Successful adoption of advanced analytics can give carriers a huge competitive advantage, helping them visualize key trends, predict future outcomes and prescribe actions.

But carriers have only scratched the surface in realizing the impact of analytics, says a new report from McKinsey & Co., which offers some best practices insurers can follow as they begin their transformation into an analytics-driven organization.

The report details four stages in adopting advanced analytics:

1. Building insights. Carriers develop models that demonstrate how analytics can deliver clear value and enhance decision-making. However, these models are often developed in isolation from the business, and the company struggles with frontline adoption.

2. Capturing value. Carriers shift focus from model development to adoption. Critical success factors include frontline involvement, seamless work-flow integration and performance management that specifically tracks the use of analytics, including user adoption and satisfaction over time.

3. Achieving scale. The next step is to build a permanent, scalable center of excellence to support the businesses. The COE needs the autonomy to come up with ideas and recommendations proactively, while the business needs to shape and approve the COE’s agenda and be convinced of its value. Senior management must make the COE a critical corporate priority, paying close attention to how the initiatives have achieved tangible impact.

4. Becoming an analytics-driven organization. Analytics has shifted from being an enabler to being the core way of doing business, driving underwriting, product development, claims and distribution.

McKinsey & Co. said most carriers are currently somewhere between stages two and three: They’ve validated the potential of analytics and have attempted to build COEs to roll out analytics more broadly.

How can chief executives capture the full potential of analytics? McKinsey & Co. recommends that carriers:

• Make analytics a senior-leadership priority.
• Make a multiyear commitment and realize that the impact may not be obvious within the first few quarters.
• Demand fast progress. While the full impact of analytics takes several years, quick wins and success stories will help prove the concept and maintain momentum.
• Find the right analytics leadership—a manager who can drive analytics while leading critical change management is key to success.

Find the full report from McKinsey & Co. here: “Transforming into an analytics-driven insurance carrier.”