Predictive modeling is a commonly used statistical technique to predict future behavior. Predictive modeling solutions are a form of data-mining technology that works by analyzing historical and current data and generating a model to help predict future outcomes.
In predictive modeling, data is collected, a statistical model is formulated, predictions are made, and the model is validated (or revised) as additional data becomes available.
For example, risk models can be created to combine member information in complex ways with demographic and lifestyle information from external sources to improve underwriting accuracy.
Predictive models analyze past performance to assess how likely a customer is to exhibit a specific behavior in the future. This category also encompasses models that seek out subtle data patterns to answer questions about customer performance, such as fraud detection models.
Predictive models often perform calculations during live transactions. For example, to evaluate the risk or opportunity of a given customer or transaction to guide a decision. If health insurers could accurately predict secular trends (for example, utilization), premiums would be set appropriately, profit targets would be met with more consistency, and health insurers would be more competitive in the marketplace.