While the definition of digital insurance has become more clear in personal lines, the same cannot be said in the commercial, specialty and re-insurance sectors. That’s because the customer-insurer relationship is fundamentally altered when we move from the personal to the commercial space.
In personal lines, a customer is most often a single individual. In commercial lines, the customer could be one human being or it could be millions organized into a commercial structure, requiring risk cover for every activity in which those humans engage across national or, in some rare situations, even planetary boundaries.
That difference is critical when you consider that the essential concept of digital is “maximum automation.” This is a vastly harder concept to understand in an industry of one-to-many rather than in an industry of one-to-few. Instead of assessing the variation in risk between Jane Doe driving a Mercedes and John Doe driving a Jeep, the commercial, specialty and reinsurance space is about assessing risks as diverse as a space explorer crash on Mars, a terrorist attack on an airport or a cyber-attack on a retailer.
To be clear, the digital concept does have sensible meaning in commercial insurance beyond maximising automation and enabling customer engagement. At a fundamental level though, digital insurance for commercial lines is a different beast.
To better understand the differences, let’s break the commercial insurance sector down into a few of its component parts:
1. Insurance for Small to Medium Enterprises (SMEs)
While the breadth of insurances is significantly greater than personal lines, the concept of digital insurance in this space is nearly identical. Representatives of small to medium enterprises can use consumer technologies – often in the workplace – to procure insurance, and brokers and insurers can use more automated mechanisms to price the risk.
The greater challenge is in constructing an end-to-end automated model, because the business case for Web-based aggregation tools is not as easily made for a lower volume business. In other words, there is a higher barrier to construction of digital models because SME insurers inherently deal with lower volumes and a more diverse set of products. This makes the business case harder to shape.
However, for SME insurance, digital offers the promise of essentially similar tools for those different product sets, and, in the end, the direction of digital travel for SME commercial insurance is similar to individual insurance.
2. Insurance for Large Enterprises
For large enterprises, digital can take two directions. Individual risks, cybersecurity and directors & officers insurance, for example, may lend themselves to the sort of automated aggregator models seen in personal lines. That’s because, in these instances, the variables required to price risk — even across a wide diversity of firms — are sufficiently manageable. Thus, the digital models that are becoming prevalent in personal lines can offer us a glimpse into the digital future of commercial lines.
However, more complex, large commercial and specialty risks do not lend themselves to these same levels of automation. There is less commonality associated with the risks. After all, it is difficult to envisage end-to-end digital models for insuring of something like a satellite or a rock star’s voice. So, whereas in personal lines the focus is on innovation in customer engagement first and foremost, in the complex and specialist risk space, the focus shifts to data. With data, insurers can model complex risks and enable more accurate pricing.
3. Packaged Risks
If a large enterprise packages up a range of enterprise risks, as they are wont to do, then how could an end-to-end automated model work? A package, after all, is a uniquely constructed set of already complex risks.
In these cases, digital becomes even less about an automated model. In fact, a commercial digital insurance model exists only to achieve the maximum automation consistent with the diversity and complexity of the risk(s) being assessed.
Dimensions of Digital in Commercial Lines
Unlike with personal lines, commercial and specialty insurance is on a spectrum. While the impact of digital will be fundamentally different between SME and specialty risks, we can identify digital themes applicable across commercial and specialty:
Insurers and brokers pay by use for business process services, software and infrastructure services.
- Process: A granular catalogue of automated commercial insurance services is available for consumption to replace monolithic business process service models.
- Software: Customised legacy and standardised new software is procured and delivered as a service.
- Infrastructure: All insurance and enterprise software is managed on a secure portfolio of public and private clouds.
Insurers and brokers connect automatically through standard messages routing through standard APIs.
- Messaging: Globalised, standardised ACORD (Association for Cooperative Operations Research and Development) messaging drives automated, correct data through the insurance process.
- APIs: A public, published set of APIs allows every market participant to consume market services by simply directing messages to those services.
Insurers and brokers use, store and analyse data securely and appropriately.
- Market Data: Market data stores, interrogated by advanced analytics, feed market participants in a closed loop that continually improves underwriting and claims performance.
- Participant Data: Duplicated broker, carrier and Managing General Agent side records are replaced by blockchain. All actors in the value chain have secure digital engagement.
Customers: Carriers deliver specific insurances direct to business customers, or through aggregation portals as part of panels in the model of personal lines.
- Actors: All relevant processes and data are interrogated securely by all relevant actors in the insurance value chain.
Personal lines have been completely transformed by digital technologies. The extent to which commercial and specialty will also be transformed, however, depends upon the volume and standardization of the risks.
The principles of automation — and of enabling actors in the insurance value chain to engage better with insurance processes and data — apply to all aspects of insurance, just in different ways. As the Digital Era plays out, the combination of maximum automation, increased AI analysis of data and information feeds, and the exponential increase in connected devices will lead to a shift. The role of the broker and the role of insurer will become that of a risk mitigator.
It is and will always be more complex to write the story of digital for commercial and specialty lines, simply because of the diversity of the risks, but it’s a story that will have just as far-reaching consequences.
Patrick Molineux is UKIN General Manager for Insurance at CSC, responsible for leading CSC’s insurance business in the UK, Ireland and the Netherlands. He reports to Phil Ratcliff, General Manager Global Insurance and Craig Wilson, Regional General Manager for the UKIN region. Since joining CSC, Patrick has worked as a business consultant and project manager in marketing and market development and in sales, sales support and sales management. Prior to joining CSC in 1996, Patrick’s experience consisted of 9 years in the insurance industry working as a business analyst and project manager. He holds a BA in History from the University of York