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2011 Health Meeting

June 13-15, 2011

Session #72: Health Section Hot Breakfast


Judy L. Strachan, FSA, MAAA, FCA
Lisa F. Tourville, ASA, MAAA
Moderator
Sara Corrough Teppema, FSA, MAAA, FCA

6/22/2011

Advanced Business Analytics and


the Society of Actuaries
Health Section Breakfast, Spring Health
Meeting, Boston, June 15th, 2011
Lisa F. Tourville, Vice President, Business Intelligence and
Informatics, Humana

Brave Analytically Driven New World

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Analytics in Professional Sports

Identify undervalued attributes


Develop new performance metrics
Know when a player is ready to move up
Use your own selection criteria
Assess the ability to work as part of a
team
Understand risk better than your
competitors
Determine who gets hurt and who gets
tired
Who inspires others to play better?
Who drags down the team?

Source: Competing on Analytics, Davenport & Harris, 2007

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Analytics Move to Center Stage

"I continue to be amazed at how creative people are leveraging data and information through advanced
analytical methods to achieve new insights and deliver business and scientific results."
Stephen J. Ruberg, PhD Eli Lilly & Company

"In every vertical market, customers, investors and regulators are not satisfied with firms that simply 'keep up.'
They want you to lead - and the only way to do that is through the insightful and innovative use of powerful
analytics."
Thornton May, Anthropologist and Futurist

"It is not my job to have all the answers, but it is my job to ask lots of penetrating, disturbing and occasionally
almost offensive questions as part of the analytic process that leads to insight and refinement.
Gary Loveman, Chairman of the Board,
President and CEO, Harrahs Entertainment

"In business, as in baseball, the question isnt whether or not youll jump into analytics. The question is when.
Do you want to ride the analytics horse to profitability or follow it with a shovel?"
Rob Neyer, Author and Senior Writer, ESPN

By the end of the decade, predictive analytics will go from a differentiator to a must have requirement for
doing business.
MIT Sloan Management Review

Bullets 1-4 Source: http://www.sas.com/events/cm/167209/testimonial.html

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What are Analytics

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Analytic Producers and Consumers . . . and FreeForm Discovery

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Source: Sagence Group LLC

6/22/2011

A few of the Benefits of being Analytical


Help manage and steer business in turbulent
times
Know whats really working
Leverage previous investments in IT and
information to get more insight
Cut costs and improve efficiency
Manage risk
Anticipate changes in market conditions
Have a basis for improving decisions over time
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Source: Analytics at Work; Davenport, Harris & Morison, 2010

Art and Science


Best decision makers will be those who combine the
science of quantitative analysis with the art of sound
reasoning
The art comes from
experience,
judgment, and the
savvy to question and push back on assumptions that
dont make sense

I still occasionally find it useful to look out the window.

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Source: Analytics at Work; Davenport, Harris & Morison, 2010

6/22/2011

Competing on Analytics

Using analytics is good

Finding the best customers,


and charging them the right
price
Minimizing inventory and
maximizing availability in
supply chains
Allocating costs accurately
and understanding how
financial performance is
driven

Competing on analytics is
better the Science

Making analytics and factbased decisions key elements


of strategy and competition

Using analytics is good

Dispassionate analysis
Data and statistics
Computers
Discipline and rigor

Competing on analytics is
better the Art

Passionate advocacy
Informed Intuition
People
Creativity and insight

Source: BSG Concours

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The Analytic Delta

Data . . . . . . . . breadth, integration, quality


Enterprise . . . . . . . . . . . . approach to managing analytics
Leadership . . . . . . . . . . . . . . . . . . . . passion and commitment
Targets . . . . . . . . . . . . . . first deep, then broad
Analysts . . . . a strong cadre of pros and amateurs

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Source: Competing on Analytics, Presentation to Humana, Tom Davenport, May 2007

6/22/2011

Delta and the Analytic Stages


Stage 5
Analytical Competitors
Stage 4
Analytical Companies
Stage 3
Analytical Aspirations
Stage 2
Localized Analytics
Stage 1
Analytically Impaired
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Source: Competing on Analytics, Presentation to Humana, Tom Davenport, May 2007

Delta Stage Model

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Analytics Maturity Model


Health plans today find themselves in various stages of maturity regarding Informatics capability
but are constantly in motion.

More Aggressive

Health Plan BI Capability

Competitive

Integrated Collaborative Informatics


Integrated data & analytics to create a dialogue with:
Providers: quality of care and evidence-based best practice
measures
Employers: program impact on overall costs and quality,
emerging trends, program optimization
Consumers: health, wellness, financial and clinical information

BI
BICapability
Strategy

Pioneering

Integrated Payer Informatics


Integrated analytics working on integrated data to break
down silos and maximize insights
Analytics embedded within business processes (care
management, customer service, etc.)
Focus on provable ROI

Foundational

Less Aggressive

Basic

Reporting and Analysis


Dominant market share seen as limiting threat from traditional
competitors
Waiting for proof of adoption
Exploring incremental options for tools and programs

Local (primarily

Regional

one State market)

Commercial Health Plan

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--------- Key Characteristics --------Integrated Health Experiences


Sensor suites & medical devices combine with knowledge engines
to deliver right content to the right person at the right time
Advanced analytics for consumer engagement and wellness
motivation
Sophisticated outcomes measurement and traffic control

BCBS Plan

National

(Presence in multiple
markets)
1

(Competing in markets
beyond a single Region)

Source: Humana BII study Accenture - 5/08

As of 2008, Estimate of where Humana was 3 years ago


As of 2008, Estimate of where Humana is heading

Source: Accenture Analysis

Humanas Journey
Starting from decentralized, siloed analytics
that typify many payer organizations
Humanas efforts to date to realize analytical
value through an enterprise competency satisfies
the criteria for Stage 3 analytical aspirations.
Humanas subsequent progress toward
establishing that analytical competency at an
enterprise level satisfies a Stage 4 maturity
rating and . . .
positions it well to attain the Stage 5 Analytical
Competitor rating.
Source: International Institute for Analytics HLSARC Leading Practice Brief #8 - Humana

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Humanas Journey

Humanas relatively quick rise through the maturity model


establishes it as a leader among healthcare payer organizations
most of whom have not formulated comprehensive analytical
aspirations and would fall into a Stage 2 rating on the DavenportHarris maturity model

Unlike Humana, most payers have some localized capabilities but


do not have a holistic analytics strategy.
Most payers also lag Humanas maturity in the data warehousing
space and do not have an enterprise analytics toolkit.
Given the context of most organizations in the payer space,
Humanas quick rise to analytical maturity is all the more apparent,
as is its ability to find competitive differentiation with its deep
analytical capabilities.

Source: International Institute for Analytics HLSARC Leading Practice Brief #8 - Humana

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The Question?

Should actuaries venture out of the


traditional roles already established for us
and look to fill these Advanced Business
Analytic roles?

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Hot Topic - Trend for Web Searches on Analytics

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US Bureau of Labor
Job Titles

Projected
Total #
Growth 2018 Expected

Projected
Top 10%
Median Income

Statisticians

13%

25,500

$72,610

$117,190

Operations
Research
Analysts*

22%

76,900

$69,000

$118,130

Management
Analysts

24%

925,200

$73,570

$133,850

Actuaries

21%

23,900

$84,810

>$160,780

Metricians?

Bio-staticians?

Epidemiologists?

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Analytic Offerings
University Masters Programs
US 140 programs/99 schools
Canada 9 programs/9 schools

Seminar Programs
Not for profit
For profit

Society of Actuaries
Basic Education
Continuing Education since 2003
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More Reasons Why


These new roles may attract new people to the
profession
Better preparation ensures actuaries do not lose
ground in this area to other professionals
Employers advantages are the high ethics and
rigor actuaries bring to the job
Historical/traditional employers of actuaries
know this
Enhancements will be in continuing education
offerings, not basic education
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Our Approach
Team of experts
Data based decision making
Common terminology
Business Analytics, Advanced Business Analytics, Predictive Analytics

Initial focus
Life and health
Traditional employers
Continuing education solutions

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The Team (6/2011)

Joan Barrett
Guillaume Briere-Giroux
Jack Bruner
Ian Duncan
Kim Dwornick
Alice Kroll
David McLeroy
Kevin Pledge
Jacques Rioux
Lisa Tourville, Chair

Mike Boot
Stuart Klugman
Onserio Nyamweya
Sara Teppema
Meg Weber

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To-Do List for the Team


Identify the skills and techniques that define
an actuarial practitioner of Advanced
Business Analytics
Identify the gaps between those skills and
techniques vs. an FSA education
Describe course of study to address the gaps

Develop ideas for key measures as input to


market research questions
Plan internal and external market assessment for
fall, 2011
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Definition - Things to consider


In working on our definition of Advanced Business
Analytics the group identified many ideas to be included:

Author Davenport influence


Lifetime (or customer relationship lifetime) vs. transactions Longitudinal
Optimizing opportunities
Opportunity continuum
Business decision making, strategic decision making
Risk and opportunity analytics
Influence future
Different techniques to analyze past vs. what is needed to look
forward
Human side of business, behavioral economics

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Advanced Business Analytics


(A working definition)
Advanced Business Analytics for Actuaries is a set of
tools and techniques used to describe, predict, and
recommend business courses of action based on
consumer and distributor behavior
It draws from many disciplines
It relies heavily on vast amounts of data and
computing power, statistics, modeling, optimization,
dashboard and alerts, market research, and clustering
Advanced business analytics provides employers with
insightful decision making and affords the opportunity
to assess a marketplace from a totally new perspective
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Analytic Modeling Types


Generalized Linear
Model
Ordinary Least Squares
Regression
Logistic Regression
Trees
Neural Networks
Bayesian Networks
Clustering / Factor
Analysis
Text Mining
Groupers/Risk Adjusters
(Unique to Health)

Time Series

Survival / Failure Time


Analysis
Exponential Smoothing /
Forecasting

Complexity
Hypothesis Testing
Geomapping / GIS
Stochastic Processes
Mixed Effects Models
Support Vector Machines

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More Things to Consider


Directional oriented towards
Attracting young people into the actuarial
profession to do interesting work like predictive
analytics
Help actuaries do analytics at a superior level to
statisticians, metricians with historical employers
Success can spill over to related employers. I.e.
Health insurance, consulting, pharmaceuticals

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Departing Thoughts
Lots of work left to do to determine if the Society of Actuaries should add
special training, certifications or designations to encourage Actuaries in the
learning of advanced analytics and its techniques.

Me? I want kids coming out of college thinking Actuarial Science is fun and
exciting and will take them down the path to do all of the cool analytics they
are hearing and learning about!

Actuaries are not only smart. We can do amazing things outside of what has
been considered the traditional world of actuarial science. We want to set
ourselves up to make that happen!

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