Brokers and insurance providers with direct business can be allies as well as competitors, we all know. But whether collaborating or competing, by selling insurance directly to clients, information is their most powerful tool, and the capacity to harness and use it in big scale can make all the difference.
At first, one could think that the ‘Goliaths’ can easily crush the ‘Davids’, since large insurance companies usually have a greater capacity to invest in data at scale, and greater resources compared to brokers, especially the specialist or regional brokers. Interestingly, that is not universally true. Smaller enterprises or independent brokers can be more agile when it comes to focusing on customer groups and embracing new technologies that can help them better serve these groups.
That seems to be the case with digitisation, as we found out using data from our LexisNexis Risk Solutions Business/SME & Commercial Property Insurers Study conducted in 2019.
Our research encompassed commercial property and business and Small and Medium Enterprise (SME) insurance providers, focusing on digitisation and the use of data enrichment. A total of 101 respondents participated, through interviews or answering questions online. The commercial property results were published in the white paper ‘A Digital Divide in Commercial Insurance’ .
Differences between business and SME insurance and commercial property
Business and SME insurance providers, we found out, are even less digitised than their colleagues in commercial property insurance. About 67% have their underwriting and pricing processes all or mostly manual, while in commercial property 49% are in the same stage.
Accordingly, the same happens at the other end of the scale: only 11% of business and SME insurance providers are all or mostly digitised, while 23% dealing with commercial property are all or mostly digitised.
The answers collected from business and SME insurance providers alone make an interesting snapshot of how digitally-minded are the professionals working in commercial lines. There are significant differences between brokers and insurance companies selling directly to customers. The findings resonate a lot with the comments I heard in one of the roundtables we hosted recently with Modern Insurance magazine, focusing on commercial property and the SME sector.
If we picture the digital journey as a cargo train, think of the wagon as the digital structure or the technology structure, while the load is data enrichment.
So, those who want to have enrichment, first need to get the locomotive and the wagons, which roll over the large infrastructure provided by software houses, price comparison sites and other data aggregation companies like ourselves working within the regulatory framework.
How many insurance professionals and companies have boarded this train? The first set of questions we posed dealt with that.
How digitised is commercial insurance for specific processes?
In underwriting and pricing, 16% of the brokers in our survey are all or mostly digitized, against 6% of insurers selling directly to customers. The majority of both, however, still perform all or most of the processes manually: 60% among brokers and 72% among insurers.
We also investigated how digital they are in the specific processes of the insurance purchase journey. These are some highlights.
The application process is all or mostly digitised in 36% of brokers, and all or mostly manual for 20%. Among insurance companies it is the opposite, with 41% still relying on manual processes, while only 17% are all or mostly digitised.
In the quoting process, brokers are relatively more highly digitised compared with direct insurers: the percentage of respondents using all or mostly manual processes are higher than those that have gone digital, with 48% and 16% respectively. Within companies, 66% are mostly or all manual and only 14% entirely or mostly digitised.
With claims processes, both brokers and companies remain highly manual, as it also happens with commercial properties. About 64% of brokers and 69% of direct insurers said they handle claims manually.
Following our analogy, the higher the number of digital wagons, the more insurance sellers can take advantage of data enrichment to provide a much more satisfactory consumer journey, sometimes leading to lower premiums too. The industry is fully aware of that. In business and SME insurance as a whole, 66% said they already use data enrichment or plan to do so in the near future. But, in comparison, it is still lower than among commercial property insurance providers: 77% said they already use it or plan to adopt it soon.
Within business and SME insurance providers, there is a significant difference. About 55% of these companies said they already use data enrichment, against 32% of brokers. Cost may help explain this gap. Although with cloud and technology costs declining, it may be necessary to make a high upfront investment to have data infrastructure and analytics at scale, with the cost recovery taking much longer. Depending on the size of the broker, it might be unaffordable.
But money does not seem to be the main barrier, according to our respondents.
We asked non-users why they had not embraced data enrichment. About 50% of SME and business insurers in this category said it is chiefly because they ‘don’t currently see a need’ while 47% said they ‘have not had access to the right type of data or data provider’.
Among those who already use data enrichment, however, the enthusiasm is unambiguous and undivided: 75% of both brokers and direct insurers consider it ‘extremely’ or ‘very valuable’.
When we look into the specific uses of data enrichment, we come across another divide between companies and brokers. It translates into numbers that reflect what we hear directly from industry meetings and clients.
In the industry, it’s fair to say there is an underlying tension between brokers and insurance companies. A common complaint is the way incumbents share their data with brokers. And, when brokers call on their own data enrichment or claims history data for example, insurance providers will rely solely on their own data.
For commercial brokers who are using products from the software houses, they are reliant on the software houses and the insurers to provide accurate pricing, which is risk-based. In reality this isn’t happening yet, and at best software houses have postcode-based flat files for perils.
Insurers are providing delegated authority access to commercial brokers so they can manually look up a commercial address in LexisNexis® Map View for example, and assess the levels of risk.
In time we expect to see this data access becoming more automated and LexisNexis Risk Solutions has invested in integrating our Map View platform to the Data Hub to allow business and SME brokers to have property level data enrichment at point of quote via software houses and aggregator platforms.
A shared industry platform and common data standards represent the solution to the issue of how data flows in the ecosystem between the broker and the insurer or the risk carrier.
Data enrichment makes a huge difference in defining property characteristics, as we have seen in more than a decade of work in this area. LexisNexis® Map View provides information on a specific property with granularity down to a ten-square metre property block, from building materials to risks offered by neighbouring real estate and infrastructure. At LexisNexis Risk Solutions we’ve been updating MapView to integrate perils data, offering an enhanced view of the property, and surrounding risks. Equipped with that, insurers can better assess the risks they will underwrite.
Future applications for business data and its validation
In our survey, in relation to underwriting and pricing, brokers told us they use slightly more data enrichment (75%) than direct insurers (69%) do in business data. This is an investment which probably makes more sense for brokers, as it can help them to better understand clients and their business activities and needs.
Amongst the survey respondents an overwhelming 93% of brokers said they already use, or plan to use, data enrichment for data/information validation.
Pricing and underwriting are second amongst the most popular use cases, very high as well, with 86% choosing this place to apply enrichment, followed by claims (79%), which is the least digitised process.
Among direct insurers, the highest declared and desired use for data enrichment (73%) is in the area of fraud and margin optimisation, with the same percentage for the two categories, followed by pricing/underwriting and data/information validation, again the same figure (68%) for both categories.
Non-users also recognise the value of data enrichment, with 23% of direct users and 24% of brokers saying they consider it extremely or very valuable. Looking into the categories, both groups place the highest value in adopting enrichment for business owner data (75%), followed by business and property characteristics (63% for both), perils (52%) and prior claims (52%).
The insurance industry knows there is no way back in digitisation. Those ignoring or resisting it, they risk having a significant commercial disadvantage, already in the near future. The market is competitive, insurtechs are popping up all over the place and customers have started to experience smooth, fast experiences, when it comes to buying insurance. Good use of data enrichment is yielding lower premiums in some cases, and not only in motor insurance.
Digitisation is within reach, with a variety of products that can be customised to businesses of different sizes and budgets. It is a matter of adapting, rather than starting again from zero. The transition is possible, and desired, as our survey findings from brokers and insurers has shown.
* The Business/SME & Commercial Property Insurers Study (January 2019) surveyed 101 UK commercial insurance providers. LexisNexis Risk Solutions was not identified as the sponsor of the survey.
For more insights from these research results download the LexisNexis Risk Solutions commercial insurance white paper ‘A Digital Divide in Commercial Insurance’ .
Follow the link to the LexisNexis Risk Solutions website to find out more about how we support insurers.