Digital trading of personal lines insurance products is well-established around the world. With cost and market pressures pushing commercial insurance down a similar path, companies will need to overcome the challenges associated with the complexity inherent in many commercial risks.
Insurers have been sharpening their digital teeth in personal lines markets in many countries for some time, aided by the relative homogeneity of products, particularly in the car and home markets. Technological connectivity and distribution (either direct or through aggregators), combined with a supportive regulatory environment, have allowed many insurers to make great strides over the last 10 to 20 years, while paving the way for new market entrants. Strong digital capability and service have clearly helped some insurers deal with customers better than others during the COVID-19 crisis.
The challenge of commercial
The commercial market, however, is a different proposition. Resolving the complexity of products and exposures with such a wide variety of potential terms and triggers -- or including multiple, geographically spread risks -- makes the commercial market far more challenging.
This largely explains why progress to date, either through direct channels or broker hubs, has focused on commercial risks in the SME market sharing relatively homogeneous features, such as packaged covers for dental practices or construction sole traders.
Where things become more difficult is when you add in configured and bespoke coverages. The ability to trade these complex risks digitally requires several components, from overlaying risk appetite and capturing bespoke wordings to collating detailed exposure information, such as locations of factories and offices. These components also determine an insurer’s ability to track every element that goes into accepting and pricing a risk as part of placement negotiations and renewal processes.
From an internal processing perspective, a key issue will be to break down the barriers created by legacy platforms. Many commercial products today are tightly linked to the platform on which they run, often to the point of being hard-coded in to mainframes. Dynamic, tradeable commercial products will need to break those links, because an efficient, flexible and connected data reservoir is the basis from which everything digital flows.
See also: What’s Wrong With Commercial Auto?
Window of opportunity
Evidently, then, there are plenty of challenges for commercial insurers to think about when it comes to digital trading -- but also plenty of opportunities. Yet the time for thinking about them, rather than doing something concrete, may be diminishing.
A key catalyst for many commercial insurers is likely to be the plan for an electronic trading hub and the creation of a digital follow/lead trading exchange as part of the Future@Lloyd’s initiative. Equally, insurers also need to work out how they plan to approach and deal with other electronic trading platforms, including the creation of the bilateral insurer to broker capability that we would expect to take up the majority of digital business in the future. At the same time, we anticipate that existing broker hubs will expand their footprint into more complex products. Another area to bear in mind is the increasing trend for insurers to white label their products for non-insurers. In the commercial space, motor fleets and yellow plant hire are already areas where there is some activity, with others expected to follow.
What timeframes are we talking about? Well, there are already companies taking the challenges involved very seriously and setting out their store for a more digital future. Given the market-wide attention on expense ratios and doggedly persistent low interest rates, others are hot on their heels, and it seems natural that others will follow. Those that get left behind are likely to end up with a disadvantageous cost base and coping with the impact that other organizations’ abilities to react with pace and agility to opportunities will have on cycle times.
Data – the real X-factor
This explains why digital capability is likely, in relatively short order, to become the "X-factor’ in shaping a broker’s traditional insurer preferences – price, expertise and relationships. And in tomorrow’s digital world, how commercial insurers capture, clean and use data across their distribution channels will, above all else, become their competitive lifeblood.