Winning in Commercial Lines: Small and Medium Business
By PS Advisory Team
I’ve been seeing a lot of articles lately on insurers focusing on the small and mid market lately. I’ve been in the industry long enough that I’ve seen some insurers completely abandon the SMB market. The principal reason back in the day was that underwriting requirements were the same for the SMB policy as it was for the true mid to large market policy, insurers were essentially doing the same amount of work for policies that were worth 1/10th of the premium as their larger market peers. From an expense ratio perspective alone, SMB was very unattractive.
Today however, there is a new resurgence in interest in the SMB market and there is a major trend that has been growing and taking two different but related forms.
Program business. Insurers realized that if they focus on specific segments of the market, they can speed the underwriting process by having highly tailored underwriting rules and data requirements. With this approach, they can focus underwriting on only what makes that market segment unique and strip off any requirements or processing that is superfluous.
A proliferation of MGA’s. Really, the number of MGA’s in the market today is an extension of the program business concept. Many agents/brokers that have developed a specialty in specific lines of business have been creating programs and partnering with insurers. What’s going to be interesting to watch is, will insurers either bring the programs in house or buy the MGA’s out entirely. One of the major benefits of MGA programs is that they tend to be more nimble than insurers and don’t have the overhead that many insurers are carrying, enabling MGA’s to keep the underwriting expenses low and make changes much more quickly than insurers tend to be able to.
When approaching small market underwriting, there are a few things that insurers need to take into account:
Omni-channel – from a commercial perspective, this is as close as you’re going to get to a commoditized product. Insurers have to be able to react in either a direct channel (especially for main street business) AND independent agents and brokers. There’s no favoritism here or predictions of disintermediating the independent producer, just an acknowledgement that in this market you have to support all sales channels – that’s what customers demand. Insurers have to take into account that small businesses are going to have multiple buying preferences and be able to react accordingly. No, the agent and broker are not going to go away. Especially for small businesses, producers often act as the risk manager for the insured and provide advice that is valued by the insured (see our e-book on optimizing Agent and Broker operations, which includes providing risk management insight).
Straight Through Processing – not all submissions can achieve full STP but for program business, most should be able to. Especially if third party data is used as effectively as possible. Pricing can be adjusted to account for a looser underwriting vs a tighter underwriting processes based upon the data collected and the level of segmentation that is available
Re-enginer, re-engineer, re-engineer your processes – Most submission and new businesses processes are based upon what the INSURER’S internal needs to write the business. Processes are not geared toward meeting the insured’s needs. Through process reviews that cover the entire new business process, insurers can identify many of the issues that are causing bottlenecks, redundant processing and errors. This needs to become an iterative process where insurers are always looking to reinvent how they are approaching underwriting, from the client and producer’s perspective. Iterative evaluation creates an institutional muscle memory for change and makes updates less hard to implement.
Insight and flexibility – these two go hand in hand. Especially when launching a new book, whether it’s priced spot on day one is not as important as your ability to change pricing, appetite and underwriting rules as experience develops. As business starts to generate and experience starts to emerge, insurers need to have real time access to data and be able to react to the insight gleaned from that data. This means having systems that are easy to update, processes that are easy to change and guidelines that are embedded to help determine what risks are and are not acceptable. Especially for products that have longer tails. What happened to the professional liability market in the 80’s and the life market with Long Term Care are two great examples where insurers that did not have their finger on the pulse of the market and were not flexible enough to adjust were just hammered.
While it’s never easy, streamlining the underwriting process has never been easier than it is today (think open heart surgery versus arthroscopic surgery) – especially for products that can be simplified through program management. Generally, existing policy administration systems are what usually held insurers back in the past from digital transformation. Today underwriting, rating, and risk management can be layered on top of existing policy admin systems and expedite the entire underwriting process as well as supporting distribution management and omni-channel access without having to do policy administration system replacement.
PS Advisory has a tremendous amount of experience in helping insurers and MGA’s with distribution management, underwriting desktops, submission management, omni-channel access and CRM. We are #Salesforce specialists along with complementary solutions that focus only on the insurance industry. We’re happy to help with digital transformation, process re-engineering and establishing an environment of continuous improvement. Please reach out to learn more.
PS Advisory has chosen Salesforce as the primary solution we focus on due to Salesforce’s ability to help insurers avoid the legacy trap. With experience in CRM, underwriting, distribution management, marketing and digital transformation, PSA has significant experience in helping insurers re-engineer their business and effectively execute their business strategy.