Commercial lines carriers face a continuing soft market and a competitive landscape. A recent report from
"As of the first quarter of 2010, the commercial market continues to be very soft," Karlyn Carnahan, a principal in Novarica's insurance practice and lead author of the study said in a statement. "Commercial is a particularly competitive line of business. It has experienced rate decreases every quarter since Q1 2004. While the magnitude of the price declines shrank during the economic crisis reflecting shrinking capital and reduced investment gains, the market remains soft despite deteriorating underwriting performance, higher CAT losses and costlier reinsurance."
The report details the commercial landscape, and estimates there are 384 large and midsize U.S. insurers highly active in this space, although others may have small commercial lines books.
Novarica references the Insurance Information Institute, saying that in 2010, the commercial lines segment is expected to generate a combined ratio of 103.7, up from 101.2 in 2009 and heavily impacted by workers’ comp. Overall deterioration in 2010 underwriting performance is due to expected return to normal catastrophe activity along with deteriorating underwriting performance related to the prolonged commercial soft market. Accident-year combined ratios are currently higher than calendar-year due to reserve releases; however, as reserves diminish so will their favorable impact on results.
To weather these trends, commercial lines carriers will focus on focus on expense reduction, growth strategies and improving underwriting results. And to do so, these insurers will look to four key areas in their technology strategies:
• Business Intelligence: Predictive analytics tools are becoming more popular for those who have sufficient data or smaller carriers with access to pooled data, but these depend on having a solid data infrastructure in place.
• Policy: Investments in core policy administration systems are key to operational flexibility in a rapidly changing marketplace. It's easier to move into a profitable niche with increased speed-to-market and flexible product definitions.
• Claims: Carriers who are using modern systems are rapidly gaining competitive advantages by improved efficiencies in claims handling and enhanced data leading to better outcome management.
• Agent and Policyholder Portals: Extending functionality to the agents and the consumers continues to rise in importance. It's less about differentiation and more just the price to pay to be in the game. Build with an eye toward reuse.
