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October 10, 2023

Insurance outside the box

How emerging tech is unlocking profit and potential in the world of Excess & Surplus (E&S) insurance.

Wildfires, heatwaves, hurricanes, pandemics...the risks have increased manifolds in recent years, or so it seems. In theory, increased risk should be a boon for the insurance industry, but the severity and unpredictability of the modern risk environment has prompted many mainline insurers to retreat from traditional markets and geographies—coastal regions for instance, or the commercial properties left vacant due to workforce transformation—wary that old methods and models may no longer apply.

This retreat has driven business into the Excess and Surplus (E&S) insurance market, a more flexible and historically much smaller sector of the industry focused on protecting assets that mainline insurers deem ‘uninsurable.’

As a result, the E&S market is surging, with projected growth from $75 billion in 2022 to $179 billion in 2030.

But increased risk isn’t the only factor driving the E&S boom. Leaders in the field are also leveraging new technologies and strategies to streamline processes, better analyze risk, and help mitigate the volatility of a market where profits, by definition, are at the mercy of hard-to-predict events. With these innovations—detailed below—the E&S market has boomed and is more stable than ever before, to the point that even mainline insurers are now giving E&S a second look.

Inherent challenges

In E&S insurance, as in ‘regular’ insurance, insurers only turn a profit if the policies they issue are priced correctly, i.e., with premiums that accurately reflect the risk of the protected asset, and the probability of the policy holder filing a claim. Because E&S, by definition, covers assets where the risk-level is hard to assess, the process of underwriting an E&S policy typically involves more work, primarily in the area of data-gathering and risk analysis, than does a conventional insurance policy.

This work, moreover, has always been heavily reliant on manual processes. E&S applications often arrive as email attachments, for instance, rather than through online models common for mainstream commercial policies. Similarly, underwriters often resort to Google Map searches to understand the location or condition of a property. It is not uncommon for decision makers to spend more than half their time gathering the information they need to understand the unique characteristics of a particular risk, constraining the time they have to focus on underwriting.

Such ‘high touch’ processes not only drive-up costs and delays, but they also make it more difficult for insurers to tap data about past sales and claims. This, in turn, inhibits their ability to make consistent, informed underwriting decisions across geographies, or to share information and complete transactions with brokers.

It gets worse. Manual processes also make it harder to rapidly scale underwriting operations to serve a rising number of customers, leading to significant backlogs in processing applications. Adding to the delays and costs is a shortage of underwriters and claims appraisers with the necessary skills and knowledge to serve the E&S market. At the same time, increased litigation has led to many more claims on E&S insurers, straining the capacity of their operations departments.

If there were a way to ease these multiple bottlenecks, E&S providers could write policies faster and accurately, while freeing up underwriters’ time to leverage their expertise and their relationships to build more focused products and increase awareness of E&S products.

And there is a way. In fact, there are several.

E&S unleashed

Driven largely by mergers and acquisitions, the insurance wholesaler market has rapidly evolved in recent years, with E&S carriers investing in an ecosystem that allows seamless integration with wholesalers, enabling carriers to underwrite declined standard line insurance as E&S policies. In response, E&S insurers are reimagining their operating models to work more efficiently and effectively with this ecosystem and making significant investments in transforming their underwriting and claims processes. By investing in digital platforms, for instance, and other technologies such as automated document ingestion, and third party-data pre-fill, insurers have done away with many of the manual-process bottlenecks that were such a drag on the sector’s potential.

In terms of the actual underwriting process, the tech-driven gains have also been abundant. By revamping data architecture and equipping their operations teams with new analytic tool, carriers are now able to pre-qualify customers and segment risks before they reach the underwriter’s desk. Data analytics, aided by AI and ML, are now in use for automated ‘risk-appetite validation,’ and rules-driven automation to determine not only whether a risk is worth assigning to an underwriter, but which underwriter is best qualified to assess it.

It’s early days, but generative AI has already been enlisted to perform risk assessment and portfolio-level underwriting and will doubtless soon be helping to meet the insurance industry’s complex reporting requirements.

This streamlined, turbocharged analysis of data can also allow automated handling of ‘subjectivities:’ outstanding issues that must be resolved to an insurance underwriter’s satisfaction before they can confirm that terms of a policy. Commercial providers can also leverage data analytics and automated business rules to enable no- touch binding, reducing costs while speeding service.

At the policy issuance stage, providers can now leverage data for quality-control checks, for instance – integrating the inspection and analysis of a property or business after it has been insured to get a real-time view. During policy servicing, providers can also leverage data to provide self-service capabilities; underwriters can use generative AI to create a risk inspection report summary and optimize submission intake at a much faster pace than it takes today.

When claims are filed, new data tools are streamlining the processes of fraud-management and litigation, with AI-powered suggestions for ‘next best actions,’ and ‘smart segmentation’ of claims based on analysis of severity, frequency, and propensity. They are also of value in risk engineering (working with customers to reduce the likelihood of claims), which is rapidly gaining importance in the E&S market, especially with the rising complexity of claims.

Taken all together, these improvements provide an enhanced experience for both internal and external general agents, reducing the time required to provide a quote for a customer, and eliminating the need to navigate multiple applications to quote and bind a new policy. Agents are more productive, customers are happier, and E&S profits are soaring.

In the case of Selective Insurance, who turned to Cognizant for a digital business transformation after seeing a four-fold net growth in its E&S business, the results have been dramatic. After an in-depth assessment of Selective’s operating model, we developed a digital strategy that streamlined processes, tightened controls, and automated policy reviews. Leveraging technology and best practices from its standard insurance business, Selective implemented new E&S-specific processes and systems that increased the underwriting team’s policy-review efficiency by 65-70%. This transformation also allows the insurer to monitor revenue and profitability more tightly through real-time dashboards, while Selective and its agents can now build business together using state-of-the-art digital platforms.

No matter what optimists say, risk and danger will always be with us, and the future will (probably) always be unknown. But thanks to technology, it’s safe to say, the inherent risks of the E&S insurance sector have been minimized to the point that these once-niche insurance products are going mainstream. And for leaders in the mainline insurance industry, suddenly, ignoring the boom in E&S could be the biggest risk of all.

To learn more on how to profitably tap the expanding E&S market, visit the Insurance section of our website or contact us.

This article was written by Agil Francis, AVP, Ramanujam Venkatesan and Vikas Jain, Senior Directors and Pankaj Dhingra, Manager in Cognizant’s Insurance Consulting practice.

Cognizant Insights Team

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