E-trading has helped speed up the commercial SME underwriting process. But the fact remains there has been a distinct difference in the levels of business data available to validate customer supplied information, and understand the risk of smaller businesses or sole traders compared to personal lines.
From a customer experience perspective, a lack of verified data can lead to referrals which can be frustrating for the time-strapped business owner, or manager, responsible for their business insurance, the broker and the insurer underwriting the business. This data divide can also have a bearing on pricing accuracy, understanding product suitability, and may leave the market at risk of fraud and the business or individual at risk of underinsurance.
In SME underwriting, there is a huge reliance upon a duty of disclosure: the insured must make a ‘fair presentation’ of the risk, and must disclose to their insurer all the information, facts, and circumstances which are, or ought, to be known to them.
This puts the onus on, typically, the brokers to conduct due diligence checks rather than take the data provided by the customer at face value. And therein lies the problem: verification processes differ from broker to broker, insurer to insurer. Plus, to further compound the issue, there is a huge amount of variability and complexity in just confirming basic information about a small business or sole trader (such as the risk address) as the starting point for more in-depth risk assessment.
To illustrate the issue, in the case of a sole trader, the business may simply be a person’s name, but it’s more common for trading names to be used. Commercial brokers will often deal with partnerships and professional partnerships, such as a firm of solicitors or accountants. While limited companies need to be registered, bringing in a naming convention, there are several thousand unlimited companies in the UK that need to be understood and considered as well.
Where the address is concerned, it could be a residential address, a high street, a workshop, an industrial site or office block. If the firm is trading from more than one location, more than one address needs to be considered to ensure that the correct entity is identified.
This basic verification process can now be streamlined using matching routines to confirm the correct business at the correct address or addresses. This first step is crucial in ensuring a policy is set up in the right name, from both legal and regulatory perspectives, and that risk is assessed based on data specific only to that business.
From there, the broker can hone in on data about the business, the location and the sole traders in charge as part of a swift risk assessment process prior to the quote. Business data can confirm the size, trading time and financial position of an SME, while publicly-available person data can provide an understanding of the proposer.
Then, add in residential property information for property owners policies and the data can confirm when a property within a portfolio was built, the rebuild cost and the construction.
Addressing the business data divide in commercial insurance
This is exactly how Commercial PreQuote from LexisNexis Risk Solutions works. Through a single integration into a broker software platform, brokers can speedily validate and enrich the data provided by the customer prior to quote, thereby improving the quality and precision of the quote. And also, in turn, ensuring the risk presented to their insurer partners is as accurate as possible. The efficiency gains from this process means more quotes can be e-traded, the number of referrals reduced, and valuable broker time is freed up to assess more complex risks.
With a record rise in new company registrations in the first quarter of 2021, brokers can now capture a slice of the market with a fuller understanding of the business and its trading position. Accurate, validated information injected directly into the pre-quote process helps commercial insurance brokers meet their ‘Know Your Customer’ obligations, helps deliver a swift experience to smaller businesses and sole traders, and present the correct risks to their insurer partners.
This article first appeared in Modern Insurance and is reproduced with consent.
Follow the link to the LexisNexis Risk Solutions website to find out more about how we support insurance providers.