Compared with other industries, the growth of personal and casualty insurance isn’t where it should be. Our analysis found that while most sectors have enjoyed 7% gains over the last decade, P&C premiums have only increased by 2% during the same period.1 The challenges are numerous. Intense competition, dated operating models, higher customer expectations and advancements in digital technologies — from cutting-edge solutions to big data analytics — are disrupting the traditional P&C playing field.
Historically, P&C carriers have relied on tried-and-true growth tactics, such as broadening risk, expanding coverage and developing new products. However, these approaches will not be enough to drive and sustain profitable growth in the age of digital.
The good news is that there are several strategies that insurers can adopt now, and which we believe are critical to fueling growth:
Change the operating model.
The sharing economy is blurring the lines between commercial and personal lines. Indeed, small commercial customers now demand the same experience they receive from personal lines carriers. While most companies couple their small commercial accounts with the rest of their commercial lines, doing so can make it difficult to cross-sell to personal lines customers. Given that an increasing number of small commercial accounts are moving to a low-touch model, carriers should work to ensure tighter integration between their personal and commercial lines businesses to foster profitable growth.
For many customers, insurance is complicated, especially as liability lines become harder to distinguish. Simplifying products can help reduce complexity and eliminate the need for customers to rely solely on agents and brokers to answer their questions. Using a direct-to-consumer model, carriers can make it easier for customers to complete application forms themselves. This can also help resolve conflicts within the distribution channel, such as determining cross-channel business scenarios and designing a commission-sharing strategy for the future.
Resolve conflicts within the distribution channel.
Carriers should develop strategies for accurately determining customer ownership in cross-channel business scenarios, and formulate a commission-sharing plan to assure that all sales entities receive their fair share. Carriers should also cultivate and promote data-sharing and collaboration across channels.
Provide marketing and customer education.
As small commercial carriers embark on multichannel distribution strategies, significant efforts and investments will have to be made in marketing to and educating customers to increase product and brand awareness. The mass marketing approach, tried and tested by personal lines carriers, is one option. Marketing through social media, industry affiliations and trade associations is another. To help jumpstart these efforts, carriers can tap into a huge amount of third-party data to create targeted marketing campaigns that educate customers on coverage requirements and speak to their particular needs and preferences.
Improve sales effectiveness of underwriters.
When it comes to midsize and large accounts, commercial lines underwriters have traditionally focused more on risk evaluation and pricing rather than sales and revenue generation. At the same time, account managers generally have very little understanding of the complex labyrinth of products, coverages, hazards, and exposures. To address this issue, carriers should adopt an operating model that includes underwriters at stages where they can add the most value — not only in new business sales but across the services spectrum — while retraining them in consultative selling and moving underwriting decisions closer to the agent and broker.
Enhance up-sell yields.
Encouraging underwriters to identify pockets of opportunities, such as untapped coverages or services and their suitability for customers, can improve their sales skills and boost up-sell growth. In this way, underwriters can structure and quote programs that correspond with the carrier’s risk appetite. We believe that by improving the sales effectiveness of underwriters, commercial lines carriers will be better positioned to increase their business in midsize and large accounts, without negatively impacting loss or expense ratios.
Build a performance-management system.
Historically, underwriters’ performance evaluations were based purely on underwriting metrics. Shifting to a sales-oriented underwriting model requires a performance-management solution that better balances performance with goals. Premium growth, cross/up-sell yields and service volumes should all be considered when setting key performance indicators to track and evaluate underwriters and align their motivation with management's intended direction.
Create a skills-development program.
Most organizations have instituted structured training programs for novice and experienced underwriters. In addition to the analytical abilities typically required of an underwriter, consultative skills should also be incorporated into a new skills-development program — focusing on communicating the carrier’s unique value, emphasizing the benefits of the solution (e.g., reduced total cost of risk) and pointing to risks associated with new technologies. As digital platforms and solutions gain traction, the nature of risk changes — compelling underwriters to build the capabilities needed to evaluate new risk exposures and educate customers accordingly.
Develop an underwriting platform.
While small commercial carriers have made timely investments in rate-quote-issue (RQI) capabilities to standardize and improve efficiencies, midsize and large accounts have been very reluctant to do so. As a result, their technology environments are populated with disparate systems for pipeline management, underwriting, pricing, and policy administration. This obscures the view of the business and hampers the ability to make meaningful inferences across accounts. Apart from capturing and managing information on leads and performance, carriers’ technology platforms should integrate with pipeline management and policy systems, produce insights for further analysis, facilitate self-learning from prior transactions, and prioritize work requests based on previous wins.
As carriers begin their transformation and tackle the associated challenges, they must perform due diligence around the future operating model and develop a sound strategy for each account (small commercial, midsize, and large). By making meaning from the digital information that surrounds organizations, people, processes and things (i.e. Code Halo™ thinking), P&C commercial lines carriers can develop highly effective, hyper-personalized products to drive profitable growth.
This is the second of two Perspectives reports focusing on how P&C Insurers can address and overcome the challenges of doing business in the age of digital.