Commercial Insurers Prioritize Technology to Tackle Perennial Challenges

As the commercial insurance market grows, insurers are applying digital and data-related technology solutions to develop new products, expand distribution, and optimize underwriting for greater profitability.

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Commercial insurers are looking to expand their product offerings and increase profitability in a growing and competitive market. While the commercial insurance industry has traditionally been viewed as highly complex and slow to change, carriers are starting to prioritize technology to solve some of their perennial problems. Most commercial lines carriers are investing in distribution efforts and attempting to optimize their underwriting processes.

These priority areas are all being fueled by digital and data improvements. As more and more processes are digitized, carriers are better able to collect and analyze data about their products and customers. Insurers are using internal data as well as third-party data from sources like telematics sensors, Internet of Things devices, and drones.

Technology such as AI and analytics is helping carriers improve their capabilities in underwriting, claims, and customer service. These areas are all key to providing better risk selection, pricing, and customer satisfaction. But with all commercial lines carriers striving to grow their book of business and acquire new customers, insurers must find ways to differentiate themselves from competitors.

Technology Solutions to Challenges

Profitability can be a struggle for commercial auto insurers. Underpricing in previous years, along with carriers underestimating how severe or frequent claims may be, has contributed to this issue. Infrastructure problems, distracted drivers, and aging modes of transportation also drive the frequency and severity of claims, as do growing costs of maintenance, medical care, and repairs. Addressing these obstacles is becoming less difficult as carriers implement analytics capabilities to understand risk at a more granular level.

The gig economy and new types of coverage are also impacting the commercial lines market. The University of Chicago’s Booth School of Business found in a study that a higher number of vehicles on the road, such as those used by ridesharing services, correlates to more frequent fatal traffic accidents. Other gig economy companies such as Airbnb may not create obvious safety concerns, but they do require new types of short-term insurance. To accommodate the different types of emerging risks and coverage needs, companies such as Chubb and Slice are offering gig-economy-specific coverages by themselves or through partnerships.

Autonomous vehicles and human-operated vehicles are both areas of focus for the commercial lines industry. The manufacturers behind autonomous trucking are testing ways to safely fill the shortage of long-distance drivers, including having a human co-pilot, limiting truck speeds, and testing in more industrial areas. Tools like accelerometers, GPS, on-board computers, and analytics are being used to improve fuel usage, vehicle safety, and driver activity. Some automobile companies are looking at incorporating these features into vehicles permanently.

Telematics are also being used to monitor risks and claims in commercial properties. Roost, for example, offers a solution to midsize and small businesses that provides round-the-clock alerts for fire and carbon monoxide alarms, temperature irregularities, water leaks, and power outages.

Growing Market

Program business is increasing more rapidly than standard commercial lines. The direct premium growth of managing general agencies (MGAs) was about 7 percent higher in 2017 than it was in 2016, and carriers are hoping to benefit from that growth rate. Some insurers are buying MGAs or program administrators, while others are partnering with them. Others still are starting their own MGAs or collaborating on a captive program with brokers or agents. MGAs generally have market knowledge they can use to offer a lower cost for specialized coverage, which in turn boosts the profitability of the carrier.

Commercial pricing is going up; commercial and umbrella property as well as commercial auto saw significant raises in pricing in the first quarter of 2019. This may be partially due to the growing use of predictive modeling in underwriting for commercial lines. While volatility is decreasing thanks to this modeling, the cost of underwriting is going up.

While direct small commercial sales are dominating small market share for the moment, investment from large carriers and startups alike is growing. The technology that these entrants have successfully implemented in personal lines is now being put to use for small commercial business. Unlike large commercial, the small commercial market is growing without being dominated by a few main players.

The commercial lines market is growing across all segments. Expanding distribution channels, implementing technology that has succeeded in other lines of business, and growing premium are all areas of focus for insurers in this space. These factors will all be key for carriers to differentiate themselves.

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Martina Conlon //

Martina Conlon is an Executive Vice President of Research and Consulting and practice leader for property/casualty at Novarica. She has expertise in IT strategy, organizational approaches, and technology architecture and is the primary author of numerous insurance technology reports. Martina has led dozens of vendor selection efforts, insurer peer benchmarking, IT organizational assessments, and enterprise architecture and roadmap development for leading US insurers. Prior to Novarica, Martina was a technology consultant and served as Director of Enterprise Technology for Arbella Insurance. She holds an MBA from Boston University and a BS in Electrical Engineering from Tufts University. She can be reached directly at mconlon@novarica.com.

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