How insurers can win the heated competition for commercial accounts

Businessman using tape measure with risk wording for risk analysis investigate management and assessment concept. alternate text for this image — iStock.com/Dilok Klaisataporn

Emerging risks like climate losses, cyber exposures, and a softening market are testing commercial insurers’ profitability and adaptability, according to a new white paper by EY Canada.

If insurers want to gain a competitive foothold while managing these risks, they need to lean into product innovation, digitize their core systems to realize benefits for brokers and clients, and balance tech advancements with human-centric strategies.

Product innovation wanted

Heated market competition is pushing insurers to rethink risk selection, pricing models, and underwriting discipline, says Jullie Hands, partner of insurance business consulting at EY Canada.

Consequently, insurers are leaning more heavily on digital tools and alternative risk-transfer strategies to handle risk, specifically when it comes to more frequent and severe NatCat losses.

“More insurance companies are moving into that space with parametric products — specifically around Cat losses. [There is] definitely increasing area of interest on both sides of the equation — on the customer side and on the insurer side,” she says. “If I specifically think about Cat losses, more interest in parametric products is just one part of the solution.”

Product innovation also requires insurers to use sharper risk management tools, such as stricter accumulation controls and more proactive risk engineering.

“Insurers need to think about tightening that accumulation management in those high exposure areas, in high hazard zones,” Hands says. That requires “having the right data to be able to spot trends and generate insights and then respond more proactively than they might have done in the past.”

Insurers must also find ways to improve post-catastrophe response, in part by providing incentives to build back better. But historically, competition has hindered the movement towards building back better.

“The challenge for individual carriers has always been, what if they provide incentives for people to build back better, but then that risk gets shopped around, and they don’t see the benefit of it?” she says. “So it really requires a whole-industry approach to lobby for improved standards around new building [codes], but also around reinstatement post-event.”

Designing digital experiences for brokers and clients

To remain competitive and promote growth, insurers must continue to drive the evolution of distribution models and leverage advanced technology and data-driven ecosystems, says the EY Canada report.

That means traditional approaches must give way to strategies that emphasize digital integration, advisory-driven broker relationships, and customized coverage structures, the report says.

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“Brokers still play a really, really critical role, especially in the commercial distribution chain, and increasingly, in their roles as strategic advisors,” says Hands. “Insurers really need to lean into, ‘How do they simplify the work of the broker?’”

One solution is to enhance the digital workflows between brokers and insurers through application programming interfaces (APIs). And yet, only 41% of P&C insurers prioritize the digital empowerment of agents and brokers by equipping them with digital tools, EY cites.

“It’s mixed, with more progress being made on that API front on personal lines. Commercial lines are still quite lagging in terms of market movement,” she says. “With the complexity of commercial lines, product definitions, niche markets, complex customer requirements, it just makes it harder to bring that same degree of standardization through the commercial process.”

Insurers can also strengthen their broker relationships by “just making risk appetite really clear,” says Hands. “That’s something that brokers consistently struggle with — from one week to the next, not necessarily understanding what an individual carrier’s risk appetite is.”

Empowering people with advanced tools

Artificial intelligence (AI) technology is transforming the insurance business. It’s helping insurers strengthen customer engagement, while improving their competitive positions.

Using AI — in addition to other technological advances like IoT, telematics, and dynamic pricing models — insurers can optimize workflows, enhance accuracy, and deliver more personalized solutions, EY’s report says.

“Where we see more traction is in insurers adopting more AI tools to streamline their existing processes,” says Hands. “It can scrub those submissions. It can easily triage for a risk appetite, for immediate declines, for priority in terms of whether or not the insurance company is able to quote on that business.”

Using AI to automate manual data entry tasks opens underwriters up to more broker interactions, which is critical during the current soft market, says Hands.

“As we see the market softening, I think this is an interesting shift,” she says. “Coming out of COVID, we’d had a period of prolonged hard market. It was easier for commercial insurance companies to wait for business to come to them, and they could name their rates and name their price.

“Now it’s more important for underwriters to actually be back out in the market, back out face-to-face with brokers, building relationships and doing deals,” she says. “The more that we can take that administrative burden off them, the more time they actually have to be truly market-facing.”