Past Performance Can Blur Future Vision for Commercial and Specialty Insurance
There is one left. It’s in Bend, Oregon. It is the very last Blockbuster store. (Look it up!) Now, of course, it has become a nostalgia destination, but it does seem to make money in its own right. It has members. They rent movies. It is an example of something that still exists, yet it is nothing like it once was.
It’s hard to believe, but at one point in 1989, Blockbuster was so huge (and growing) that it was opening a new store every 17 hours. Digital streaming was the new surprising technology that knocked its business plan out of existence. Today, the name Blockbuster is synonymous with dinosaurs. It’s a great reminder that past performance isn’t a real indicator of future results. Sometimes a business or a technology works perfectly until it doesn’t work perfectly…yet people continue to use it until it is rendered completely obsolete or the business is no longer viable.
In today’s terms, we might call this digital complacency. Carriers that are “perfectly good at what they do” might be the ones most at risk, whereas those smaller or newer players may feel the pressure to succeed and use it as an opportunity to become leaders.
Commercial and specialty lines are in a period of significant growth that highlights technology disparities. On one hand, commercial and specialty insurers are more heavily dependent on deeper relationships including brokers, whereas traditional personal lines insurers are more transactional focused. Between the insurer, broker, and client, there is often a greater sense of working together and accomplishing goals collaboratively.
These great relationships, as rewarding as they may be, should never blind insurers to the possibility of improvement. There are at least two reasons why:
- A great relationship can get better if clients and brokers recognize that the insurer is working hard to provide a better product, underwriting, service and value than they did last year.
- The current book of business may have come in through traditional channels, but business owners and E&S policyholders are changing as quickly as the world is changing. Commercial and specialty carriers need to keep their distribution pipelines open while opening themselves up to new products, new services, and new ways of using data to protect the business.
I asked Mike Adler, Principal, Advisory, Insurance Customer and Operations, with KPMG US, to explore these issues with me and dig into the risk and tech trends that are impacting Commercial and Specialty lines carriers. Part 1 of our conversation set the stage with some discussion over loss performance and data’s potential use to assist carriers with a much clearer picture of risk. In Part 2, we are focusing on the technologies and steps that will give Commercial and Specialty carriers an extra measure of success.
If we were to look at some current and upcoming pain points for commercial and specialty carriers, what comes to mind?
When we think of pain points, we commonly think of what is stressing the company. In this case, however, the greatest pain point may be that commercial and specialty firms may be blinded by their own great relationships. Many of these companies (I’m thinking of large, established commercial and specialty companies in places like Bermuda) have excellent, established distribution channels and great relationships with brokers, agents, and customers. But their current relationships, success, and expertise can keep them from seeing how they really need technology to improve their results. They feel that what they have built – often spreadsheets for specialty lines — will be reliable into the future.
We mentioned this in our last blog, but the counterbalance to this blind spot is that they are in a healthy position to change and grow. They are not averse to taking on a little more risk and trying something new because many of them were first movers, to begin with. What these carriers need to identify is that there are some great “no regret” moves that will push them ahead.
I agree. We should consider the implications of their current relationships and how those outside companies may be adapting to meet the needs of the market or customers — pushing carriers into something new. Reinsurers make a great case for this. We’re in an environment where many reinsurers are making different decisions about which companies they will back with reinsurance, based upon what the portfolio of risk looks like.
Just because business is good on the front end, doesn’t mean that the cost of reinsurance and the cost of capital to back up that risk may not change. If a carrier can’t get the level of reinsurance coverage that they need, that means they must take on more of the risk themselves. Thatcould drive up the price of their products and give them operational challenges. So, it’s not just about the pressure and pain points of any one player. It’s about how the whole ecosystem is responding to a whole new risk environment.
Can commercial and specialty carriers continue to look as appealing if they aren’t attempting to improve their own positions regarding risk?
Which technologies make the most sense, as partners, markets, and opportunities change and grow?
Developing a strong data architecture is clearly vital to these players. It improves what they can do now with traditional data sources, and it will allow them to bring in so many different types of data. These may be new capabilities, but I would consider them table stakes.
New data frameworks will allow these companies to collaborate with third-party data sources, their distributors, and their customers. It will improve service to the companies they serve.
Sometimes we don’t fully grasp all that data can do for us. The right framework will make your organization much smarter about what’s really happening with your customers, with the economy, and with the market more broadly. It places you in the spot to make the best market-based decisions. Once you arrive at a place where you can see better, you can position the company to move into one of the categories that are a little bit new and different. Data makes its value known when it comes time to discuss strategy.
Data has high operational value, too. Some of these carriers are taking on specialty risks. Often the carriers that are focused on unique kinds of risks, use spreadsheets and rudimentary tools, because, for them, it’s not about a volume of policies. They have comparatively few policies but they’re very large policies with high premiums.
Those carriers haven’t sought out the technologies that will do anything to assist that kind of business and move it forward. They might think, “Well, our expertise is really around our knowledge of the product or risk because we know how to underwrite for that kind of risk. And we have really smart people.” And they can use their intellectual knowledge with maybe a few models that they developed internally to be able to assess that.
This environment, however, is changing in ways that will make it more competitive. We are looking at new data sources that aren’t going to easily enter themselves into the old spreadsheet. It’s real-time data. It’s visual data. It’s IoT data. These insurers are going to need technologies that understand, organize, and assess that data in larger quantities from many more sources. It’s data that needs more than just a human to handle it.
The spreadsheet that is used to shed light on risks will become the curtain that hides you from what you really need to know. No matter how great you are at underwriting with your spreadsheets, you’ll improve with the use of new technology because you’ll be gaining access to better data and analytics that will make your visibility 100x better. And the tools themselves that you use to analyze and assess will fit better within your workflow.
Beyond data transformation, what is the future commercial and specialty tech landscape going to include?
Well, let’s consider this idea of workflow for a moment. Carriers are going to need more than just the data and analytics that are built around it to analyze the data. It’s best used when it is embedded into next gen technology, like a new core system, or embedded into a underwriting workbench that can not only handle the data but will leverage the power of the individual decision-maker. The goal should be to surround your best people with the technology that gives them a tremendous edge in all that they do. The old legacy systems and processes will ultimately hold them back, negatively impacting their goals and results.
Today’s insurance technologies work best in the cloud — that’s the essence of it. This will take companies with a successful past and help them to operationally shift toward a successful future. Otherwise, these companies will be left behind. They aren’t going to be able to understand all the pieces of information and data out there. The best insights make the best decisions. Commercial and specialty carriers need to align their processes and tech frameworks to the desired results.
I agree 100%. I’ve seen a couple of instances recently where performance was lagging at a couple of global specialty carriers. They decided to take another look at what they had written and examine their underwriting and get a real perspective on their portfolio. They really struggled to do this with the current tools they had in place. They did this as a one-time exercise to evaluate what to retain and not retain.
Once they got through that exercise, they had an internal agreement about the need for change. They said, “We need to take a step back, and we need to have a better core platform. We need to have something that’s more modern around underwriting that lets us look at different segments, different portfolios, different industries, and different cuts regarding how we’re underwriting and what our claims history is.”
You can’t do those things at scale without a core platform, without an underwriter workbench, without a strong data architecture, without a way to bring content in digitally, and without a workflow capability to connect the dots within your enterprise and across your enterprise.
It’s rewarding when you see the light bulb go off at a client that says, “I don’t want to keep doing it the way we are doing it. And there’s a better way, a more automated way, a digital way. We want to see clearly and operate efficiently.”
And you know, pretty much every carrier we work with — we see them undertaking some kind of initiative towards that end.
Is there a right first step for an organization to take as they consider a shift in their technology mindset?
Yes, but…it depends on the organization. The best first step takes into consideration:
- What is the company culture?
- What are their current platforms, including core solutions and ancillary technologies?
- What their plans are for growth — the segments in which they want to grow, the products they want to grow?
We’re seeing more instances where an agile roadmap makes much more sense than a Big Bang implementation. It’s about showing results sooner than later and being able to adapt to the market.
A common first step is to put together the business plan, including the strategy — and then assess what an organization has today, where the gaps are from a business process, technology, and architecture perspective, and then find some ways to get some quick wins.
A lot of carriers are prepared to jump in and do a significant transformation. Others are prepared to get more value out of what they have today. It’s just about doing the right due diligence to figure out where you are going, what you have, where the gaps are, and then take some very proactive steps to get there. It might meanstanding up components of a core platform, and underwriting capability, orleveraging digital on top of what an organization already has today. The benefit to assessment is a total grasp of what may or may not be needed to fit that strategy.
There might be surprises! Certainly, one of the most rewarding aspects of helping insurers with technology strategy is uncovering those areas where just a little work may yield an incredibly valuable result. And, of course, we are constantly encountering situations where a company’s expertise is truly incredible, but sometimes even they are surprised by how much their expertise yields exponential results as their capabilities improve. It is always exciting.
For those attending the KPMG Insurance Conference on Wednesday, June 28 in Bermuda, Mike, and I would welcome the chance to connect.
For a deeper look at how new data, underwriting, and core technologies can play a role in keeping your organization competitive, be sure to check out our webinar, Revolutionizing the Insurance Industry, an informative overview regarding Majesco’s Spring 2023 releases.
Todays blog is co-authored by Denise Garth, Chief Strategy Officer at Majesco, and Mike Adler, Principal, Advisory, Insurance Customer and Operations, with KPMG US