For well over a decade, the use of data at point of quote, for risk-based decisioning in personal lines products has been essential to driving profitability and efficiency for insurers, brokers, and MGAs. Now we’re seeing the SME and commercial insurance sector follow a similar path and there’s been a lot of activity in this space.

For example with the shift brought about by the pandemic, insurance companies have been redesigning the way they support brokers, introducing new technology, new ways of working and becoming much more responsive. Investments overall have been accelerating in technology and digital development, and this is a trend highlighted in our LexisNexis Risk Solutions survey of UK commercial insurance providers, published in the report ‘Digging Deeper-Using Business Data and Company Director Data to Inform Insurance Risk Management’.

As the saying goes, first impressions count. Some people say it takes around 30 seconds to decide whether you want to do business with someone, and some say just seven seconds, but it’s enough to say that we form opinions quickly. The same can be said about vetting a commercial insurance proposition. After a quick glance an experienced underwriter would know how long they want to spend on assessing the risk, and they may even have an idea of exposures and perhaps premium.

There are also challenges from the sheer complexity of commercial risk. In the world of SMEs and businesses, companies come in many shapes and sizes. There is no ‘one size fits all’ and the way forward has been packaged solutions, for example with Landlord or Commercial Van cover.

The industry has been on a journey. It’s taken us from paper underwriting slips and face-to-face trading, right through to call centres with documents being sent by post the next day, up to where we are now: e-trading through portals and software houses, utilising what we call ‘flow underwriting’ at its peak.

There has been enormous progress in commercial lines. But we know there are still pain points prevalent today, like the time and cost of manual referrals and ambiguity around eligibility, then strike rate – the measure of new business quality that brokers bring to the company, reflecting the underwriting acceptance rate – and of course, fraud. Business customers are more demanding and have shifting risks. Pricing has moved to a micro-rating model, and brokers are looking not only for product, but also for more in the way of sales and underwriting support as well as business tools.

So with the hardening of the current market, we can see that the focus has shifted from top line growth, right back to technical underwriting methods. With utmost good faith at the heart of the industry, there’s a huge reliance upon that duty of disclosure and the ultimate principle, behind that utmost good faith.

What verification methods are used in commercial insurance? The way that risks are validated varies from broker to insurer, from account exec to underwriter. What if there was a simpler way?

It starts with the name, business identity and risk address

There is a simpler way, and the good news is that more business data is available in more places than ever before. Obviously the key is to turn that data into intelligence that the business can use, creating more visibility of information so as to generate profitable growth. There’s a torrent of useful data being created every day and the opportunity is growing by the day.

Here’s one example of the different challenges for a commercial lines insurance provider, compared to their counterpart in personal lines, and it starts with the name.

For personal lines, the name field in the application is essentially capturing more than one name (forename and surname) and it can include the proposer, named drivers, other named individuals on a policy. Sometimes the individual’s name will be used in a commercial policy application, with a sole trader, but more often than not there is a different trading name involved. With partnerships there will be a second name, which could just be a second forename and surname to capture. Professional partnerships such as solicitors or accountants have their own naming conventions. Whatever the trading name is, that becomes the name of the applicant for the insurance. Equally, the applicant could be the name of a cooperative or a charity of some sort. Then we have to match the ‘name’ up with an address.

Often in commercial, the first address being captured in the application is a correspondence address or a registered office. The actual place of business could be an industrial estate, retail park, office block, showroom, a large industrial site: all of these are the different types of addresses that need to be captured.

In the case of a landlord or property owner policy, there’s likely to be more than one risk address in addition to the company address. A portfolio could have a dozen different properties, for each of which the address needs to be captured and assessed.

Our clients are telling us that a lot of policies are being renewed on the basis of data that was never validated in the first place, literally hundreds of commercial insurance products with gaps in risk information. All of this has implications for matching response times and being able to handle e-trade or straight-through processing. But why is all of that so important?

It is critical for insurance cover to be set up in the correct name, from a legal and regulatory perspective, but also ensuring that the data being returned is correct and specific only to one particular business.

Business perspectives, scorecards and attributes: A return to technical underwriting

The three main types in underwriting in commercial are: ‘flow’ or e-traded, ‘low touch’ and ‘full touch’. So an underwriter needs to discern up front how much time is spent to assess a risk. They need that valuable insight from the first point of customer contact. That type of validation takes valuable time and resource.

The solution starts with the data matching routines we can deliver at LexisNexis Risk Solutions, our databases – including the geospatial data underlying LexisNexis®Map View – that allow us to zero in on the precise business premises and its location. We then match that data-linking capability with a point-of-quote technology that enables a request to be made, and for a response to be returned. But of course, too much data can be confusing and distracting and it can certainly interrupt the process flow. That’s why we spend a lot of time with clients, ensuring our solutions can feed directly into their workflows, for example, the new business question set, or information right up front about the risk itself. The same process can be used coming into mid-term adjustments, at renewal, or at the claim stage of the policy life cycle.

Essentially in the commercial insurance sector we’ve been investing in, and pulling together unique data assets that can help eliminate unnecessary delays, support the due diligence process and reduce friction with the customer.

Interestingly, with the pandemic and the COVID-19 situation, government support for the SME sector with bounce back loans and so on, has created an unprecedented rise in the number of new company registrations. This all means it’s never been more important to understand the trading history of a business. There’s an emphasis on using business data to show how big a business is, how long it’s been trading, its financial position and also, importantly, who’s involved in running it.

In terms of location data, we’re working with many external data sources such as the Environment Agency and others for fire, flood, storm, subsidence, crime and other perils. We’re able to use our database of UK residential properties to help with difficult situations for clients who might have a portfolio of a dozen businesses and are being asked to accurately state when they were built, how big they are, what the rebuild cost is, and so on.

All of that information can be pulled in from our residential property solution. So that enables us at LexisNexis Risk Solutions to, crucially, put in place that validated information right at the start. For an insurance provider seeking to disrupt the status quo and compete on a higher level, then it comes down to the availability of data and you have to have mastered the data distribution. The speed of change is rising and it’s increasingly challenging to keep up with external data sources.

This data availability and distribution in breadth and depth is a strength that our clients recognise. It’s an exciting moment in data enrichment for the commercial insurance sector, because more and more technology options are being offered to our clients, demanding more and more data.

At LexisNexis Risk Solutions we’ve connected to all major software houses and broker platforms. There are many examples where we help to make it easier to do business and to leverage the new technology, for example through LexisNexis® Broker Intelligence or LexisNexis® Informed Quotes, or by bringing LexisNexis®Map View data into the point-of-quote environment. Or it could be by using data to validate information from the customer’s application prior to the quote.

We use our single integrations into the many data sources to leverage risk attributes from all of the datasets we talked about earlier, and we allow them to be pointed at whatever part of the policy life cycle is required. This happens whether our client is an insurer, or an MGA, or a broker, we help to expand the quotable footprint. It means getting more quotes that can be e-traded with straight through pricing, and we help to drive the operational efficiencies and a better customer experience.

We can expect to see less time spent on referrals and a reduction in the volume of these referrals in busy e-trade operations centres. Underwriters can free up their time to assess more complex risks, those which need that true rationale rather than just ticking a box about ‘wall type’ of a property or ‘floor type’ for example.

We believe we’re going to see an increased awareness of risk appetite and accumulation: the return to technical underwriting principles I mentioned at the start. This can happen either via a desktop model, such as LexisNexis®Map View , or by having those same perils attributes delivered via API for e-traded risks. There’s going to be a benefit in terms of heightened portfolio management with a better running book of business and a natural reduction in fraud.

Follow the link to the LexisNexis Risk Solutions website to find out more about how we support insurance providers.