Tag Archives: commercial insurance

Conundrum Facing Commercial Insurance

Artificial intelligence (AI) seemingly has been discussed everywhere over the last few years, and now it’s made its way into the commercial insurance industry. Organizations are using AI and machine learning for everything from streamlining operations to offering more personalized care and better customer service. There is an increasing sense of urgency about getting started on the AI journey. The question is how. Do they develop a custom solution in-house or purchase a third-party solution already on the market?

At first blush, the temptation to build can be strong — after all, you can design exactly what you want for your specific environment. In reality, it’s hard to accurately weigh the perceived benefits of a highly customized internal platform against the time and cost requirements compared with purchasing a tested, third-party solution. To help figure out the best course of action for your organization, I’d like to share some criteria that may guide you.

Staffing

Developing a quality AI-based platform that effectively addresses specific needs requires a dedicated team. To build this team in-house, your organization will need to hire more than just data scientists. Full deployment of a new solution requires product managers, software engineers, data engineers, data scientists, operational experts to develop process and operational workflows, staff to integrate data models into operations, people to manage onboarding and training of the employees who will ultimately use the solution and staff who can quantify value. It’s also important to have all these members operate as one unified team instead of spanning various organizational groups that are not 100% aligned.

For some organizations, this may not be a big deal. For others, the process of recruiting, hiring, training, managing and scaling down staff is one of the worst, and often most prohibitive, parts of embarking on the AI journey. If it’s too daunting to put together a team with the necessary skills, opting for a third-party solution that already has this figured out could be the way to go.

See also: How to Use AI in Commercial Lines  

Data

What types and how much data does your organization currently pull? If you can glean industry-leading insights and possess a treasure trove of information internally, you may want to keep it under lock and key, developing new ways to access and analyze it in-house. But this is usually the exception rather than the rule due to the complexities involved in the insurance industry. Even very large organizations with a high number of claims may lack a preponderance of data on a particular feature, injury or litigation scenario. An external vendor, however, could have data aggregated more broadly to cover all situations. External AI vendors draw on a wealth of anonymized and aggregated data from both public and private sources. This means data models can be trained more quickly and accurately.

Customization

This is an area where in-house development wins. Your organization can build something from the ground up completely specific to your needs at every turn. If you opt for a third-party solution, there are some constraints that you have to adhere to. However, it’s important to think of customization not just at a point in time but also across the entire life of the AI solution. While you might be able to build exactly what you want right now, if you don’t have continued focus, the solution will become obsolete rapidly. This brings us to the next point.

Continued Focus

Just because an AI-based solution is created and implemented doesn’t mean the work is done. It is, in fact, just the start of a journey that requires a dedicated team focused obsessively on the problem. These solutions need to evolve fast, or they will rapidly get irrelevant. Models need to refresh. And platforms and software need to be updated, maintained and optimized. When planning for this in-house, factor in both the staff and time involved to refresh models, fix bugs or add fields or features. If you go the third-party route, maintenance and improvements are typically included in the cost or subscription. If you feel uncomfortable dedicating an internal team to the project on a continuing basis, it might be better to go to a third party.

Security

When it comes to security, in-house platforms have an edge because data is not shared outside of the organization. While you still have to ensure that your networks, systems and endpoints are carefully managed, you are in control. While evaluating third-party vendors, it’s important to check their security credentials and processes to handle data. They need to be as good as your internal processes (if not better) with clear evidence of tight controls through certifications like SOC 2 Type II, HIPAA and HITRUST.

Time to Capture Value

There is a race going on to bring down cost structures dramatically. This is driven by the premium pressures in the market. The primary way to improve combined ratios is by pushing on operational efficiencies. Time matters. It’ll help to think hard about how you could capture value quickly. Ask yourself how much time it will take to:

  • Assemble the team
  • Receive data and set up a data pipeline
  • Design the solution
  • Build the solution and create a testing infrastructure
  • Operationalize the solution
  • Design and implement a way to track value
  • Continuously iterate on the solution

Cost

Your ultimate decision may come down to some basic math. Once you’ve narrowed the list of potential outside vendors and receive their quotes — which typically include a continuing fee that covers hosting, support, performance and additional improvements — you can compare them with what you estimate for the total of building a solution internally. In calculating this estimate, factor in staffing, training, infrastructure and hosting costs as well as maintenance and continuing improvements, as previously discussed.

See also: Leveraging AI in Commercial Insurance  

I hope these guidelines assist you in making the decision on how to best bring AI into your organization. There are pros and cons to both building and buying. The trick is to prioritize your needs and what is actually feasible and realistic for your company to ensure that the result more than justifies the means to get there.

Intellect SEEC’s Pranav Pasricha

Pranav Pasricha, CEO of Intellect SEEC, discusses the company’s goal of helping insurers keep the insured top of mind in their innovation efforts, and maintaining that view throughout the evaluation, development and integration of new technologies.


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How to Use AI in Commercial Lines

Last time, we discussed some of the potential benefits of AI in commercial insurance. Now, let’s talk making the business case.

Many insurers are hesitant to invest in AI without proof that these theoretically smart systems will yield real-world returns. A mature AI vendor will have the foresight to develop a team within its organization that’s dedicated to value analytics. This team — made up of data scientists and actuarial experts — will use the company’s own AI solution to run a simulation that can quantify potential savings that the solution could provide.

This capability is crucial, as insurers don’t want to wait three or four years to realize a return. The value analytics team will take an insurer’s historical data and run the simulation. It might conclude that if the insurer had implemented this AI solution two years ago, it could have saved a certain amount — such as 5% to 10% — on claims costs. This percentage of savings might be based on a specific action, such as moving injured workers from low-ranked providers to high-ranked providers — or doing the same for attorneys. Or, the savings might encompass claims that could have avoided certain scenarios, such as surgery or litigation.

See also: 4 AI Payoffs in Commercial Insurance  

Once the AI solution is deployed against live data, the models continue to run every month (or quarter) based on a pre-defined set of performance metrics. Every month (or quarter), the calculations become more accurate, moving from a rough estimate to a tighter range and eventually to a precise calculation of savings achieved.

Traditional models were challenged by the fact that claims are long-term transactions that can take as much as 18 to 24 months to close, but AI — with its machine learning — is able to handle this complexity with a high degree of accuracy.

A Holistic Approach, Not a Silver Bullet

In folklore, it’s the silver bullet that kills the wolf. This bullet has come to signify a simple solution that magically resolves an insurmountable problem. However, an important part of making AI real is understanding that, while it is powerful, it’s no silver bullet.

At the end of the day, AI is most effective when it’s part of a holistic approach. All the pieces of the puzzle must be put in place. At a high level, these pieces include the AI technology itself, operational tweaks and metrics to gauge results. Impact follows when all these components work in harmony. When these conditions are there, we’ll begin to see the needle move on costs and outcomes. For example, insurers can use AI insights to create more efficient workflows; they can facilitate more effective hiring and training practices that enable human resources to apply their expertise at precisely the right moment in the claims process. It’s iterative, with machine learning driving change in a continuous cycle.

See also: New Era of Commercial Insurance 

Although immediate savings can be achieved, an enduring competitive advantage can only be realized when the application of AI is seen as a journey. It requires continuing effort and investment. Strategic players understand it can take a few years of making improvements to truly redefine their cost structure, customer experience and position in the market. The organizations that start early on the AI path with an iterative mindset will be well-equipped. We’re looking forward to an exciting decade ahead.

As first published in Digital Insurance.

Insurtechs Are Pushing for Transparency

Over the past few weeks, I had the pleasure of meeting with a number of insurtech startups. Their mission? To create a customer-first company. One team is finding that customers believe insurance has more of a transparency challenge than a trust deficit – there is an increasing desire to know how their premium dollars are spent and how an insurance company views their risk.

Many of these meetings were held shortly after Evan Greenberg, CEO of Chubb, commented on broker commissions and fees in the commercial insurance market. Whether you agree with Greenberg’s comments, what really attracted customers’ attention is the lack of fee and commission transparency within the commercial insurance market. Furthermore, many insurtech articles stress that, for a long time, brokers have been able to capitalize on the industry’s lack of access and transparency. These articles rarely highlight existing customer rights, nor do they articulate how commissions and fees have evolved in the commercial insurance industry.

See also: More Transparency Needed on Premiums  

Regulations in a number of jurisdictions make clear that insurance buyers are entitled to request the actual level of commission and fees earned by their service provider. For those jurisdictions where customer rights are not as clear, any customer is still within his rights to request this information as he is paying for services and products.

For the past 20 years, brokers have shied away from having a frank dialogue with customers about the true costs of servicing a customer’s insurance program for fear of losing business to competitors. This fear of adequately charging for broker services, combined with decreasing standard policy commissions, led many brokers to consider alternative ways to make up revenue shortfalls. Increased commissions and fees from insurance companies provided the answer via traditional placements or the creation of broker facilities. Simultaneously, customer service has been redefined over time – many brokers now focus on reducing customer premiums as a way of evidencing value to customers.

This focus is not a true service, nor is it really reducing overall costs as broker commissions and fees are passed on to customers through insurance premiums. These increasing costs hurt an insurance company’s balance sheet. Just a quick reminder: A healthy balance sheet is required to pay claims!

Why does a healthy balance sheet matter? Have you ever experienced the insolvency of an insurer or reinsurer? Have you ever informed customers they may only receive five cents on the dollar for existing and future claims? Unfortunately, I had these experiences on a number of occasions during my early career as a claims manager — and I hope to never have the experience again! Fortunately, insolvencies are now rare events, due in part to the prudential regulatory regimes applicable to insurers, but that does not mean there is a bottomless commercial insurance company treasure chest for ever-increasing commissions and fees.

Can insurtech companies lead the way forward?

Marketing materials stress that insurtech startups are “customer-focused,” and their propositions are characterized by “convenience, on-demand, personalization and transparency.” For some of the startups, the company website and buying process stress that  “the business aims to provide transparency.”

Other startups list their fees on the company website and clearly evidence commissions on customer quotes. One insurtech broker has taken additional steps on the company website to 1) define profit commissions and 2) provide a schedule of profit commission schemes currently in place with insurance partners (none listed as of May 3, 2017).

This level of detail provides the customer with highlights of financial arrangements and improves financial transparency in the customer-broker-insurance company relationship.

The future of transparency?

Even though the insurtech industry has been progressing very swiftly, not every major insurtech startup is a roaring success.  SME customers can now compare commercial insurance products and services on offer, while improving their knowledge of products and service costs.

See also: Is Transparency the Answer in Healthcare?  

Commercial insurance brokers can lead transparency efforts by initiating frank conversations with customers about the true costs of products and customer-specific services and negotiate commissions and fees accordingly. However, as noted in my previous operations and product development articles, brokers, insurers and reinsurers must simultaneously review existing operations to create better efficiencies, reduce costs and improve customer services. These changes can be achieved through cutting-edge transformation programs, investment in new technologies or partnerships with insurtech companies.

Why is a simultaneous review important? Because customers are not only bearing the costs of current broker commissions and fees via premium payments, they are also bearing the high costs of supporting antiquated commercial insurance operations. Let’s improve all levels of service and transparency in the commercial insurance buying cycle and help customers make better informed decisions!

How to Cope With Shifting Appetites

It’s the nature of our industry that commercial insurance carrier appetites are constantly evolving. As business landscapes shift to accommodate emerging risks, insurers must continuously refine their specialties, products and services. It’s a necessary part of risk transfer; yet it can be confusing for a carrier’s distribution partners.

Because commercial insurance agents and brokers deal with dozens–and sometimes hundreds–of different carriers, they often find themselves struggling to stay abreast of shifting appetites. Brokerages of all sizes struggle to overcome the hurdle posed by “appetite clarity,” and carriers and managing general agencies (MGAs) struggle to find a simple method to demystify the situation.

See Also: Next Generation of Underwriting Is Here

Carriers and MGAs need to evaluate opportunities to leverage online search tools that can integrate into an agent’s daily workflow and enable insurers to communicate appetite. Such tools, like IVANS Market Appetite, operate similar to current search engines. At the start of the search process for a market for new and renewal business, the tools provide agents with an instant list of carriers, MGAs and wholesalers with appetite for the specific risk. These tools can help underwriters overcome the “three major hurdles of underwriting”:

Hurdle #1: Changing Appetites

The carrier or MGA says: “We made substantial changes to our appetite more than a year ago to move away from an industry segment that wasn’t in our specialty wheelhouse. Yet I’m still seeing a high volume of submissions in that category that I’m having to decline. It’s hurting my conversion ratio and confusing my brokers.”

Problem solved:

It takes significant time for changes in appetite to be effectively communicated through a carrier’s network. This requires changing every piece of collateral, market guides and online postings and redistributing the updated assets. Many times, appetites change again in the time it takes to update these assets, exacerbating the issue.

Carriers and MGAs need to leverage online tools that instantly communicate their latest appetite, ensuring products are visible to agents when they begin to search for a market where they can submit their risk. Consistent appetite visibility through online tools also improves carrier and MGA staff’s productivity by increasing the number of in-appetite inquiries and reducing time spent reviewing submissions of no interest, while enabling carriers and MGAs to focus more time on returning quotes and building relationships.

Hurdle #2: Limited Relationships

“I am worried that my competition has a broader network of brokers than I do. I truly value the partners I do have, but I would like to grow my book, and I wish I were seeing more new risks.”

Problem solved:

Even with formidable communications and relationship strategies, carriers can be complex to navigate from the outside, and brokers who have strong relationships with one division may overlook the opportunity to bring an alternative submission type to another business unit. Online market search tools enable underwriters to get in front of brokers and agents that they haven’t interacted with before.

Hurdle #3: Unwanted Submissions

The carrier or MGA says: “I wish I had more time for new business. I spend hours reviewing submissions that ultimately need to be declined. On top of that, I have a thick stack of renewals to get through. There has to be a less time-consuming way to get more profitable new business into my book.”

Problem solved:

Carriers’ and MGAs’ time, and brokers’ time, is exceedingly valuable. IVANS found that 60% of submissions in commercial insurance go unquoted – resulting in significant time wasted on non-revenue-generating activities. Online market search tools increase in-appetite submissions to drive better submissions in the pipeline, allowing carriers and MGAs to focus on the most profitable lines of business and industries. As the market changes, these tools ensure consistent representation of carriers’ and MGAs’ latest appetite, so submission mix remains strong as agents are continuously kept informed.