Tag Archives: commercial lines

6 Questions for Stephen Applebaum

As part of this month’s ITL FOCUS on commercial insurance, we spoke with Stephen Applebaum, managing partner, Insurance Solutions Group, about the future impacts of technology in commercial lines.


What is the biggest change you expect to see in commercial lines in the next 12 months?

COVID-19 related claims, notably first-party property business interruption and third-party liability, will proliferate and create new distractions in commercial insurance once the complete extent of losses is tallied in 2021 and beyond, attracting growing attention from media, regulators and other public watchdog groups, further complicating commercial policy renewals and new business and challenging actuaries, underwriters, agents and brokers. Adoption of policy process automation, including automated underwriting workstations, will accelerate as carriers struggle to regain operating efficiency while managing risk more accurately.

Connected auto, home and business insurance models will begin to see meaningful adoption. Telematics program adoption, featuring innovative partnerships will explode in commercial auto insurance for fleets, especially small business, offering more compelling value propositions focused on driver safety/behavior modification, rewards and fleet and asset management benefits. Commercial property will follow this trend.

In the next five years?

Distribution channels will change and multiply dramatically. Changing customer expectations and behavior will drive insurers to develop more robust multi-channel distribution. New and increasing competition will push insurers to develop new digital models and partnerships designed to make the insurance selection and purchase process fully seamless. While agency writers still hold a ~70% commercial P&C market share, the number of independent agencies will continue to decline as new direct distribution channels and channel consolidation grows, both fueled by expanding private equity and venture capital investment. Many exclusive and captive agencies will convert to independent agencies. Also, carriers and brokers will pursue more cross-border and geographic expansion through M&A and partnerships to drive scale.

An increasing percentage of work will be performed by artificial intelligence technologies, including machine learning and robotics process automation. Consequently, concern and public debate will ensue concerning the issues of bias and ethics in the design and use of AI, and governing standards will begin to emerge.

The demand for commercial cyber risk and liability insurance will continue to grow as digitization and mobility further penetrate communications. Insurers will adopt a variety of  growth strategies, including innovative partnerships, alliances and collaborations, new products and enhancements, as well as M&A to achieve growth and presence in the cyber insurance market. The global cyber insurance market size is projected by industry experts to grow by at least 20% annually from $8 billion in 2020 to well over $20 billion by 2025.

In the next decade?

Consolidation of the North American agent and broker channel, will continue unabated as private equity investors seek attractive returns through deployment of historically high levels of “dry powder” as investment fund sizes continue to break records.

Technology will continue to enable innovation and process transformation through 2030, including;

  • completely digital quoting processes for retail agents and brokers
  • deployment of e-signature solutions that will satisfy all compliance concerns and create a standardized process across all lines of business
  • connected vehicle technologies that will alter the commercial auto insurance landscape and give auto makers an important role in insurance sales, distribution and claims
  • connected home and business technologies that will similarly transform the commercial property landscape
  • the commercial insurance claims process will evolve much as did personal lines claims; claims ecosystems and platforms will form that enable much shorter claims cycle times, better outcomes for carriers and customers and greater visibility into claims vendor performance. 

What are the three technologies you think will play the biggest role in driving change — perhaps one for each of the three time periods?

Technologies driving change over the pre-defined time periods:

NEXT 12 MONTHS

  • Cross-enterprise digitization
  • AI-enabled process automation
  • Emergence of platforms and open ecosystems

 

NEXT 5 YEARS

  • Cross-enterprise digitization
  • AI-enabled process automation
  • Emergence of platforms and open ecosystems
  • Connected sensors/devices in workplaces and buildings enabling risk management and ultimately risk avoidance

 

NEXT DECADE

  • AI-enabled process automation
  • Emergence of platforms and open ecosystems
  • Connected sensors/devices in workplaces and buildings enabling risk management and ultimately risk avoidance
  • Virtualization of everything; workforce, external/internal communications, healthcare, claims reporting and claims management

 

Please pick a technology mentioned and describe in a bit of detail how that will play out.

Digitization will fuel virtualization much like the conversion of data from analog to digital form enabled all of the many information management solutions. As digitization continues to expand across each operating segment of the insurance enterprise, it will spawn innovation of virtual processes to improve upon and replace formerly manual, stubbornly long, costly, complex and inefficient ones. Ultimately, the commercial insurance industry will sell more profitable, lower-cost, innovative protection products and services such as hyper-personal, parametric and variable interval insurance through seamless, direct-to-customer distribution channels. 

Through these technologies, the industry’s primary selling proposition will pivot from insurance products, risk and claims management to protection services, risk and claims avoidance.

What is the one trend you see people talking about today that you think WON’T pan out, at least within a reasonable period?

Expectations for 100% automated and touchless processes without any human involvement will go unrealized well into the future. A subset of non-routine and catastrophic claims will continue to call for expert human, empathetic handling. However, numerous repetitive processes not requiring human support or judgment will be automated using AI technologies, eliminating a significant number of industry positions – but many of the individuals impacted will be offered retraining and upskilling by their employers –  thereby improving their job satisfaction and compensation levels.


We would like to thank Stephen Applebaum for participating in our ITL FOCUS interview series. To learn more about Stephen and read more of his articles, click here.

This interview is a part of the January 2021 ITL FOCUS: Commercial Insurance article. View the full piece here.

Who Will Buy Direct and Why?

Just as personal lines have become commoditized and moved to a world of digital distribution, the online sales of small business and workers’ compensation insurance is fast increasing. There has been an explosion in online offerings — from online agents, to managing general agents (MGAs) to insurers. Because we were curious about whether direct-to-consumer would increase, we conducted a survey of small business insurance buyers.

We surveyed 190 small business owners about their practices, attitudes and preferences when it comes to purchasing insurance.

The rich data set from this research can guide insurers as they think through how to approach the acceleration of digital direct for small commercial. The key lessons drawn from the data are:

  • No respondents currently purchase online. This was not by design; it was simply that, in the random solicitation, no respondents happen to buy direct. The direct-to-consumer market is still relatively nascent, and that was reflected in the response rate.
  • Eighty-one percent use an independent agency that represents multiple insurers.
  • More than half of small businesses are delighted with the process of insurance buying but wish that there were more comparison options available, that the coverage was less confusing and that the process was simpler and faster.
  • Half of small businesses are not likely to buy commercial insurance online, with the biggest barriers being the lack of familiarity with insurance and the desire for an agent. But 33% say they would be likely to make their next purchase of commercial insurance online.
  • Those who want an agent are looking for a personal relationship. They want advice on what coverages to purchase, someone who can answer their questions and someone who will intervene with the insurer, if needed.
  • No surprise: Low price is the most important factor in the insurance buying process. By contrast, the least important factors — which include fast claims payment and fair claims payment — likely aren’t priorities because small customers generally do not have many claims and do not expect to. Without other sources of value, price becomes the dominant feature.
  • When presented with two value propositions, Concept One with a lower price and no agent and Concept Two with a stated higher price that includes an agent, we found that 61% chose the more expensive, agent-assisted option. However, one-third of small businesses preferred an online buying experience at a lower price even though none of them use that option today.
  • The question for insurers is how they want to address this growing desire for purchasing commercial online. It is a potentially $20 billion market, by our calculation. Insurers can look at going after the online buyer — through a digital agency, by involving the agent or by selling direct themselves. Or they can focus their investments by supporting independent agents who want to keep buyers satisfied with the traditional process and avoid digital disintermediation.
  • Regardless of the option chosen, we have identified a variety of strategic questions insurers should answer about the role of the agent and priorities to address in the online market. Depending on the approach, insurers may need to invest not only in new technologies but also in new internal processes to provide services for online buyers or to support agents in retaining those customers.

You can find the full report here.

AI Investment in Commercial Lines

Artificial intelligence (AI) has been in almost every technology-based headline over the past 24 months. If an incumbent technology provider or a newly emerging insurtech organization wants to grab attention – well, just insert AI in the first few lines of the description. Better yet, insert AI in the product or organization name.

In fact, AI holds exceptional business promise, and there are numerous proven use cases. But AI is a complicated topic.

There are many sub-categories of AI, and one of the first steps in choosing the appropriate technology is to break down AI into consumable bites. SMA finds that there are six primary AI technologies in play within commercial lines organizations: machine learning (ML), computer vision, natural language processing (NLP), user interaction technology, voice technology and robotic process automation (RPA). The big question is – which AI technologies drive the most value for commercial lines?

Not surprisingly, there is a tug-of-war between AI for transformational purposes and AI for tactical purposes. According to commercial lines executives and managers, ML, RPA, computer vision and NLP (in that order) will transform commercial lines the most. Given the general need for transformation across the insurance industry, one could conclude that the previously stated order of technologies would be where the industry is heading in terms of investment. But that is not the case.

The actual investment order is new user interaction tech, machine learning, RPA and NLP, with the remaining technologies following. Does this mean commercial lines insurers have gotten it wrong? The answer to that question is “no,” with possible shadings of “could be.” Much of the framing for this answer lies in the product mix.

For the small business and workers’ comp segments, new user interaction technologies such as chatbots and text messaging have been invaluable in contact centers. This affects underwriting and claims by clearing tasks from work queues, thus freeing up technical expertise for more complex interactions. Billing benefits, as well. Collaboration platforms and real-time videos proved highly valuable during the pandemic’s height and continue to be highly worthwhile.

Machine learning has universal value across product lines. Whether it be ML to improve straight-through processing for less complex lines, such as small business and workers’ comp, or to provide decision support for complicated product lines, ML can contribute in all areas. The great thing about this is that investment in adopting ML skills pays off across the enterprise.

RPA is a technology that not only improves operational efficiency and expense management – important internal goals – but also enhances customer and distributor satisfaction through rapid request fulfillment. Policy service, underwriting and claims all gain value through RPA adoption. Because almost all commercial lines segments have repetitive processes, RPA skills are used universally.

See also: COVID-19 Sparks Revolution in Claims

The “could be” warning comes in terms of computer vision and NLP. Both technologies have significant transformational value in commercial lines, ranging from turning aerial images into information to digitizing paper-based information sources. Prioritizing these technologies sooner rather than later is critical across all product segments.

More than almost any other technology, AI technologies work best in combination — for example, NLP with RPA to increase process penetration. The industry is in its early days when it comes to AI usage, and skill sets are still advancing. The “getting it right” discussion is frequently dependent on product segments. But, over time, value will be universal regardless of product complexity, albeit for different reasons.

For additional information on all six AI technologies and survey results, see SMA’s new research report, AI in P&C Commercial Lines: Insurer Progress, Plans, and Predictions.

Commercial Lines: Kicking Into Gear?

“Transformation” is fast becoming the next overused word in insurance, right behind “digital” and “innovation.” But the fact that so many commercial lines insurers are talking about transformation indicates a reality – there is definitely fundamental change underway. It is true that the basics of the business remain the same, and many of the headline-grabbing initiatives are not yet driving big financial gains. But in those headlines and the behind-the-scenes strategies and pilots underway, there is a palpable sense of real transformation. And it is changing the industry for the better.

SMA’s recent research report, 2020 Strategic Initiatives: P&C Commercial Lines, provides more insight into this transformation. It addresses both what insurers are doing and why they are doing it. The why discusses the factors compelling insurers to embark on transformation, while the what covers insurer strategies and plans and their stage of development. Great progress is being made in the overall digital transformation as well as a dozen other initiatives ranging from improving customer engagement to building world-class data/analytics capabilities.

SMA’s observation from working on strategy with insurers is that there are actually two levels of transformation underway. We divide this bi-level transformation of commercial lines into approaches we call incremental and transformational.

Incremental transformation, Level One, is beyond business as usual. It is not just developing next year’s plans to improve the business on a continuing basis, with gradual, minor improvements to the metrics. It is more about harnessing innovation to generate ideas and approaches, take more risks, establish new roles such as customer experience or chief data officers and begin to change the culture. The objective is to accelerate the optimization of the business and achieve top-line and bottom-line results faster and at a higher level. However, at the incremental level, all activity is done in the context of the current business model and builds off of today’s growth and profitability.

See also: Commercial Lines Embracing Change  

At Level Two, the transformational level, revolutionary change takes place. The objective is nothing less than relevance and future survival. In this mode, insurers are looking at how to create value in new ecosystems, engage in new types of partnerships and achieve the next level of optimization. Considering new business models; rethinking the future roles of underwriters, adjusters and other industry professionals; and designing insurance products to address emerging risks are all part of this level of transformation. By definition, this more “earth-shaking” transformation is a greater challenge because it requires a broader understanding of the rapid changes taking place in the world at large and then translating them into likely scenarios for insurance. Bolder bets are required as part of the risk/reward equation.

What is clear is that many insurers that thought they were undergoing major transformation are now realizing that they are at Level One (incremental transformation). Leaders are trying to kick it into high gear as they launch initiatives to drive Level Two transformation. This is not to imply that the incremental transformation ends. On the contrary, it is still vitally important that insurers push forward with the incremental improvements to the business while working in parallel on more transformative activities. It is a difficult balancing act, but those that successfully move down these paths in parallel will be the winners in the next decade.

Commercial Lines Embracing Change

During the past decade, SMA has conducted a survey to learn how insurers are viewing emerging technology. This year’s technology survey reflects industry changes, because, in the grand scheme of things, some of the featured technologies are no longer emerging. And because the strategic value of the technologies to insurers is maturing, there is a shift in how the research looks at transformational technology.

At the end of the day, technology should be about transforming the business and driving better outcomes. The survey results reveal the degree to which strategies are being generated. Are there pilots in the works? What percentage of the activities are implementations? Where do commercial insurers believe impact is at a business-area level? And, probably everyone’s favorite, are insurers investing?

This year’s recently published survey showed some predictable results – AI is the insurance industry darling, and commercial lines is no exception. But there were also some surprises – IoT activity fell off from 2018. But why? The reasons highlighted in the report are important – it isn’t lack of value. SMA analysis and experience reveals that there are seven technologies that are supporting commercial lines transformational activity to one degree or another:

  1. AI/Machine Learning
  2. Robotic Process Automation (RPA)
  3. New User Interaction (UI)
  4. Internet of Things
  5. Virtual Payments
  6. Wearable Devices
  7. Blockchain

To be very clear, not every insurer and every product line places the same value on each of the transformational technologies. Commercial lines are complex, and insurers are adopting where business outcomes are improved and the technology is within the parameters of strategic plans. The trick for many commercial lines insurers will be to pay close attention to shifts in business outcomes and respond quickly. Unlike past technology cycles, competitive advantage tied to technology adoption is emerging quickly.

See also: Winning in Small Commercial Lines  

For the skeptics about commercial lines adopting transformative technology, I hope you are a bit more positive. For those curious, or even downright happy, I hope learning curves went up, and you are challenged to understand how the seven transformative technologies can drive better outcomes within your own company.

For more information, check out SMA’s research report, Transformational Technologies in P&C Commercial Lines: Insurer Progress, Plans, and Projections.