Building a Foundation For Innovation in Commercial Lines
Commercial Insurance Innovation: At Cape, we believe commercial property carriers — and underwriters in particular — have been underserved by the insurtech wave.
As with all insurance companies, commercial property underwriters perpetually seek better returns. Specifically, underwriters seek to improve operating performance by reducing loss ratio and aligning risk selection with pricing, or lowering expense ratio through productivity gains.
Early in the evolution of insurance, new data sources and risk segmentation practices began to be used in order to drive improvements in these areas. And now, technology has the potential to meaningfully accelerate gains. Modern policy administration systems, third party data feeds, IoT, and natural language processing are just some of the technologies being creatively harnessed by carriers to improve bottom-line performance.
However, not all lines have been equally buoyed by technology. Auto insurers, for example, were well poised to take advantage of digitization beginning in the early 2000s, due to more structured vehicle and consumer data like VIN numbers and driving records. Meanwhile, home insurance carriers deal with more costly and complex risks and have spent much of the last decade building a foundation for digitization. This groundwork is now paying off, with customer-facing innovation seeing a marked acceleration over the last few years.
Unfortunately, commercial property insurers have benefited the least over the last two decades. The commercial property space is even more costly, complex, and fragmented than home insurance. Small, mid-market, and large commercial, as well as retail, manufacturing, and habitational — a multitude of segments with significant variability in risks within each segment.
This complexity of risk, in tandem with the important role of brokers as intermediaries, has resulted in a higher bar to entry and a lack of innovation taking root.
Change is coming to commercial property insurance.
If the 2000s were the decade for auto carrier innovation and the 2010s saw technological leaps in home insurance, then the 2020s will be the era of commercial property innovation.
Already, leading insurers like The Hartford and Chubb are actively operationalizing new data sources and technologies in commercial lines. Digital MGAs like Attune and Embroker are making waves with broker and insured-friendly interfaces and automated workflows to accelerate speed-to-bind. Finally, providers like Bold Penguin and Chisel AI are building exchanges and AI-enhanced automation for underwriting.
Third-party solutions can help commercial property insurers meet those goals and unlock better returns. More granular and up-to-date information can help carriers confidently select the risks that align with their eligibility criteria. Automated submission and underwriting workflows can lead to a more frictionless buying experience. And new predictive signals can allow for more accurate pricing and a more competitive bid to win the best business.
Obstacles to innovation remain
Still, for most commercial lines carriers, fundamental obstacles remain before widespread adoption and balance sheet gains can be realized.
For one, inconsistencies in basic property facts make it challenging to build advanced or automated decisioning frameworks for better risk selection.
In addition, overly complex and inflexible tools undercut the creation of new workflows that would unlock productivity gains.
Many of these tools are being built by technologists and attempt to disrupt and overhaul the entire underwriting process, rather than working in tandem with customers to solve specific workflow inefficiencies that underwriters or claim adjusters deal with on a daily basis.
Lastly, many new data providers are providing unvalidated risk signals and leave it to carriers to do the hard work of figuring out how to use new data. This creates uncertainty on the part of commercial insurers around whether or not a new data attribute is actually useful in their workflow.
Using Cape as a Foundation for Carrier Digitization
At Cape, we’ve been hard at work building a geospatial property intelligence solution that overcomes these obstacles.
By leveraging artificial intelligence, Cape’s commercial solution offers a set of foundational property facts that get underwriters to the correct property every time. We leverage advanced geocoding and matching logic so customers can confidently tie in-house and 3rd party data together for each submission.
Our ‘observed truth’ provides an instant understanding of commercial properties, building count and perimeter, as well as information on neighboring buildings and businesses. By using Cape data as a foundation, commercial carriers can confidently adopt other innovative digital solutions.
Cape’s instantly available information also provides a holistic view of overall property condition. New risk data signals, such as roof condition and lot condition, are available for tens of millions of commercial properties, allowing carriers to identify condition issues upfront and optimize manual reviews as well as re/inspections.
Importantly, these new forms of geospatial data go beyond external property risk. In fact, Cape customers have found a correlation between external condition and liability claims, with customers expecting a similar connection across workers comp and internal property claims.
Lastly, the Cape commercial solution has been built with a flexible architecture that can be integrated into any carriers’ underwriting workflow. Carriers can stream Cape data via API, request data via a batch process, or use Cape’s custom-built underwriting application to dive deep on specific properties. Carriers can leverage one or all of these options, depending on their priorities and where they land on the automation spectrum, from the fully manual underwriting of mid-market or large commercial properties, to fully automated small commercial or BOP policies.
Our commercial insurance solution provides immediate impact with a solid data foundation on which carriers can confidently build their digital business; enhanced segmentation with new, loss-predictive condition signals unique to the market; and highly flexible usage options that will work for carriers today and in the future, regardless of their level of automation.
We’ll be sharing more details of our solution in posts to come, with specific examples that demonstrate the importance of foundational property data, the value of holistic property and lot condition, and the usefulness of a flexible product architecture.
Read part 2 of this series here.