Raising the Experience Bar
Commercial insurance has recently faced several major challenges. Economic distress has made it difficult to profit off of investments, thereby necessitating profitable underwriting to drive returns. In addition to soft rates, exposure bases (i.e., U.S. GDP) are flat, if not effectively down, and interest rates are at historic lows.
As a result of these and other pressures, the overall commercial lines market has shrunk since 2007 — from $241 billion in 2007 to $222 billion in 2012 — and has been recovering very slowly over the last five years. Difficult economic conditions and saturation of a highly fragmented market has increased competition, leading commercial carriers to improve their value proposition by offering a better customer experience for both the end insured and producers.
Commercial carriers have every incentive to invest in improving the customer experience.
In contrast with personal lines (e.g., private passenger auto insurance, for which most carriers struggle to promote a superior customer experience and divert consumers’ attention from price), ease of doing business and other value-added services — even as basic as advice — greatly influence placement.
From the lower end of small commercial to the largest commercial accounts, producer experience and, by extension, the experience of the insured has increasingly become a critical factor in a carrier’s ability to acquire and retain clients. An underwriter’s product expertise and local market knowledge often takes precedence over price.
In the meantime, shifts in customer expectations, access to information and diversifying needs are creating networks of increasingly self-directed, self-organizing and self-aware groups. This has broad implications for the design, manufacture, marketing, pricing and servicing of commercial insurance.
Small and medium enterprises increasingly interact and transact through a variety of channels. PwC’s recent Future of Insurance research shows that 49 percent of SMEs now use the Internet to supplement or replace agents and brokers in their search for commercial insurance.
As a result, investments in technology, customer data and analytics across the spectrum of carriers — from small to large commercial — are raising service expectations. Based on their business and operating models, carriers need to judiciously select and prioritize on which business and technical capabilities they should focus.
For instance, a niche market positioning that targets only a very narrow customer segment may require specific capabilities that are relevant to only that segment, such as specialized risk control services for medical facilities.
The distribution model also should greatly influence the types of customer experience-related capabilities in which to invest. For example, middle market carriers with numerous local offices will have to expend more effort, such as on guidelines and training, to promote a consistent customer experience.
Also, different sources of distribution will value different kinds of experience. While national brokers tend to be more transactional in nature and favor speed of processing and decision-making, small regional producers typically value coverage advice and are not as concerned about ease of doing business.
Regardless of a carrier’s business model, technology has been a consistent source of differentiation and an enabler of a superior customer experience, driving efficiencies throughout every stage of the sales funnel and customer life cycle.
New Customer Acquisition
The ability to collect and analyze customer data is the foundation of superior marketing capabilities. Better understanding of buyer behavior, demand for specific products or coverage, and pricing trends help carriers identify the most profitable market segments and growth opportunities.
Agents and brokers are increasingly leveraging new technologies such as social media to increase brand presence, generate leads and engage customers online. Underwriters at leading commercial carriers and MGUs likewise should promote their expertise in a given industry segment and/or line of business through “likes,” posts, retweets, blogs and articles on social media platforms.
Multiple social media outlets can help brand and disseminate thought leadership to engage both current and prospective producers.
Another key component of superior customer experience and producer productivity is ensuring that producers clearly understand a carrier’s risk appetite so they do not spend time on submissions that are likely to be rejected. This is an issue for many commercial carriers that struggle to effectively communicate their underwriting appetite, both internally and externally.
In fact, independent technology companies have emerged to address this problem by offering a new category of services to agents and brokers. For instance, there is now a search engine that gives agents and brokers a sense of insurance companies’ risk appetites, thereby allowing them to quickly find the right insurer for a particular risk.
This results in an improved quote ratio from carriers and provides more options to the prospective insured. It also saves time for everybody concerned.
The process of shopping and purchasing commercial insurance is still relatively complex. Future of Insurance research noted that nearly all non-insured small business owners cited the complexity of the process as one key reason for not getting coverage.
Ease of doing business is a key part of a superior customer experience and falls on the strategic agenda of most commercial line carriers, which are:
• Investing in streamlining and automating the underwriting process;
• Actively finding ways to simplify the data collection process by eliminating non-critical questions from their applications;
• Avoiding redundant information capture (i.e., re-keying); and
• Pre-populating submissions through third-party data services.
Beyond the initial step of capturing customer and coverage information, workflow management solutions enable better up-front triage and orchestration of account clearing, rating and quoting activities.
In an increasingly large number of small commercial segments, complete systematization of product rules and automation of underwriting decisions enable straight through processing — a commercial carriers’ ultimate goal as they strive to reduce quote turnaround times.
Some commercial carriers may choose to implement tiered service models to facilitate a superior customer experience for their most valuable producers.
Customer Relationship Management
Once a deal closes, carriers continue to look for ways to improve the producer and policyholder experience. Some carriers increasingly handle several policy administration transactions (e.g., endorsements, bill payments) on behalf of producers.
Policy administration service provision is increasingly taking place online. Even for large, multinational accounts, carriers have rolled out and continue to invest in self-service platforms that allow brokers and customers to focus on risk management, loss control and other value-added activities instead of premium payment tracking, loss reconciliation and other administrative activities.
Many carriers also have started to effectively utilize mobile computing (e.g., smartphones, tablets) to empower agents, claim adjusters, risk inspectors and customers by providing them on-demand access to both existing and new information and services.
In addition, data analytics are playing an increasingly important role, and can enable innovative value-added services, some of which may be disruptive enough to be successfully monetized and re-position a carrier’s business and/or operating model.
For instance, sensor technology has already started to transform the crop insurance business by reducing the need for traditional insurance coverage (i.e., insuring farmers against the loss of a crop or reduced yield from a crop), thereby enabling carriers to focus instead on preventive loss control services.
Sensors embedded in a field can measure the level of moisture in real time, which can then help determine the necessary level of irrigation and drive optimal watering. Several manufacturers have equipped their machinery to communicate with sensors and help farmers determine when a field is ready for harvesting.
Sensor technology also can provide real-time feedback on large scale disasters. Photos facilitate estimating damage, and mapping tools allow carriers to dynamically and automatically assign adjusters, contact customers and estimate Cat losses.
Sensor data provides carriers with real-time information on what has been damaged — Has the boiler broken? Is the basement flooded? Is there smoke damage? Is there mildew, rot or termites? Likewise, sensors can trigger customer alerts when there is minor — not just major — damage.
This presents the opportunity to stave off greater subsequent damage, as well as create pre-populated claims forms and even fulfill a claim before a customer knows the extent of damage.
Innovation has raised the bar for the customer experience and service expectations in the commercial lines sector. Commercial carriers must continue to invest in technology and find ways to harness customer data to remain competitive in the short-term.
Coping with Cancellations
Airlines typically can offset revenue losses for cancellations due to bad weather either by saving on fuel and salary costs or rerouting passengers on other flights, but this year’s revenue losses from the worst winter storm season in years might be too much for traditional measures.
At least one broker said the time may be right for airlines to consider crafting custom insurance programs to account for such devastating seasons.
For a good part of the country, including many parts of the Southeast, snow and ice storms have wreaked havoc on flight cancellations, with a mid-February storm being the worst of all. On Feb. 13, a snowstorm from Virginia to Maine caused airlines to scrub 7,561 U.S. flights, more than the 7,400 cancelled flights due to Hurricane Sandy, according to MasFlight, industry data tracker based in Bethesda, Md.
Roughly 100,000 flights have been canceled since Dec. 1, MasFlight said.
Just United, alone, the world’s second-largest airline, reported that it had cancelled 22,500 flights in January and February, 2014, according to Bloomberg. The airline’s completed regional flights was 87.1 percent, which was “an extraordinarily low level,” and almost 9 percentage points below its mainline operations, it reported.
And another potentially heavy snowfall was forecast for last weekend, from California to New England.
The sheer amount of cancellations this winter are likely straining airlines’ bottom lines, said Katie Connell, a spokeswoman for Airlines for America, a trade group for major U.S. airline companies.
“The airline industry’s fixed costs are high, therefore the majority of operating costs will still be incurred by airlines, even for canceled flights,” Connell wrote in an email. “If a flight is canceled due to weather, the only significant cost that the airline avoids is fuel; otherwise, it must still pay ownership costs for aircraft and ground equipment, maintenance costs and overhead and most crew costs. Extended storms and other sources of irregular operations are clear reminders of the industry’s operational and financial vulnerability to factors outside its control.”
Bob Mann, an independent airline analyst and consultant who is principal of R.W. Mann & Co. Inc. in Port Washington, N.Y., said that two-thirds of costs — fuel and labor — are short-term variable costs, but that fixed charges are “unfortunately incurred.” Airlines just typically absorb those costs.
“I am not aware of any airline that has considered taking out business interruption insurance for weather-related disruptions; it is simply a part of the business,” Mann said.
Chuck Cederroth, managing director at Aon Risk Solutions’ aviation practice, said carriers would probably not want to insure airlines against cancellations because airlines have control over whether a flight will be canceled, particularly if they don’t want to risk being fined up to $27,500 for each passenger by the Federal Aviation Administration when passengers are stuck on a tarmac for hours.
“How could an insurance product work when the insured is the one who controls the trigger?” Cederroth asked. “I think it would be a product that insurance companies would probably have a hard time providing.”
But Brad Meinhardt, U.S. aviation practice leader, for Arthur J. Gallagher & Co., said now may be the best time for airlines — and insurance carriers — to think about crafting a specialized insurance program to cover fluke years like this one.
“I would be stunned if this subject hasn’t made its way up into the C-suites of major and mid-sized airlines,” Meinhardt said. “When these events happen, people tend to look over their shoulder and ask if there is a solution for such events.”
Airlines often hedge losses from unknown variables such as varying fuel costs or interest rate fluctuations using derivatives, but those tools may not be enough for severe winters such as this year’s, he said. While products like business interruption insurance may not be used for airlines, they could look at weather-related insurance products that have very specific triggers.
For example, airlines could designate a period of time for such a “tough winter policy,” say from the period of November to March, in which they can manage cancellations due to 10 days of heavy snowfall, Meinhardt said. That amount could be designated their retention in such a policy, and anything in excess of the designated snowfall days could be a defined benefit that a carrier could pay if the policy is triggered. Possibly, the trigger would be inches of snowfall. “Custom solutions are the idea,” he said.
“Airlines are not likely buying any of these types of products now, but I think there’s probably some thinking along those lines right now as many might have to take losses as write-downs on their quarterly earnings and hope this doesn’t happen again,” he said. “There probably needs to be one airline making a trailblazing action on an insurance or derivative product — something that gets people talking about how to hedge against those losses in the future.”
Making the Marine Industry SAFE
When it comes to marine based businesses there is no one-size-fits-all safety approach. The challenges faced by operators are much more complex than land based businesses.
The most successful marine operators understand that success is dependent on developing custom safety programs and then continually monitoring, training and adapting.
After all, it’s not just dollars at stake but the lives of dedicated crew and employees.
The LIU SAFE Program: Flexible, Pragmatic and Results Driven
Given these high stakes, LIU Marine is launching a new initiative to help clients proactively identify and address potential safety risks. The LIU SAFE Program is offered to clients as a value added service.
“The LIU SAFE program goes beyond traditional loss control. Using specialized risk assessment tools, our risk engineers function as consultants who gather and analyze information to identify potential opportunities for improvement. We then make recommendations customized for the client’s business but that also leverage our knowledge of industry best practices,” said Richard Falcinelli, vice president, LIU Marine Risk Engineering.
It’s the combination of deep expertise, extensive industry knowledge and a global perspective that enables LIU Marine to uniquely address their client’s safety challenges. Long experience has shown the LIU Risk Engineering team that a rigid process will not be successful. The wide variety of operations and safety challenges faced by marine companies simply cannot be addressed with a one-size-fits-all approach.
Therefore, the LIU SAFE program is defined by five core principles that form the basis of each project.
“Our underwriters, risk engineers and claims professionals leverage their years spent as master mariners, surveyors and attorneys to utilize the best project approach to address each client’s unique challenges,” said Falcinelli.
The LIU SAFE Program in Action
When your primary business is transporting dry and liquid bulk cargo throughout the nation’s complex inland river system, safety is always a top concern.
The risks to crew, vessels and cargo are myriad and constantly changing due to weather, water conditions and many other factors.
SCF Marine, a St. Louis-based inland river tug and barge transportation company and part of the Inland River Services business unit of SEACOR Holdings Inc., understands what it takes to operate successfully in these conditions. The company strives for a zero incident operating environment and invests significant time and money in pursuit of that goal.
But when it comes to marine safety, all experienced mariners know that no one person or company has all the answers. So in an effort to continually find ways to improve, SCF management approached McGriff, Seibels & Williams, its marine broker, to see if LIU Marine would be willing to provide their input through an operational review and risk assessment.
The goal of the engagement was clear: SCF wanted to confirm that it was getting the best return possible on its significant investment in safety management.
Using the LIU SAFE framework, LIU’s Risk Engineers began by sending SCF a detailed document request. The requested information covered many aspects of the SCF operation, including recruiting and hiring practices, navigation standards, watch standing procedures, vessel maintenance standards and more.
Following several weeks of document review the LIU team drafted its preliminary report. Next, LIU organized a collaborative meeting at SCF’s headquarters with all of the latter’s senior staff, along with McGriff brokers and LIU underwriters. Each SCF manager gave an overview of their area of responsibility and LIU’s preliminary findings were reviewed in depth. The day ended with a site visit and vessel tour.
“We sent our follow-up report after the meeting and McGriff let us know that it was well received by SCF,” Falcinelli said. “SCF is so focused on safety; we are confident that they will use the information gained from this exercise to further benefit their employees and stakeholders.”
“It was probably one of the most comprehensive efforts that I’ve ever seen undertaken by a carrier’s loss control team,” said Baxter Southern, executive vice president at McGriff, which also is based in St. Louis. “Through the collaborative efforts of all three parties, it was determined that SCF had the right approach and implementation. The process generated some excellent new concepts for implementation as the company grows.”
In addition to the benefits of these new concepts, LIU gained a much deeper understanding of SCF’s operations and is better positioned to provide ongoing loss control support.
“Effective safety management is about being focused and continuously improving, which requires complete commitment from top management,” Falcinelli added. “SCF obviously is on a quest for safety excellence with zero incidents as the goal, and has passed that philosophy down to its entire workforce.”
“SCF’s commitment to the process along with LIU’s expertise was certainly impressive and a key reason for the successful outcome,” Southern concluded.
There are many other ways that the SAFE program can help clients address safety risks. To learn more about how your company could benefit, contact your broker or LIU Marine.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.