Core Insurance

Q&A: Critical Capabilities for P&C Insurers Expanding into Specialty and Commercial Lines

Property and Casualty (P&C) insurers face a shifting landscape characterized by the swift rise of well-funded insurtechs and the rapid evolution of risk categories. A particular concern for insurers expanding into specialty and commercial lines is the uncertainty stemming from cybersecurity risks, environmental liabilities, and other dynamic and emerging threats. These evolving risks necessitate the creation and delivery of innovative insurance products that can adequately respond to increasingly complex and multifaceted risk profiles.

Against this backdrop, insurers are presented with a dual-edged sword: on one side, they have the challenge of fortifying their specialty and commercial lines to cater to a broader customer base; on the other, they must retain their market relevance while identifying and establishing new profit streams.

To effectively pursue specialty and commercial lines, insurers need a strong foundation of technical capabilities so they can accurately quantify these nascent, concentrated risks and design tailored product offerings for a range of diverse and high-severity risk scenarios. However, building this foundation is fraught with difficulties, chief among them being the arduous task of assessing risk in unusual circumstances by using unstructured and disparate data sets.

Expanding into Specialty and Commercial Lines: Necessary Tech

In this Q&A, we address common concerns from insurers considering a foray into specialty and commercial lines, as well as recommending advanced capabilities that will help secure a successful transition into those insurance lines.

How do I inject speed into new product line development?

To cater to the distinctive and diverse needs of specialty policyholders, insurers must focus on product customization and agility. Yet, the product development process often encounters significant delays resulting from IT backlog, prohibitive development costs, and the bureaucratic necessity for approvals across multiple departments.

While upfront costs and other barriers often impede them from rapidly launching, testing, and refining their products, insurers aspire to have flexible product development.

Critical Capability: Pre-configured Product Definitions

Insurers should leverage pre-configured, ready-to-deploy product definitions and foundational architectures, which encompass structured coverage terms, exclusions, conditions, and forms. Insurers can begin their expansion by selecting these pre-configured product templates, subsequently scaling or customizing them based on specific business segments that share similar coverage needs and purchasing behavior. This model allows for gradual enhancement of complexity and features, driven by testing and market feedback, leading to more efficient product launches, reduced scope variance, quicker implementations, and cost savings.

Central to the discussion is the imperative of eliminating manual inefficiencies via automation, particularly in specialty and commercial lines. Extreme events such as natural disasters and accidents necessitate highly granular and structured risk analyses. Legacy core systems often fail to provide the required level of analysis for such risks, compelling insurers exploring this new market to invest in extreme automation and advanced data analytics as fundamental requirements for an efficient core system.

How can I quickly process unique specialty and commercial submissions?

In the specialty and commercial lines sector, brokers and customers are often known to submit a plethora of unstructured or poor-quality documents, like scanned images or handwritten documents — including previous quote proposals or Statements of Values (SOVs) in various formats. This necessitates that insurers’ underwriting and processing teams manually intake and sort these files, extracting relevant data elements from emails or digital portals. This manual process can result in human errors and inconsistencies during data entry into underwriting systems.

Critical Capability: Automated Submission Intake

Insurers require intelligent intake tools that leverage automation and natural language processing (NLP) to standardize the submission intake process. An example is a reusable document extraction framework where robotic process automation (RPA) algorithms learn from and mimic manual processes to automate the entire process. The bot can read broker submissions, extract and classify information, and convert them into a JSON format for easy utilization and storage. These tools dramatically reduce processing time, expediting transactions in policy servicing and claims, and thereby enhance broker satisfaction.

How do I calculate and predict complicated and uncommon risks?

Risk assessment for specialty insurance poses a significant challenge due to the rarity or ambiguity of the risk parameters. For instance, in the case of natural disasters, which are localized and specific to geographies, insurers often have limited historical data to predict potential outcomes. More niche or atypical risks might be rare events that do not neatly fit into existing rating systems or are difficult to model, requiring insurers to venture into stop-gap coverage or excess and surplus insurance to address the unpredictable nature of risk in commercial and specialty lines.

Critical Capability: Single-point Rating Engines

Single-point rating engines are designed to handle complex rating structures, allowing underwriters to integrate sophisticated algorithms into the underwriting process. They capture unique risk attributes and assign appropriate ratings or premiums, including multivariate rating and by-peril rating. These engines facilitate the granular risk differentiation necessary for accurate risk assessment in specialty and commercial insurance.

Modern rating engines use automation to ingest rate tables, rules, and algorithms from insurers’ spreadsheets to calculate premiums. While insurers can choose to develop their own engines, standalone low-code/no-code configurable rating engines are available that are continually maintained and updated according to any Insurance Services Office (ISO) changes. By investing in these modern rating solutions, insurers can provide more accurate and faster risk indications early in the quoting process, and maintain pace with regulatory updates.

Adapting for Expansion into Commercial Lines

Venturing into commercial lines is a significant undertaking. Still, the aforementioned critical capabilities, backed by contemporary cloud-native insurance core systems, can help you establish a robust foundation for managing evolving needs, risks, and requirements of policyholders in specialized sectors.

Forward-looking insurers will invest in technical expertise and advanced insurance functionalities to manage evolving industry disruptions and offer a diversified product range for businesses and professionals.

ValueMomentum, with its deep expertise in the insurance industry and particularly in areas such as commercial and specialty lines, is poised to equip insurers with CoreLeverage tools. We assist businesses in devising the right core system strategies. Visit our CoreLeverage services page to discover how we can add value to your core implementation or transformation initiatives.