2019 COMMERCIAL INSURANCE STUDY
A Time of Change in
Small Commercial Insurance
Turning gaps into opportunities
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In today’s dynamic and competitive commercial insurance marketplace, carriers are pressed to maintain profitability. There are many opportunities for small commercial insurers to make meaningful progress. With so many factors impacting the business, however, it can be difficult to know where to start.
To better understand how commercial insurers are dealing with current pressures, LexisNexis Risk Solutions surveyed over 400 insurance professionals to gain their perspectives on five topics – Automation, Data Assets, Predictive Modeling, Customer Experience, and Market Trends - with direct bearing on their business. From this study, we were able to identify key insights in each of the five areas.
Learn more about these insight below.
Methodology
The research was conducted by interviewing 412 U.S. professionals employed in the insurance industry, from among the following lines:
Workers’
compensation
Commercial
auto
Commercial
Property
Business owners’
policy
Account sizes were defined as follows:
Small commercial accounts:
less than $25,000 in annual premium
Medium/middle market accounts:
between $25,000 and $250,000 in annual premium
Large commercial accounts:
more than $250,000 in annual premium
Interviews were completed between the period of May 1–31, 2018, and distributed across functions as follows:
Click the icons below to see the details.
Underwriting (170)
Underwriting (170)
- 105 interviews completed with underwriters
- 65 interviews completed with underwriting managers
Actuary (171)
Actuary (171)
- 106 interviews completed with actuaries
- 65 interviews completed with actuarial managers
Product Management (71)
Product Management (71)
- 71 interviews completed with product managers
About the author
Mathew Stordy
Director, Commercial Insurance
Mathew Stordy is Director of Commercial Insurance for LexisNexis Risk Solutions. Stordy is responsible for requirements assessments and the design of data solutions and services that streamline commercial insurance processes and provide insights about entities through the use of data, analytics and software. Prior to joining LexisNexis, Stordy worked extensively with policy administration systems, quoting applications and business intelligence solutions. He holds a bachelor’s degree in mathematics with a minor in computer science and a master’s degree in philosophy from the University of Connecticut.
Automation lags behind desired levels
Automation is an efficiency driver, particularly for small commercial insurers. By taking advantage of opportunities to automate, carriers can reduce the risk of incomplete or error-ridden applications, alleviate labor-intensive busywork for underwriters and improve the overall customer experience. The absence of automation can be costly and undermine a carrier’s ability to achieve a competitive advantage.
Do you agree that the use of automation for small accounts commercial underwriting is valuable to the industry?
Automated
Manual
% Automated vs Manual Small Commercial Underwriting Processes
The vast majority of carriers agree automation is valuable for small accounts. Yet only about half are actually doing it. And, according to a 2016 LexisNexis study on automation, the level of automation hasn’t improved over the past couple of years.
Steps Taken for Automation for Small Commercial
Where automation does exist, there are areas identified as steps in automation specific to small commercial accounts. Standardized applications and automatic renewals are most common. Automated quotes/processing and use of predictive models to score loss propensity are also used quite commonly to further automation.
THE GAP
The majority recognize automation as an efficiency driver and want to increase automation levels. However, there is a significant gap between how much they value automation and the actions they’ve taken to achieve it overall. While carriers have automation in some areas with standardized applications and automatic renewals, there are specific areas within the carrier’s workflow lacking automation.
THE OPPORTUNITY
Automation drives efficiency and accuracy. If carriers can expand automation capabilities to include advanced use of predictive modeling and automated quoting through prefilled data on the business, they can get closer to their efficiency goals―which helps reduce errors, alleviate unnecessary rework on policies, improve turnaround times and advance their competitive advantage.
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Valued data assets are used inconsistently
Commercial insurers are no strangers to using data for more informed business decisions.
Robust, accurate and easily accessible data is a crucial business asset that helps them more effectively assess risk and set profitable rates. The majority of commercial carriers surveyed report using a wide variety of data assets with public records and Internet search results as the most widely used.
Data assets carriers use today for small commercial
81%
Public records information
76%
Internet search results
55%
Commercial
credit
51%
Social
media data
52%
Personal
property losses
51%
Geospatial
data
49%
Consumer
credit
34%
Personal
auto losses
Data assets carriers use today for small commercial
81%
Public records information
76%
Internet search results
55%
Commercial
credit
51%
Social
media data
52%
Personal
property losses
51%
Geospatial
data
49%
Consumer
credit
34%
Personal
auto losses
Carriers also view the data assets they use as giving them a competitive advantage with consumer credit and commercial credit identified by the greater majority.
Data assets that provide competitive advantage
Click the icons to see the percentages.
Consumer
credit
77%
Commercial
credit
76%
Public records
information
73%
Geospatial
data
71%
Personal
property losses
70%
Personal
auto losses
68%
Internet search
results
68%
Social media
data
66%
Results also show that carriers have integrated data assets into workflows to varying degrees, with commercial and consumer credit as the most likely data assets to be standardized. This is consistent with our finding that carriers consider credit information as offering the most valuable competitive advantage. Further, the perceived value of data assets varied by function, with underwriting and actuary professionals considering data assets to be more relevant to their work than product management professionals. Though data assets are deemed useful, they are not fully standardized across the workflow.
Are these data assets a standard part of the workflow?
37%
63%
Commercial credit
37%
63%
Personal auto losses
40%
60%
Consumer
credit
41%
59%
Personal property losses
45%
55%
Public records information
46%
54%
Geospatial
data
47%
53%
Social
media data
50%
50%
Internet
search results
37%
63%
Commercial credit
37%
63%
Personal auto losses
40%
60%
Consumer
credit
41%
59%
Personal property losses
45%
55%
Public records information
46%
54%
Geospatial
data
47%
53%
Social
media data
50%
50%
Internet
search results
Standard part of workflow
Choose each time whether or not to use information
THE GAP
The data assets carriers value and most strongly identify as enablers of competitive advantage are consumer and commercial credit records. However, approximately 40% of carriers have not integrated these specific data assets into their standard workflow. The data assets used most— public records and Internet search results—are even less likely to be part of a standardized process.
THE OPPORTUNITY
Carriers who recognize the value of the broad spectrum of data assets should strive to improve standardized usage across the workflow. Doing so can enable greater automation, more accurate risk assessment, a more consistent customer experience and ultimately, improved profitability. Over the long term, these actions can help improve the health of a carrier’s book.
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Only one-third use predictive modeling consistently
Although insurers consider the use of predictive modeling to be important, consistent use is not widespread.
Predictive modeling can help carriers evaluate risk propensity for loss and make more informed decisions based on their risk appetite. This explains why the majority of carriers (81%) believe predictive modeling is important for commercial underwriting, pricing and rating. In addition, carriers that use predictive modeling report at least moderate success.
Importance of Predictive Modeling for Commercial Underwriting, Pricing and Rating
Click the icons below to see the percentages.
Total
Underwriting
Product Management
Actuarial
Important
Neither
Not Important
While the majority of carriers see predictive modeling as important, few are using it consistently in their workflows. For example, the majority of carriers state they are currently using predictive modeling―but only one-third are using it in all cases.
Current use of predictive modeling
Not using and not exploring future use
5%
Not using, but exploring future use
17%
Currently using on a case by case basis
45%
Currently using for nearly all cases
33%
THE GAP
The majority of carriers recognize the value of predictive modeling and are using it, but not routinely or consistently across commercial lines. Carriers may be unsure of how to get the most out of predictive modeling.
THE OPPORTUNITY
Predictive modeling can improve risk assessment and support more consistent decision-making. In the short term, carriers that identify frequent or high-value predictive modeling use cases can gain a better understanding of how score-based decision-making can benefit their business. In the longer term, they can build on that knowledge to adopt predictive modeling as a consistent business practice.
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Customer experience needs improvement
Areas identified by the majority as important to the customer experience are also identified as areas needing improvement.
Today’s always-on consumers expect the businesses they interact with to keep up, digitally speaking. For personal lines insurance, consumers can receive a quote within minutes using a mobile device. Our research found that 62% of insurance professionals believe the customer experience in personal lines impacts customer expectations in commercial lines. A separate study, focused on the insured’s perspective, found that 70% of business owners who purchased personal insurance online would like to be able to purchase their business insurance online as well.1
However, when it comes to customer-centric service that matches personal lines, commercial carriers have some work to do. According to our study results, the top three factors commercial insurance carriers identify as important to the customer experience are:
1
Generating faster turnaround times (90%)
2
Improving the accuracy of customer data (85%)
3
Playing a consultative role (84%)
There is a disconnect in that these same factors viewed as important to the customer experience are also the areas that the vast majority of carriers see as needing improvement.
Top Four Factors Important to the Customer Experience
90%
faster turn-
around time
85%
Improved accuracy of
customer data
84%
Being consultative
with customers
81%
More diversified
product options
Top Four Customer Experience Areas of Improvement
79%
faster turn-
around time
80%
Improved accuracy of
customer data
79%
Being consultative
with customers
78%
More diversified
product options
THE GAP
The factors seen as important to the customer experience are closely related to our survey’s other focus areas―such as how to make better use of automation, data assets and predictive modeling. The gap here is in carriers’ current capabilities to embrace and apply these solutions to improve the customer experience and foster stronger relationships with customers.
THE OPPORTUNITY
Automation can decrease turnaround times. High-quality data assets can streamline underwriting processes. And the use of predictive modeling can standardize how policies are underwritten. Given that commercial carriers have typically underinvested in the customer experience (especially compared to personal lines carriers), small investments can yield outsized returns. Commercial carriers should focus on enhancing their online, digital platforms by deploying new automation technologies such as commercial data prefill.
1. Global Digital Small Business Insurance Survey: This time it’s personal, PwC, 2017, https://www. strategyand.pwc.com/report/digital-sme-insurance-survey
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Carriers want to embrace market trends
To stay ahead of the competition, carriers must understand emerging trends and how to capture the opportunities they present. Yet, if existing trends already pose a challenge, how will carriers fare as emerging trends become a reality?
For the purposes of this study, we view market trends as those external, influencing factors that have the potential to impact business strategy. We want to know how both current and emerging trends are likely to affect how insurance companies will do business now and in the future.
The carriers we surveyed identified several market trends as most relevant to their business.
What insurers consider to be relevant market trends
94%
Data
breaches
92%
Telematics
87%
Direct-to consumer
92%
Internet of Things
92%
Sharing
platforms
91%
Artificial
intelligence
85%
GIG
economy
84%
Millennial
entrepreneurs
84%
Blockchain
What insurers consider to be relevant market trends
94%
Data
breaches
92%
Telematics
87%
Direct-to consumer
92%
Internet of Things
92%
Sharing
platforms
91%
Artificial
intelligence
85%
GIG
economy
84%
Millennial
entrepreneurs
84%
Blockchain
Notably, 70% of the insurance professionals we surveyed believe these trends are important to their business strategy going forward—but fewer than 50% are actively making strategic changes in response to them. It’s surprising to find that 11% don’t plan to make any strategic changes at all. Along with identifying relevant trends for commercial carriers, we asked respondents to characterize each one as an opportunity or a threat to their business.
Market trends considered as opportunities or threats to business
Telematics
23%
64%
Internet of Things
24%
62%
Direct-to-consumer
26%
61%
Millennial entrepreneurs
21%
60%
Sharing platforms
25%
59%
Artificial intelligence
29%
55%
GIG economy
24%
55%
Data breaches
40%
53%
Blockchain
24%
51%
Threats
Opportunities
THE GAP
We’ve already seen that current market trends pose challenges for commercial carriers. But there isn’t just a gap between where commercial carriers are and where they want to be in their current state. Slow-moving carriers are not leveraging those new data sources and capabilities that help them turn those challenging external influencing factors into opportunities for their business. Exacerbating the issue, customers are well aware of new capabilities coming to market and what those capabilities can mean to their experience in buying commercial insurance.
THE OPPORTUNITY
These trends have an impact on business performance―including offering a competitive advantage to carriers that can respond to them quickly. The first step in the right direction is recognizing the urgency of the situation. Change is inevitable and as emerging market trends become mainstream, embracing change will be the only way to keep from being left behind. Carriers should identify those trends that present the greatest opportunity for their organization and implement a strategy now that focuses on embracing them.
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Lexisnexis® Risk Solutions Can Help You Turn Gaps Into Opportunities
In today’s dynamic and competitive commercial insurance marketplace, carriers are pressed to maintain profitability. There are many opportunities for small commercial insurers to make meaningful progress.
“There is almost universal recognition among commercial lines insurers that advanced data and analytics capabilities are mandatory for creating a competitive edge. The potential is enormous with so many new data sources and the rapid advance of predictive models, AI, and machine learning. Insurers have made progress, but the challenges of so many options and the need for highly-skilled talent have resulted in a large gap between the actual progress and the potential.”
Mark A. Breading
Partner
Strategy Meets Action
Automated loss runs
Automated loss runs can help you better assess risk, so you can rate and price more accurately. LexisNexis® C.L.U.E.® Commercial delivers claims history and loss information in a standardized format, helping make it easier to get the information you need. Our industry-wide database provides access to claims information across standard lines of business, including auto, property and worker’s compensation. Make more informed decisions and build a healthier book of business based on robust insights―on demand, all in one place
Prefilled business data
Prefilled data can enable faster quotes, more accurate underwriting, a better customer experience, and improved profitability. LexisNexis® Commercial Data Prefill expedites the application process by autocompleting pertinent business information, property characteristics, vehicle details, driver information, workers’ compensation coverage and more. Prefill solutions can help you eliminate expensive errors and reduce premium leakage—while also improving the customer experience and helping you become the carrier of choice.
Predictive modeling
Predictive modeling can help you better evaluate risk and anticipate future loss. Specifically designed to achieve these objectives, the LexisNexis® Attract℠ suite of proprietary predictive models help enable you to rank commercial risks by loss ratio and/or loss frequency. Access to commercial credit, personal credit models and public records can help ensure you have the best opportunity to score a risk based on the age, size and type of business. Improve profitability by understanding potential risk ahead of time.
For more information, call 800.458.9197 or email insurance.sales@lexisnexisrisk.com
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