We recently held a meeting of the Commercial Lines Special Interest Group in Worcester, Mass. Twelve carrier participants joined the session, which was generously hosted by Hanover Insurance Group. The meeting made for lively discussion around the key challenges, issues, and opportunities facing commercial lines carriers, and some of the key discussion areas included the following:
Core systems were the dominant topic of conversation, and many carriers are either undergoing or have completed replacement projects. Carrier representatives by and large described positive and on time, on budget experiences in implementing new core systems; however, upgrading, cost of ownership, and ISO compliance were cited as pain points. ISO support in particular varies by vendor, and a number of carrier representatives mentioned the high cost of staying current on ISO compliance.
In order to avoid further increasing the cost of ownership down the road, a common best practice was to stay as close to out-of-the-box as possible. When organizations did need to customize, it was often to accommodate underwriting, as many underwriters were hesitant to change workflow. White-boarding and mapping processes were discussed to help underwriters trim down processes and understand the value of underwriting functionality in modern core systems.
“Kicking the can down the road” also emerged as a concern among carriers maintaining legacy systems. Layering systems on top of a mainframe platform, maintaining a multi-tier front-end connected to a mainframe system, and hosting mainframe in the cloud were proposed as ways to effectively leverage legacy systems in the short-term.
Talent is a prominent concern among carriers: employees with knowledge in COBOL and mainframe languages are nearing retirement, and Millennials are generally not trained in these languages. As aging workflows are incompatible with newer systems, insurers are increasingly leaning on vendor partners during implementation projects. While no “ideal staffing mix” was proposed, a consensus arose that limiting vendor resources and attaining vendor independence are eventual goals.
Information security is growing in importance. The NIST framework and continuous monitoring controls like CSET are valuable tools for insurers looking to establish security standards. It is especially important to educate the board on the framework, how it is structured, and where the organization stands in terms of security. IT organizations should operate as if they were already compromised; waiting for a firewall notification is often an indication that an organization is already behind. Penetration testing, vulnerability assessment, and prioritizing security for the most crucial systems are all integral components of a well-rounded strategy.
SaaS for core applications is on the horizon in commercial lines, as both the price point and reliable security are attractive. SaaS is widely used for HR applications, and many insurer representatives cited plans to take their core systems to the cloud. Despite the benefits of SaaS and the cloud, it was commonly agreed upon that penetration and security testing would still be necessary along with ensuring separation of data in multi-tenant systems.
Innovation is getting harder to ignore, and new technologies are making inroads. Autonomous vehicles, telematics, and collision avoidance sensors are still nascent technologies among commercial lines insurers, but their potential is recognized and interest is growing. Some insurers are looking to establish closer ties with the Insuretech startup community. Hackathons and bug bounties were also mentioned as ways of further exposing organizations to innovation.
New sources of third-party data are on the radar for commercial lines carriers. While reliable data on small businesses is not mainstream, it is generally viewed as the “holy grail.” Physical data around commercial businesses (building, location, etc.) is relatively easy to come by, however more granular data around businesses themselves is rare.
Insurers are also looking into ways to harness data collected from external feeds such as telematics and sensors. Wearables were discussed as a potential training opportunity for junior adjudicators, and telematics data from commercial vehicles could be used to modify driver behavior and even dispute claims. Smart homes, offices, and worksites were mentioned as ways to proactively mitigate risk and losses, along with drones for rooftop inspection. A proliferated use of sensors, drones, and telematics could also pose a hazard, as these devices could be hijacked and used for malicious purposes.
Predictive analytics is widespread. Most commercial carriers have predictive analytics capabilities, whether internally or through an external partnership. Insurers tend to go to a different partner once they implement a new type of predictive model, and it is generally felt that maintaining only one consistent partner is not an ideal strategy.
The pressure for online direct sales is becoming more real. Online direct sales of small commercial insurance are growing; however, members of this group cited resistance from agents and brokers. An understanding of which market direct sales will serve as well as where it is going are both important factors in assessing its value to a carrier. Although direct-to-consumer sales will mean increased self-service, agents will still need to be licensed in every state.
This group meeting made for yet another great networking and discussion event between carrier members of our Novarica Research Council. These sessions provide a space to productively discuss challenges and issues while maintaining confidentiality. We’re looking forward to the next meeting, and if you’d like to learn more about our special interest groups, feel free to reach out to us.
This blog entry has been reprinted with permission from Novarica.
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