how customers will react to various price changes and then adjusts premiums individually to achieve the optimal pricing structure for each customer. Rather than viewing the worlds of insurance and finance through the traditional prisms, Earnix earmarks various levers that impact consumers’ decision-making process and helps predict each customer’s lifetime value to the company. The company’s says its strength is its ability to identify lucrative pricing structures that are not intuitive. “Predictive analytics gives another dimension that is not obvious,” says Aviv Cohen, Earnix’s vice president of marketing.
Earnix claims that its software can increase a client’s bottom-line profits by 5 percent or more. It currently has more than 40 customers worldwide, with a concentration in the U.K. and Europe, where the insurance industry is less regulated. It recently hired a head of North American operations, insurance industry veteran Meryl Golden, to help it acquire more U.S. clients.
About the technology: Earnix’s main offering is Earnix Optimizer, a subscription-based product that allows insurance companies and financial firms to understand customer risk, behavior and value by integrating it with their existing data warehouse, CRM and core systems. “We have developed integration capabilities to deploy in a very efficient, smooth way, in a much shorter period than people are used to,” says Earnix’s chief technology officer and co-founder Sammy Krikler.
Most of Earnix’s analytical work is done in a multi-tier environment on the cloud. The company offers a selection of modules to its clients to help analyze customer data from a variety of real-time sources, including websites and call centers. It extracts data from its client’s existing data warehouses. Once the data is cleaned and prepared, a model is created to determine the effect of price on demand of the client’s product. From there, the data is mined for optimization strategies and recommendations for implementation of those strategies are issued. The result is a software solution customized to each client’s specific needs. Earnix’s CEO, David Schapiro says his company combines industry domain expertise with software development skills, adding, “We’re in the product development business.”
Among its customers is Lloyd’s TSB Insurance, a division of London-based Lloyd’s TSB Group. The company used Earnix Optimizer to target customer segments with a high likelihood of cancellation and create a preemptive plan to retain as many of those customers as possible.
While Earnix is not the only company in the marketplace aimed at insurers’ pricing policies, Alan Bauer, former group president at Progressive Direct and now an independent insurance-industry consultant, says Earnix currently “has no direct competition” in the U.S., and he expects its technology will have a profound influence on the industry.
One potential rival for a niche of the insurance market is DriveFactor, a company that caters specifically to auto insurance providers with technology that tracks and analyzes real-time data based on driver behavior. Insurers can use the data, known as telematics, to adjust prices on motorists based on the risk they present. Steve McKay, CEO of DriveFactor, says this data can play a significant role in insurers’ policy rate calculations, and consequently, their profitability.
Company origins: Earnix traces its roots back to a conversation that Krikler, a statistician by training, had more than a decade ago with Sy Foguel, then a vice president at Israel Direct Insurance, an online direct insurance company. Foguel asked Krikler to come up with a software solution for Israel Direct that allowed insurance business leaders to make strategic pricing decisions from their desktop.
Foguel has since moved on to become chief executive and president of Guard Insurance Group in Wilkes-Barre, Pa. He is not an Earnix client now, but he says that, at Israel Direct, “Most of the expenses were fixed, unlike a traditional company where commissions are variable.” So while the company understood its total expenses and required return on capital, “how to allocate these margins to the different policies and segments wasn’t done analytically until we started working with Earnix.”
Earnix Optimizer was one of the first enterprise software products to earn the Ready for PureSystems designation from IBM; it runs on both the IBM banking and insurance industry frameworks. Earnix also has strategic partnerships with Oracle, CSC, KPMG and Oliver Wyman. Earnix’s business model is subscription-only, based on the size of the customer’s book of business.
Founded in 2001, the privately-held company has 41 employees with offices in Ramat Gan, London and New York.
What’s next: Earnix has plans to expand its domain expertise, which includes attracting new clients in the financial services sector, where price optimization is not yet common. According to Schapiro, future plans also include developing additional modules that allow customers to customize the Earnix software to its particular needs and interests. It currently offers seven such modules.