Tag Archives: Marsh & McLennan

A Tipping Point for Commercial Lines

It is no secret to commercial lines insurers that the market is hyper-competitive and has been so for years. There is very little to suggest that this is going to change. But there are other changes afoot, as evidenced by the new entrants, from the ranks of both traditional insurers and reinsurers as well as startups leveraging leading new technologies. And these new entrants are changing the commercial lines landscape. The startup impact was especially noticeable at the InsureTech conference in Las Vegas in October.

While there are several critical success elements, few would argue about whether agents, brokers and MGAs are front and center. Unlike personal lines, where direct-to-consumer channels are growing, commercial lines are still dominated by the independent agent and broker channels. And due to risk complexity and the need for advice, this is not likely to change soon. At the InsureTech conference, Brian Duperreault, chairman and CEO of Hamilton Insurance Group, and past CEO of Marsh & McLennan, emphatically made the point that consumers do not want agents and brokers to go away — they are critical to risk decisions.

See also: The Uberization of Insurance  

Given the imperative of having a strong agent and broker network, commercial lines insurers need to understand what it takes to ensure a successful outcome. Clearly, being easy to do business with is pivotal, and a key component of that is agency connectivity. To gain insight into what this means to commercial lines insurers and distributors, SMA conducted primary research. The recently released report Agency-Carrier Connectivity: Commercial Lines Insurers provides and explores the results.

One thing was immediately clear. 90% of commercial lines survey respondents indicated that by 2020 new capabilities for agency connectivity will be a game changer. No insurer can ignore a game changer, but the road to a successful business outcome is not necessarily an easy one. 67% of survey respondents indicated that improving the agent experience is the No. 1 business driver for investing in agency connectivity. Yet four out of the seven barriers to investment revolve around a lack of business commitment and clarity. The good news about that result is that insurers are in direct control of these barriers!

Survey results show the majority of insurers would prefer an automated exchange of data and information with distributors, with limited phone, paper or email pdf exchange. But legacy constraints, data mapping/inconsistencies and a “spaghetti bowl” of processing problems stand in the way. It would be easy to believe the issue is technology, but survey results point in a different direction. In fact, they point directly at culture and focus. Arguably, the most troublesome problem is that culture — the idea that “We’ve always done it this way” — stands in the way of an automated process. Given the age-old belief that commercial lines are seen as art and not science, culture is a huge issue that must be recognized and addressed.

Acquiring new business is a serious problem in today’s competitive commercial lines market. According to SMA research, the No. 1 stumbling block to meeting production goals is quality and fit of submissions. Given this pressure, it would seem logical that investments would have been made to deal with this. But despite the fact that agency upload and download have been around for a very long time, commercial lines insurers still feel that their needs are either not being met at all or are met in only a limited measure. Important processes such as quoting, binding, policy documents, billing and risk management are either not being addressed through connectivity technology or there is neutral value attached to that technology. And with IT budgets stretched, technology providing only neutral value is tantamount to having poor value.

See also: 3 Ways to Improve Agent/Insurer Links  

More and more, agents’ and brokers’ decisions about where they will place their business are being driven by who is easy to do business with, even though underwriting expertise and claims capabilities will always be very important. Technology for connectivity is central to fostering incumbent loyalty and drawing the attention of a new generation of distributors. It is critical that all commercial lines insurers have a solid road map for investment around connectivity. Understanding what the potential barriers are and what peer company investments are being made will allow commercial lines insurers to move forward faster and with less overall risk.

The commercial lines insurer report can be found here. Before the end of the year, the personal lines insurer view of connectivity will be published, as will the agent and broker view.  So, stay tuned!

5 Innovations in Microinsurance

Earlier this year, a group of eight leading insurers and brokers established a consortium to promote microinsurance ventures in developing countries, unsurprisingly called Microinsurance Venture Incubator (MVI). Together, AIG, Aspen Insurance, XL Catlin, Guy Carpenter, Marsh & McLennan, Hamilton Insurance, Transatlantic Reinsurance and Zurich plan to launch 10 microinsurance ventures over the next 10 years.

While conventional insurance targets middle to high-income urban dwellers, microinsurance targets rural residents living on the edge of poverty. Most popular are microinsurance products that offer life, health, accident or property insurance.

However, to really be the “can-do” coverage for the poor, it is not enough for microinsurance to be affordable and accessible; it also has to be tailored to the unique environment in which it is being offered. After all, context is king.

So with the context of “poor people deserve innovation too,” here are five examples of innovative microinsurance schemes that target different risk pools:

1. The Use of Technology to Combat Fraud

Insurers providing livestock insurance in India have been struggling with high claims ratios, mostly because of fraud. Typically, to get coverage, a veterinarian would place an external plastic tag on the animal’s ear as an indication that that specific animal is insured. However, this produced zero controls in place, and insurers learned that these plastic tags somehow made their way to dead cattle, way too frequently.

Nowadays, India’s IFFCO-Tokio (ITGI) insurance company is using radio frequency identification (RFID) chips that are injected under the skin of the animal (which is less painful than tagging!). These chips are accessible through a reader, which allows an insurance official to easily verify that the RFID reading coincides with the identification number on the policy, when a farmer reports a claim. This results in fewer fraudulent cases and faster claim processing.

Almost a fairy tale ending if it wasn’t for the high price of these microchips. Nonetheless ITGI is using a combination of external plastic tags and RFID chips to control their costs yet still prevent excessive fraud. It’s working.

2. Forming Index-Based Insurance to Build Trust

Another promising innovation is index-based insurance, where an external indicator triggers payments to clients rather than the traditional “I’m calling to report a claim.”

Kilimo Salama, AKA Safe Farming, combines mobile phone payment system with solar powered weather stations to offer farmers in Kenya “pay as you plant” insurance.

Here’s how it works:

  • A farmer goes to an approved dealer and buys a bag of fertilizer, which he pays 5% extra for to get climate coverage.
  • The dealer scans a special bar code, which immediately registers the policy with the insurance provider and sends a text message confirming the insurance policy to the farmer’s mobile phone.
  • When data transmitted from a particular weather station indicates drought or other extreme condition is taking place, the farmer registered with that station automatically receives payouts via a mobile money transfer service.
  • Similarly, a more recent entrant called ClimateSecure says it will “work hand-in-hand with [its] clients, meteorologists, financial experts and other brokers in order to build indexes that most accurately reflect [their] clients’ risk.”

3. Targeting the Cash Poor by Relaxing Liquidity Constraints

In China, pork composes roughly 48% of livestock production, with most pigs generally raised in small numbers by rural families in their backyards, forcing Chinese hog farmers to face the risk of hog diseases. Yet, despite the obvious benefits of microinsurance products, the demand is still low because of cash constraints and a lack of trust in insurance providers.

Yet a pig insurance scheme, which offered credit vouchers that allowed farmers to take up insurance while delaying the premium payment until the end of the insured period, coinciding with when pigs are sold, saw their insurance premiums go up by 11%.

By the same token, telecommunications companies embed insurance premiums in their service contracts, with the advantage of offering (oftentimes free) coverage as part of a pre-existing plan. In Africa, for instance, free insurance is linked to phone data usage; the more airtime one buys, the more coverage he/she gets.

4. Product Bundling to Attract Customers

The 2014 winner of the prestigious Hult Prize, NanoHealth, is a social enterprise that not only offers microinsurance but also tackles chronic diseases by providing door-to-door diagnostics via its network of community health workers, which it equips with a low-cost point-of-care device called Doc-in-a-Bag. This startup is slowly but surely creating India’s largest slum-based electronic medical record system and disease landscape map.

5. Coverage Within Reach via Garbage in, Coverage out

Forget bitcoin, garbage is the new currency with this Indonesian startup called Garbage Clinical Insurance (GCI), which was founded by a 26 year-old doctor named Gamal Albinsaid. Through GCI, community residents are encouraged to recycle and get healthcare coverage at the same time because trash is translated to funds that can later be used to pay for medical insurance.

In sum, in this micro world of microinsurance, where only 260 million of the world’s low-income citizens are covered, words like big data and claim history could not matter less. What matters is how quickly an insurer can scale, how low can its margins go and how clearly can it communicate its offering to the low-income farmer all in the name of for-profit social enterprise.

Expect more entrants.