P&C Commercial Lines in 2021

The key question: Will insurers continue to pursue innovation in P&C commercial lines, or will they scale back and focus on optimization?

The unexpected, unprecedented events of 2020 have turned the world upside down. Like every business sector, commercial lines insurance has had to adapt and adjust throughout the year. Many commercial lines insurers have experienced significant financial hits from the pandemic due to increased claims, lower business volumes and the decreasing payrolls of their customers. Large reserves have been set aside, but the continuing uncertainty means that there may be long-lasting negative impacts to financials far into 2021. How much has the economic environment affected insurers' strategies and plans for 2021?

SMA's recent research report, 2021 Strategic Initiatives: P&C Commercial Lines, provides insight into how strategies are shifting. All indications are that the transformation that began several years ago will continue in 2021. However, some significant changes are occurring in strategies as insurers consider the new realities of the business environment, the risk landscape and shifts in the workforce. Prior to 2020, insurers focused primarily on level one transformation, aimed at business optimization and innovation in the context of existing business models. As 2020 approached, leading insurers were moving to level two transformation, emphasizing true innovation via new business models, new products and bolder strategies. Then the pandemic hit.

As commercial lines insurers plan for 2021, there is a movement back to level one transformation. Our research shows that business optimization continues to be the top driver of strategies, as it has been for the last several years. Innovation had risen to become a major reason for tech investment, but it has fallen significantly, and fewer executives cite it as a strategic driver. In terms of major projects, core systems and business intelligence initiatives continue unabated. These foundational systems are too important and have too much momentum to slow down. In addition, all types of digital projects are moving forward, and some are accelerating. And the increased emphasis on improving the agent/customer experience remains critical.

One of the most important things to explore in analyzing 2021 commercial line strategies is how the priorities differ for companies focused on the small commercial market and the mid/large markets. For example, those focusing on both small and mid/large markets still seek growth through their existing products, channels and markets. But insurers focusing on small commercial are more apt to seek growth through new lines and markets than those in the mid/large sector. Another example lies in distribution strategies, where small commercial is further along in expansion plans, while insurers serving the mid/large segment are still in earlier strategy stages.

See also: AI Investment in Commercial Lines

While everyone hopes for a more predictable, stable year in 2021, the prospects look uncertain, at least for the first part of the year. The scaling back on some of the more ambitious plans and concentration on operationalizing strategies from existing projects will serve the industry well in any scenario. At the same time, it is evident that leading insurers still plan to pursue the level two transformation as they tackle bolder strategies in distribution, product, underwriting, claims and operations. There are also likely to be new partnerships and new business models launched into the marketplace in 2021. All in all, the next year will be interesting and require regular monitoring of the external forces and the ability to adapt strategies and plans for success during these turbulent times.

Mark Breading

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Mark Breading

Mark Breading is a partner at Strategy Meets Action, a Resource Pro company that helps insurers develop and validate their IT strategies and plans, better understand how their investments measure up in today's highly competitive environment and gain clarity on solution options and vendor selection.


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