It has long been a reality that, in the context of efficiencies and operations, commercial lines have been regarded as a poor stepchild compared to personal lines. Carriers have been unable to capitalize on efficiencies of their commercial operations as effectively as with personal lines. In large part, the argument has been that the discrepancy is due to cost or because there has not been a strong demand.
But as the Bob Dylan song goes, "The times they are a changing."
Current market conditions indicate a stabilized commercial lines market and a slow hardening of the market as has been demonstrated in a recent Towers Watson market survey. Lower investment returns, coupled with recent acquisitions of JEVCO Insurance Company by Intact Insurance and GCAN Insurance Company by RSA Canada, have shown a focus on the commercial lines business in Canada.
The merging of various Northbridge Insurance commercial brands has also provided a focused approach on the commercial space. Insurance carriers are holding the line in terms of sound risk assessment, underwriting discipline and cost-based pricing. As the commercial lines numbers reflect profitability and growth for carriers, so are the investments that carriers are starting to make in risk solutions advancements in commercial lines operations.
BIG NOISE ABOUT BIG DATA
One such advancement helping commercial lines underwriters is being able to utilize big data in the risk management space. Big data can be characterized as a collection of data so large and complex that it becomes difficult to process and be relevant to the end-user.
The increasing volume and detail of information captured by enterprises, and the rise of multimedia, social media and the internet has fuelled growth in information data. This growth in information has a major impact on commercial lines from the perspective of how it is underwritten today and how it will be underwritten in the future.
For commercial lines, a typical underwriter on a given risk would review data such as credit reports, previous claims, environmental reports, inspections, previous legal judgments, contractual liabilities, revenue figures and exposures, among other things.
One of the key parts of commercial lines underwriting is to be able to obtain and review all of the information regarding a business. In commercial insurance the underwriter is asked to access both the subject and the object of insurance.
For example, the challenge in commercial liability insurance is to access potential suits that may not have happened yet, but need to be part of underwriting and rating. A possible suit in liability has more impact on a risk than one that has already taken place.
For a liability underwriter, there is a constant need to get all the information about the risk at the time of the submissions and throughout the policy term. The challenge is what is relevant and from where is the information accessed. In some cases, it could be from internal company information, such as a previous claim, or in other cases information could be from the business itself, or information on a business could come from what is on the net.
Big data offers a solution by capturing, storing and analyzing, as well as visualization of, the data. For a commercial lines underwriter, gathering all the relevant information about the risk in one snapshot shot and not having to go to multiple data sources is a key efficiency and effective loss control method.
Another advancement in the commercial lines space has been recent developments on inland marine theft. Rightly or wrongly, the spotlight in large part by the Insurance Bureau of Canada (IBC) has been on personal lines automobile theft.As automobile is the largest line of business for the majority of the Canadian insurance market, the emphasis has been on this line of business.
The problem with the industry focusing all efforts on automobile theft, a byproduct of which is auto fraud, is that as an industry, we tend to forget that insurance is made up of a number other lines of business. The specialty commercial lines of business, such as inland marine, commercial fleet and others, all have the same potential for acts of theft and fraud as personal lines automobile. As an industry, we need to think much more broadly about managing risk for these other lines of business.
Commercial lines carriers are beginning to adopt a similar approach as their personal lines counterparts in information-sharing and gathering to fight inland marine theft. One can only hope that the industry as a whole starts to also put equal effort into commercial lines fraud. As one claims adjuster has told me, no one has ever done a comprehensive study on commercial lines fraud.
Yes, the times are changing and there has been advancements made in commercial lines from an efficiency and operations perspective. But there needs to be more advancements made.
These do not have to be complex. It could be as simple as being able to do more uploads of specialty commercial lines business using a common standard. It could be taking a fleet schedule and being able to convert the data so that the carrier and broker do not need to re-enter the data twice into their own systems.
Commercial lines may have been the stepchild that is now becoming part of the family and feeling wanted. Still, these lines need to be shown a bit more love.