EMC Insurance Companies struggled with pinpointing the right amount of money to hold in reserve against potential case payouts; holding back either too much or too little could be disadvantageous to the firm’s bottom line. After a year in which the company experienced a run-up in reserves, EMC took steps to improve financial reserve management. The company selected PolyVista, advanced data analytics software built on Microsoft SQL Server Analysis Services, to uncover anomalies, correlations, relationships, and patterns hidden within the firm’s warehouse of claim data. After deploying the solution, EMC was able to improve financial reserve management, identify claims requiring special attention, improve data quality, support executive decision making with improved analysis, and better manage expenses.

Situation
EMC Insurance Companies sell workers’ compensation, property, and casualty insurance through independent insurance agents in 16 branch offices across the United States. Founded in 1911, EMC is one of the largest insurance companies in its home state of Iowa. With assets of approximately U.S.$3 billion, the insurance firm has the bulk of its volume in commercial lines of business, with the remaining 15 percent in personal lines.

The Challenge of Financial Reserve Management
EMC manages its loss reserves—money set aside for paying future insurance claims—by setting up a reserve for every case that the company handles. “When a claim walks in the door, we try to determine what is the most likely outcome for that claim,” explains Rich Schulz, Senior Vice President of Claims for EMC Insurance Companies. Strategic management of financial reserves can be a key contributor to the success of any insurance firm, and they are important indicators that are looked at by both insurance regulators and investors.

“It’s a real balancing act; you don’t want to underreserve or overreserve accounts. Consistency is critical,” says Schulz. “In 2004, we saw that our loss reserves were starting to creep up and yet, with all the tools we had, we were unable to pinpoint exactly what was happening. We realized we had to get a better handle on the way we were setting our reserves, and I was brought in to EMC to improve our management of our financial reserves.”

Schulz wanted to be able to predict the company’s claim outcomes on an ongoing basis and, hopefully, identify and closely monitor those cases likely to have negative outcomes such as increased costs, additional services, or a lengthy resolution. “We had all this claim data and not an effective way to look at it,” says Schulz. “We wanted a tool that would allow us to look at trends that the company was experiencing and be able to figure out what was driving them.” He looked at a number of predictive modeling tools available on the market, but found that initial investment costs were high and the cost of maintaining those tools was far beyond what the company was willing to pay.

The Need to Identify Trends
EMC stored a great deal of data in its internal claim processing system, but managers needed the ability to sift through that data more efficiently. For example, executives at EMC wanted to track and understand company trends related to claim frequency, which is the ratio of claim volume to premium volume, and severity, which is the ratio of claim cost to premium volume. Not only did they need to track these measures in order to manage their business, but executives also were expected to provide explanations of sudden trend changes to industry analysts.

“Right before a first quarter earnings call, I was asked about a change in the severity and frequency of workers’ compensation claims,” says Schulz. “At the time, I had to call individual branches to inquire as to what was going on.” EMC had no good system of reporting that could be quickly used to discover the reasons behind unexpected changes.

Schulz also needed to be able to track expenses both across the company and by individual branch, and he wanted the flexibility to analyze expenses in consideration with other factors. “Currently, most claim people are under a lot of stress about expenses,” Schulz says. “The ability to understand where expenses were running high is important. All of our adjustment expenses are open to analysis. [For example,] do we have one or two business units that are overusing certain types of vendors to investigate claims?”

Solution
In need of an affordable and effective solution, EMC Insurance Companies heard about PolyVista business intelligence software, which provides two important capabilities: A business user can use it to drill up and down on data, and it can automatically identify anomalies, correlations, relationships, and patterns that are hidden in that data—all without requiring custom code or predefining the anticipated results.

We … start looking at [our data] and realize that we have an interesting question but can’t answer that question because we haven’t collected the right data. PolyVista helps us find data holes and plug them. Rich Schulz Senior Vice President of Claims, EMC Insurance Companies

EMC was interested in determining whether the PolyVista software, which uses Microsoft SQL Server Analysis Services as its core engine, could help the firm with its data analysis needs. “For the PolyVista solution, we made the decision to use Microsoft SQL Server Analysis Services as our multidimensional engine many years ago,” says Robert Potts, Vice President of Sales at PolyVista Inc. “That selection has proven to be prescient. Analysis Services has become the dominant multidimensional engine in the market. It provides a robust open development environment that allows us to build and enhance our unique sophisticated analytic product at an affordable price point.

“Plus, partnering with Microsoft just makes sense,” Potts adds. “We’re working with the best software company in the business.”

After watching an initial demonstration of the software in March 2007, Schulz arranged for PolyVista Inc. to do a proof of concept (POC) for key stakeholders within EMC. “Typically, we arrange to have the client data staged and ready for us when we walk in the door,” explains Potts. “We then load the data into SQL Server Analysis Services, do some massaging, and start presenting.”

During the POC demonstration, the PolyVista software analyzed the same workers’ compensation claim data that Schulz had been asked to explain previously.

"As I watched the consultants from PolyVista dig into our data during the proof of concept,” Schulz continues. “It became clear to me that I could ask a question and, using the software, they could get me an answer in a matter of seconds. They managed this even though they didn't have the familiarity with our data that would normally be required to answer the relatively complex business questions I was asking. Further, they were able to show correlations in our data that we had not seen. It was obvious to me that the PolyVista solution had the potential to help us build predictive modeling into our claim system."

After the POC was complete, EMC decided to move forward with implementation of the business intelligence solution. Because the company had not previously used SQL Server 2005 Analysis Services, key IT personnel at EMC completed Microsoft training. “We try to develop our IT talent in-house and not rely on consultants,” says Mike Boggs, Claims Technology Director at EMC. “So we wanted to develop the expertise in business intelligence, SQL Server, and Analysis Services internally. The Microsoft training allowed us to do that.”

Ten members of the EMC technology team completed a number of online SQL Server training courses. In addition, a Microsoft Certified Trainer traveled to EMC to offer a weeklong training course that covered Microsoft SQL Server Analysis Services and SQL Server Integration Services, and touched on SQL Server Reporting Services.

After EMC completed the Microsoft training, PolyVista sent a senior consultant to EMC to train key IT staff members and business users on the business intelligence software. During the fall of 2007, the complete implementation of the business intelligence solution at EMC was finished in less than eight weeks.

As of February 2010, there are 24 PolyVista users at EMC—8 powers users and 16 casual users. EMC has relied on the power users to complete complex analysis and to assist other users with the software. Adds Boggs, “We have cubes for everything except bonds now. We have cubes for workers’ compensation, liability claims, auto claims, and property claims.”

Benefits
From the beginning, EMC Insurance Companies anticipated many uses for the business intelligence solution. The initial goal was to improve reserve account management; however, the insurance firm is also building predictive modeling into the claim system and has improved the quality of data. Finally, EMC is improving decision making and controlling expenses.

Effective Management of Financial Reserves
EMC relies on PolyVista as its primary tool for managing case reserves. Since the implementation of the business intelligence solution, EMC has managed its financial reserves more accurately and the company has avoided the volatility that can occur when reserves are not consistently and accurately established.

The software has helped the firm ensure that all branches are in compliance with the company’s reserve guidelines. “We were looking at our quarterly numbers and saw a rise in a particular branch’s reserve payouts for development and workers’ compensation. Well, we had hired a new supervisor whose reserving philosophy was a little bit different,” says Schulz. “That business intelligence showed us that we needed to do some training: ‘Here’s how we reserve our cases. You’re a little off the mark, and this needs to change.’”

Predictive Modeling System for Improved Claim Outcomes
EMC is using PolyVista to add predictive capabilities to the automated claim system. Now, the company can identify casualty and workers’ compensation claims that are likely to have a negative outcome and assign these claims to the company’s most experienced people to help mitigate potential risks. If a claim is not properly identified or assigned, it can take longer to resolve and result in additional costs and services. By recognizing the complexity and risk factors early on, an experienced claim manager can expedite the claim with better results for both the claimant and EMC.

[PolyVista business intelligence software] is a pretty nice tool to have—especially if you’re a chief executive officer—to be able to explain your numbers clearly to your analysts. Rich Schulz Vice President of Claims, EMC Insurance Companies

“We found this to be one of the major uses for the business intelligence solution that we hadn’t fully anticipated,” says Schulz. “We have a very robust claim system, and we pull an enormous amount of data into our system from a number of different sources. Using PolyVista, we can quickly see that items from different data groups are always associated with a certain outcome. We can then put a business rule in our system that says, ‘Whenever you see these things, assign [the claim] to the next level.’”

Better Data Quality
Enhanced reliability and accuracy of data with the business intelligence solution was an important realization for EMC. “One of the surprises was just how many holes we had in our data,” says Schulz. “We have all of this data, start looking at it, and realize that we have an interesting question but can’t answer that question because we haven’t collected the right data. PolyVista helps us find data holes and plug them.”

In the highly regulated insurance industry, data quality is an important aspect of compliance. For example, Schulz says, “Under the federal government’s Medicare Secondary Payer laws, we have to have the age of the claimant or insured in our system. We now can run reports showing the portion of claims that don’t have an age or have an age that doesn’t match other data or doesn’t make sense.” These reports allow EMC to identify and fix errors before submitting data to the Medicare program.

Improved Executive Analysis to Support Decision Making
During periods of rapid change, EMC relies on its business intelligence solution to help executives turn data into knowledge and make more informed decisions. “When you have weather events or the economy is changing in a specific area, you need to understand how it is affecting the business,” says Schulz. “PolyVista is a good tool for that.”

In addition, EMC executives need to be able to explain the firm’s performance to stockholders and industry analysts. “You want to be able to explain to the analysts and the stockholders why we’re seeing an increase in claim severity or a decrease in frequency, and you want to have solid backing for your statements,” says Schulz. “I am able to go into a conference and say, ‘Here’s the increase. It was in small claims. It occurred in these three areas, in these particular lines of business, and in these types of policies. It was due to a one-time weather event.’ That’s not something I could have done without PolyVista.

“It’s a pretty nice tool to have—especially if you’re a chief executive officer—to be able to explain your numbers clearly to your analysts.”

Effective Control of Expenses
By using the business intelligence solution, EMC is able to track expenses and control costs that are tied to specific buys, and match data by business unit. “This has worked particularly well with our legal expenses,” says Schulz. “We can view a branch’s legal expenses by brand, by type of buy, and by SIC [Standard Industrial Classification] code, and see how they compare with the other branches. We can run PolyVista’s Difference algorithm and say, ‘There are some legal expenses popping up over here that we didn’t expect to see. What’s going on?’” Schulz is using that information to work with branch claim managers to analyze expenses and determine areas where they can decrease expenditures.

Microsoft Solutions for the Financial Services Industry
Financial institutions continue to seek cost-effective solutions that create rapid and sustainable competitive advantage while laying the groundwork for future innovation. Microsoft and its ever-growing partner community develop solutions that meet the industry-specific needs of banks, insurance companies, and capital markets firms worldwide, and help financial services customers realize their full potential.

For more information about Microsoft solutions for the financial services industry, go to:
www.microsoft.com/financialservices

For More Information
For more information about Microsoft products and services, call the Microsoft Sales Information Center at (800) 426-9400. In Canada, call the Microsoft Canada Information Centre at (877) 568-2495. Customers in the United States and Canada who are deaf or hard-of-hearing can reach Microsoft text telephone (TTY/TDD) services at (800) 892-5234. Outside the 50 United States and Canada, please contact your local Microsoft subsidiary. To access information using the World Wide Web, go to:
www.microsoft.com

For more information about EMC Insurance Companies products and services, call (515) 280-2511 or visit the website at:
www.emcins.com

For more information about PolyVista Inc. products and services, call (713) 521-1101 or visit the website at:
www.polyvista.com