Harnessing Technology Key to Increasing Efficiency
PLANTSVILLE, CONN. — Finding innovative ways to leverage technology and big data offers challenges and opportunities to insurance carriers and agencies of all sizes, according to a panel of industry executives who spoke at the Independent Insurance Agents of Connecticut (IIAC) midyear convention.
David LeBlanc, CPCU, president Acadia Insurance, said his company is using new sources of data, particularly third-party data, in combination with traditional data sources to underwrite and price business. Acadia has partnered with Insurtech companies for its small-business quoting platform to help collect and verify data in a way that makes the process go more quickly and to get more accurate pricing.
Five years ago, John Donohue, CEO of Arbella Insurance Group, would have said that his company was too small to be involved with big data, but much has changed since then. Arbella has its own in-house data analytics team that works closely with its actuaries to manage big data, providing opportunities to better understand the needs of insureds as well as to provide more sophisticated pricing for them.
“The good news is that the way the technology has changed, regional companies can give you the same access to pricing and knowledge about customers as the large nationals," said Donohue.
The challenge for agents is to find different ways of marketing the massive amounts of data that they house, according to Jon Jensen, AAI, AIP, chair of the Independent Insurance Agents and Brokers of America (IIABA). “The key is figuring out how to pull out the data to make it useful, regardless of the size of the agency," said Jensen, who is the chief executive officer of Correll Insurance Group, which has 22 locations throughout North and South Carolina.
Between agents and the carriers, the insurance industry collects an enormous amount of information on insureds, particularly when insureds have multiple policies. Donohue hopes to leverage technology to cull information that is spread out in multiple, difficult-to-get-at places into one, easy-to-reach place. For example, if there is an insured named Susan Smith, the carrier might have policies for her in that name as well as Susan M. Smith and Susan Smith LLC.
The challenge is taking those three Susans and getting them into one place. “On one level, it sounds incredibly simple. How hard should that be — it's one Susan? But, she probably has two addresses — business and home — so it gets even more complicated," explained Donohue. “We're working to figure out how to effectively pull that one person into one 360 degree view to share that with you and collectively understand Susan and her needs."
Insurtechs: Friend or Foe?
Moderator Jay Byrnes, CIC, state director of the IIAC, asked panelists if Insurtech startups are viewed as a threat to the independent agency distribution system or if they offer something useful to carriers and agents. Jensen said Insurtechs are more of a perceived threat than anything else and that while Insurtech firms and their technology can “do a lot of good things for us, they aren't going to replace us," because insureds want advice from agents, not chatbots.
Although Donohue gives Insurtechs credit for raising huge sums of money, he has enjoyed seeing their evolution. When they burst onto the scene, many of them accused the industry of being slow and stupid. “We were dinosaurs, and they were going to eat our lunch in 60 days. Flash forward a few years, and most of them are going nowhere," said Donohue.
It has not been uncommon for some Insurtech startups to have combined ratios between 150 and 200 or have significant fraud problems due to their claims process, according to Donohue. “Now, they are knocking on our doors, saying they need to learn from us and figure out what we are doing right that they can't. Some are asking to be bought because they are really only here to cash out. It's definitely not a threat anymore. It's an opportunity whether we invest in them or learn from them or partner with them."
Only a very small number of Insurtechs are actual threats with most of the Insurtech business pivoting toward a partner model, according to LeBlanc. For Acadia, partnering with Insurtechs has helped make services more convenient for consumers and agents. LeBlanc explained that to be successful in the independent agency distribution channel, insurers need to be convenient and easy to do business with, have quality products and services, provide real expertise and offer choice to consumers.
“Insurtechs can help us be more convenient, but for the Insurtechs that are only building convenient access to low-quality products and service and offer no expertise, ultimately the market will chase them away," said LeBlanc.
Generalists vs. Specialists
Brynes asked if, at a time when more insureds are looking to buy insurance online, generalist agents are still viable or will specialization be required in the future. LeBlanc thinks that because the landscape of independent agents is so varied, the model can succeed under specialists or generalists. “The agents who are focused on building a better experience for their customers will have a leg up on others," he said.
Donohue admits to being very bullish on independent agents. “Insurance is a very complicated product that most people don't understand, and you can only go so far working through a computer screen. We still believe that insurance is fundamentally a people business. It's about connecting with customers and giving them personalized advice. They want to talk to people. We have to embrace technology, which is another form of communication, but it doesn't replace that personal, individual contact that is the cornerstone of what we do."
The Talent Struggle
Attracting and retaining talent remains an ongoing challenge for carriers and agencies alike. In addition to relying on word of mouth and networking, carriers have invested in college campus recruiting campaigns and internship programs to build talent pipelines. They have also created robust training programs to create career paths for employees once they are hired, so they can see how they can grow with the company.
The panelists noted that unlike previous generations, today's young job candidates ask questions about work/life balance, the mission of the organization and community involvement. Questions about salaries are often a distant second. “They want to meet people at the company and are really more careful about the kinds of companies they choose to work for," said LeBlanc.
It can be difficult to manage the expectations of young candidates, but that comes with time and experience, according to Donohue. What many candidates truly seek is flexibility, particularly in their work hours. Although Donohue noted that he does not want to develop a completely remote workforce, which he thinks is bad for company culture, he is open to being flexible.
“It's not that employees don't want to come into the office. It's that the commute makes them crazy. So we want to give them some flexibility around that."
The priority for Jensen is for current insurance professionals to make a greater effort to tell the public how rewarding a career in the insurance industry can be. “We're the unsung heroes on the backside of tragedy. Emergency services run in and stop the fires and get people to the hospital. Once they leave the scene, it's us who help insureds rebuild. Younger people need to understand that. It's not just about working hard and doing well — the rewards are much better than that," said Jensen.
The P&C Marketplace
Rate is always on the minds of consumers. Byrnes asked panelists what threats there are in the marketplace that will affect rate going forward.
LeBlanc said that in third-quarter financial result calls, most carriers are talking about social inflation. The term refers to loss costs steadily creeping up in areas such as general liability (GL) after a relatively long period of relative stability. Loss cost increases are being driven by multiple factors, including litigation, erosion of tort reform, an anti-big business sentiment that finds its way into jury verdicts and huge jury awards, according to LeBlanc.
“Those forces combined are starting to increase duration of claims and defense costs and are ultimately putting pressure on settlements. Carriers are pricing their products before they know what the final cost is. This change in loss costs on the GL side is starting to make some of the carriers pay attention to what's going on. It could push up prices for sure," said LeBlanc.
Another pricing challenge for both personal and commercial auto is the increasingly sophisticated technology that is being installed by vehicle manufacturers. In theory, there is supposed to be added safety with this technology, but it is yet to be reflected in a reduction in frequency rates, noted Donohue.
“When there is an accident, the cost to repair a bumper that 10 years ago would have been $1,000 to fix now costs $8,000. That impact is flowing into rate of personal and commercial auto, but we're not getting the benefit yet of having fewer accidents to offset costs. I think we'll start to see evidence of that over the next few years, but it won't offset the costs of these more expensive parts," said Donohue.
As an agent, Jensen is seeing pressure in commercial auto in particular. “There has been a lot of rate increase there. I'm getting the sense that it is coming in other lines, like GL, and we have seen more activity in directors and officers liability."
Lack of Carrier M&A
Although the banking industry has experienced numerous major mergers and acquisitions (M&A), Byrnes found it curious that there are very few insurance carriers looking to buy one another. LeBlanc thinks the reason is twofold: Most companies are well capitalized and have strong balance sheets. By using data analytics, they can make better, more sophisticated decisions and not be in a position where they have no choice but to sell. He added that “carriers don't want to buy a balance sheet with problems."
When asked what issues keep them up at night, the panelists had three varied answers. The unpredictability of climate change worries Donohue. He said that it is difficult knowing that a storm could cause $50 billion in New England but not know exactly when it will happen.
LeBlanc is concerned about the Terrorism Risk Insurance Act (TRIA). It doesn't expire until the end of next year; however, carriers will soon be writing policies that go beyond that date into a period where TRIA would not be in effect. The issue is further complicated by 2020 being an election year.
Lack of agency perpetuation planning worries Jensen. He said that despite talking about succession plans for more than a decade, he has not seen a great deal of movement toward agency perpetuation. “Frankly, I think it has fueled a great deal of M&A because folks just weren't prepared," he said.
Reprinted by permission of Standard Publishing Corp. © 2019.