Data: The New Player
The insurance industry is on the brink of transformation. The unprecedented amount of capital present (including alternative capital) and the rash of consolidations in brokerage firms and insurance enterprises (U.S. companies, international companies, Lloyd’s syndicates) are among the reasons.
Another transformative trend is that the insurance distribution system has a new participant — data. Data has always been present, lingering behind the scenes, but now data is demanding to be a bigger part of the equation.
Recent reports show that data tools have become more accessible, more efficient and easier to use now than ever before. Data presents itself under a number of different guises — Big Data, Predictive Modeling, and Analytics are just a few.
Regardless of what form data takes, data is and will be the engine that drives market forces now and in the future.
Analytics based on predictive modeling have already transformed personal lines insurance. A number of companies with significant volumes of data and many intelligent resources use data and telematics to develop a custom rate for each individual based on a host of characteristics and actual driving habits.
While the leap from personal lines to commercial lines and then to specialty commercial lines may not be intuitive or even seem likely, it’s happening.
Regardless of what form data takes, data is and will be the engine that drives market forces now and in the future.
Commercial credit scores, advanced mapping techniques, the use of significant internal and external databases, aerial inspections by drones, and other such tools are already in use.
So what does this mean for the insurance marketplace? It means that as these tools and advanced data and analytics continue to make their way into the marketplace, those employing them will be better suited to make pricing and underwriting decisions.
They will be able to produce more appropriate, customized pricing or, perhaps more importantly, to select the best risks and avoid lower quality risks at market prices. They will be able to leverage these tools to quickly identify winning strategies and specific opportunities.
Conversely, it means those who don’t use such tools will lag in response time, delay in understanding issues and nuance, and ultimately lose ground in the market and be adversely selected against.
Innovation is critical to success in the insurance industry. Innovation in products and services, innovation in delivery, etc., innovation in the way we look at and analyze risk the tools we use, the data that we leverage, the processes we employ — will all be critical to success.
All of the above isn’t to say that automated tools and analysis will replace the need for quality underwriting. However, these types of tools and analysis are here to stay and their impact will continue to grow and be felt.
With that in mind, we need to welcome data to the conversation and continually explore novel ways that data can help us make better decisions, identify the right risk, and create a differentiated approach for our clients.
Webinar – Healthcare Insecurity: A Global Growth Impediment
A recent survey of business executives found that approximately 73 percent of companies surveyed deploy five percent of their workforce overseas. Companies striving to grow in today’s global economy need to have the reach and resources to position key personnel around the world. But a threatening impediment to that growth is the issue of Healthcare Insecurity.
Healthcare Insecurity is the indecision that can result when an individual falls ill while abroad and doesn’t know where to turn for treatment. Frequently, clinically unnecessary evacuation and unnecessarily expensive treatment can result, with sub-optimal patient outcomes becoming a risk.
Adding to the detrimental effects of Healthcare Insecurity is the increasing amount of political risk, not to mention terrorist activity that is compounding the stress levels of employees stationed overseas.
This one-hour webinar will delve into the topic of Healthcare Insecurity and tap expert resources to give companies guidance on, among other things:
- How to provide on-the-ground support to globally-mobile expatriates that increase their sense of security and encourage them to utilize local health care options.
- Developing a global program that provides employees with timely updates on issues that could impact their health and well-being, including political instability, pandemics, or terror threats.
- Determining whether a streamlined approach to vendor services for overseas employees might be the right fit.
- Finding the right mix of insurance coverages to both protect the company’s bottom line and provide for the health and welfare of overseas staff.
Buyers Beware: General Liability Outlook May be Shifting
The soothing drumbeat of “excess capital” and “soft market” to describe the general liability (GL) market is a familiar sound for brokers and buyers. Emerging GL trends, however, suggest the calm may not last.
Increasing severity of GL claims may hit some sectors like a light rain at first, if they have not already, but they could quickly feel like a pelting thunderstorm in others. A number of factors could contribute to the potential jump in GL prices for certain industry segments or exposures, possibly creating “micro” or niche hard markets in the short-term, and maybe even turning the broader market over the longer-term.
“There are trends we’re seeing that will play out slowly. Industries that carry more general liability exposure will and have been hit first and hardest, but it won’t apply across the board initially,” said David Perez, Senior Vice President and Chief Underwriting Officer, for Liberty Mutual Insurance’s National Insurance Specialty operation. “There is ample capital in the market today, which allows a poor performing account to move its policy frequently from carrier to carrier. Poorer performing classes, however, will likely face increased pricing for GL policies and a reduction in capacity.”
The good news for buyers is that they can take action today to lessen the impact these trends and the evolving market may have on their GL programs.
David Perez on the state of the GL market.
Medical and Litigation Trends Drive Severity
One factor increasing claim severity is the rising cost of health care, driven both by greater demand and by medical inflation that is growing faster than the Consumer Price index.
The impact of rising medical costs on commercial auto is well-known. Businesses with heavy transportation exposures are finding it more difficult to obtain coverage, or are paying more for it.
That same trend will impact general liability, just on a slower and more fragmented basis.
“In light of these trends, brokers and buyers should seek to understand how effectively their current or potential insurers defend GL claims, particular in using evidence-based medicine to assess and value the medical portion of a claim, and how they can provide necessary care to claimants while still helping clients control their total cost of risk.”
— David Perez, Senior Vice President & Chief Underwriting Officer, National Insurance Specialty, Liberty Mutual Insurance
“It takes longer for medical inflation to register through the tort system in general liability than it does in auto liability (AL) because auto claims are generally resolved more quickly,” Perez said. “But the same factors affecting severity in AL also exist in GL and as a result, it’s foreseeable that we will not only see similar severity trends in GL, but they may in fact be worse than we’ve seen in commercial auto.”
Industries with greater exposure to severity in general liability claims should be the first wave of companies to notice the impact of medical inflation.
“Medical inflation will drive up costs across the board, but sectors like construction and product manufacturing have a higher relative exposure for personal injury lawsuits.”
The impact of medical inflation on the GL market.
Beyond medical inflation, two litigation trends are increasing GL damages. First, plaintiffs’ lawyers are seeking to migrate the use of life care plans—traditionally employed only for truly catastrophic injuries—to more routine claims. Perez recalled one claimant with a broken thumb and torn ligaments who sought as much as $1 million in care for the injury for the rest of his life.
Second, the number of allegations of traumatic brain injuries (TBI) in GL claims is growing. It can be difficult to predict TBI outcomes initially and poor outcomes can be expensive and long tailed.
“In light of these trends, brokers and buyers should seek to understand how effectively their current or potential insurers defend GL claims, particular in using evidence-based medicine to assess and value the medical portion of a claim, and how they can provide necessary care to claimants while still helping clients control their total cost of risk,” notes Perez.
Changing Legal Landscape
Medical inflation and litigation trends are not the only issues impacting general liability.
Unanticipated changes in court interpretations of policy language can throw unexpected pressure on GL pricing and capacity.
Courts sometimes issue rulings interpreting policy language in a manner that expands coverage well beyond the underwriter’s original intent. Such opinions may sometimes have a retroactive effect, resulting in an immediate impact on not only open, but also closed cases in some circumstances.
Shifts in the Marketplace
In addition to facing price increases, GL brokers and buyers will be challenged by slightly shrinking capacity due to consolidation and repositioning among carriers in the marketplace. “Some major carriers have scaled back their GL writing, resulting in a migration of experienced senior management. As these executives leave, they take their GL expertise and relationships with them, resulting in fewer market leaders and less innovation,” Perez said.
“Additionally, there are new carriers coming into the business that may not have the historical GL loss data to proactively identify trends or the financial strength and experience to effectively service their GL customers and brokers. Both trends make it important for brokers and buyers to work with an insurer that is committed to the GL market and has the understanding and resources to help better manage risks impacting customers.”
Last year saw a high level of mergers and acquisitions in the insurance industry. Buyers should take advantage of that disruption to re-evaluate their needs and whether their insurers are meeting them. Or better yet, anticipating them.
What’s a Buyer to Do?
Buyers—and their brokers— should look to partner with insurers that can spot emerging trends and offer creative solutions to address them proactively.
What should buyers and brokers do, given the trends facing the GL market?
“Brokers and buyers should value insurers that have not only durability and a long history in the general liability business, but also a strong risk management infrastructure,” Perez said. “Your insurer should be able to help you mitigate your specific risks, and complement that with coverage that works for you.”
Beyond robust GL claims and legal management, Liberty Mutual also provides access to one of the insurance industry’s largest risk control departments to help improve safety and mitigate both claim frequency and severity.
In addition, notes Perez, “Even if a company has a less than optimal loss history in general liability, there can be options to provide adequate coverage for that company. The key is to partner with an insurer that has the best-in-class expertise, creativity, and flexibility to make it happen.”
By working closely with their insurers to understand trends and their potential impacts, brokers and buyers can better prepare for the possible GL storm on the horizon.
To learn more about Liberty Mutual’s general liability offering, visit https://business.libertymutualgroup.com/business-insurance/coverages/general-liability-insurance-policy.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.