While we saw personal lines numbers grow through 2009 – 2013 for the top 50 brokers, in the same period commercial lines numbers dropped by 3.2%. For commercial, the soft market shows no sign of changing in 2015 so it’s time to look for alternative options to achieve profitable growth.
So what will happen over the upcoming months to support the claims that the commercial market is set to reach £17.3bn by 2016? The commercial property and liability is expected to grow at the slowest rate due to overcapacity but the fastest growing segment is identified as commercial motor and fleet with over 40% of SMEs purchasing commercial vehicle insurance.
Interestingly direct sales now represent £1.5bn of premium but brokers still remain the dominant distribution channel for commercial controlling over 80% of business sold. More and more business is moving online and we can only expect to see the price comparison numbers grow as they continue to pick off the micro elements.
The world is definitely changing and by the end of 2015 there will be over 1bn websites in existence. Now that 80% of purchase decisions start online and recent research shows that 71% of consumers use some form of digital research before buying any insurance, it’s time for commercial to get on involved and embrace this revolution.
With so much change, it’s vital for MGAs to stay one step ahead and play to their strengths; responsive and agile, dynamic product innovation and intellectual capability. The digital customer, expectations of cost-effectiveness, easy-access and transparency require the agility and flexibility of an MGA and their unique blend of distribution and specialism. These will ultimately overcome the barriers and drive success with consolidation and commoditisation changing the market daily.
Remarkably, the longest drum roll in history, commercial e-trading is now gaining momentum for 2015 with over 2000 brokers set to connect to integrated technology by the end of the year. The changing customer needs mean more businesses want to manage their insurance online and this requires easy-access via front-end servicing.
Ideas are usually only unique for a short time so how can MGAs innovate? One option is data enrichment. There are vast amounts of data available that give benefits of validation, underwriting and rating, however if not used in a cohesive and structured way it is very easy to suffer from infobesity.
Data enrichment offers an opportunity for insurers and MGAs to augment clients’ risk details using a plethora of data from third-party sources as well as validating existing information. The use of data is exploding and as an industry, we are suffering from infobesity. With 90% of data now available having been produced in the last two years, the pace of growth is huge. Insurers and MGAs need a data strategy to survive.
Nevertheless, the use of data does provide many advantages. There are all sorts of data that can provide significant insight, from company data, individual data to positional data. Greater insight to enhance the customer journey, reduce fraud and customise pricing can’t be a bad thing?
When these multiple data sources are combined it helps identify an individual risk and insure the segment of one. It can also provide capability to build customised claims risk scores by flexing the product, price and risk management to ensure the customer always has the most appropriate cover for the risk. There are also other opportunities to combine locational data with existing data to analyse the accumulation of insured risks and determine the level of exposure in particular areas.
Similar to personal lines, data enrichment is now set to become a hygiene factor for commercial in the next 18 months because it can change the way insurance is priced, packaged, distributed and sold using a fast-flow, no-touch model. However if all insurers use the same third-party data to augment their insight and it becomes a hygiene factor, the end result is no competitive advantage. But, data sources will grow and change and the challenge will be finding new exclusive sources of data to recreate and achieve competitive advantage.
There are also considerations around the impact of data to the value chain because of concerns that the use of third-party data could make some insureds uninsurable due to poor data history (credit, CCJ’s etc.). But in fact it has already allowed some insurers with an appetite for greater risk to accept those risks but at a higher premium because they fully understand the real risk they are insuring.
So there is a great opportunity for commercial insurers and MGAs to maximise the use of data and achieve profitable growth, it is already so accepted in personal lines and soon we will look back in anger and wonder at how risks were ever written without all of this additional insight.
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