Technology Implications for a Hardening Market
I’m sure like me, many of you have been reading about what seems to be a hardening market – at least for Commercial Lines. Many of you are likely experiencing it first hand. We’re hearing reports of systematic rate changes of more than 20%.
I remember my first hard market. It seemed that we went overnight from applying scheduled credits of 50% – to applying scheduled debits of 50% and using a wide variety of other techniques to get more rate. As underwriters, we were all buried in managing this manually. But today, there are a lot of technology tools that can help apply pricing changes equitably, fairly, legally, and efficiently.
So what usually happens in a hard market? And how can technology help?
Underlying rate increases may occur . Here is where modern technology really shines. Insurers that can modify rate tables quickly are able to start taking rate much earlier than those that can’t. I talked with a CIO recently who is in the middle of a core system replacement. He said “Karlyn, in our legacy system, a rate change typically takes 6 – 9 months to bring up live in the system. In our new system, nothing has taken longer than 24 hours.” That’s a huge disruptive advantage.
Knowing where rates need to increase – and where they don’t - is a crucial capability. When a market hardens, it’s easy to think that all policies need to have a rate increase. But those accounts that are truly high quality may not need a rate increase – or may need less of a rate increase. The use of predictive models can help insurers better assess the risk quality of an account and apply rate increases more accurately – keeping their best accounts and not running the risk of losing them to the competition.
Insurers may need more information to underwrite. Updated supplemental apps can be posted on the portals so they are easily obtained by agents early on in the process.
Carriers may restrict terms and conditions more aggressively. Modern core systems allow carriers to automate tasks reminding underwriters to reexamine deductibles, limits and coverages.
Carriers may increase exposure units to better reflect the true ITV costs- especially if they’ve been keeping replacement cost limits low for market reasons. Modern technologies can automatically increase building limits or equipment values.
Carriers may take the opportunity to apply additional endorsements restricting coverages or changing terms. Modern systems allow you to make a single change and have the additional endorsements apply to all relevant policies.
The use of reinsurance may change. In a hard market, some insurers will use more reinsurance to cover unintended losses; some may reduce reinsurance in order to cut their costs. Either way, making sure the bordereaux reports are accurate may require new abilities to match policies to treaties; new ways to simplify obtaining and tracking fac re; and a greater emphasis on claims recovery. Reinsurance solutions are key here.
Underwriting appetites usually change and business rules may need to change to address that. Insurers can easily change underwriting rules in the system to assure that they are being applied fairly across their book of business. For example, if a carrier used to be fine writing buildings with 25 year old roofs, but now wants to limit their book to 20 year old roofs, that’s a pretty easy alert to create.
Advice engines are more important than ever. While insurers are looking for ways to increase prices and restrict coverages, agents and policyholders are looking for ways to keep costs down while managing their coverages. Insurers that can provide options create great value. If you can provide them with insights into what others like them are purchasing, or, suggest additional coverages that can help them manage their risk more effectively, you help the agent provide better service to their customers.
Agent communications is even more important than ever in a hardening market. Agents need to be on top of changes early on so they can work with their clients. Carriers can change their pre-renewal dates and begin pulling renewals earlier – giving the agents more time to work on updates – especially if insurers are increasing the level of underwriting information they need. Collaboration becomes increasingly important, and clear communication of exactly why changes are being made is important so agents can explain the changes to their customers.
Agents need to communicate with their customers. Insurers can provide them with ongoing market information – e.g. benchmarks of what average increases are on similar accounts, or newsletter articles explaining why prices are changing. Loss runs and lessons learned from losses become more important.
Insurers can also do a better job of communicating with customers. Whether it’s scheduling policy walkthroughs with large accounts and their agents; using loss control more effectively to reduce the risks; or providing additional tools to easily get additional information – think video loss control — there are a number of activities – both enabled by technology and those that use traditional relationship techniques that can continue to build loyalty.
Modern technology that allows for automation of workflow, better access to data, improved communication tools, and fast changes in core systems will help insurers ride out the hard market.