Unveiling the future of commercial insurance: navigating risk, trusting data and empowering clients

Despite the crucial role of seamless onboarding journeys and data’s significance, brokers and insurers have expressed doubts about fully trusting their data. Furthermore, the survey revealed a prevalent belief among respondents that business owners and sole traders underestimated the value of their insurance coverage.

In this article, Pádraig Floyd delves into the evolving business risk landscape, the challenges faced in data utilisation during the onboarding process, and strategies to ensure clients comprehensively understand the risks they are insuring.

Despite leaving Covid-19 behind us, there remains a hangover in these new economic times of positive interest rates and barely dampened inflation. Geopolitical instability and supply chain issues were just some of the risks that businesses were concerned about, without worrying about how much their commercial insurance would cost.

More of the same

Research conducted on behalf of Insurance Post shows that over the next 12 months, price sensitivity will be the biggest influence in the commercial market, according to three-quarters of respondents (76.1%). However, there was a considerable distance between insurers (85%) and brokers (just under 71%).

The second influencing factor was a three-way tie – increased claims volumes; greater adoption of digital platforms by clients; and decreased underwriting appetite from insurers – with each factor registering just under 41%. Fewer than one-third believed there would be a reduced appetite for buying more products, but there was little difference between brokers and insurers in most other categories.

One interesting difference is that 6.3% of brokers thought reduced claims volumes would be important, compared with just 2.6% of insurers.

Steve Green, a chartered broker at Anthony James, says costs are the biggest feature affecting the business risk landscape: “Pretty much every area affects attitudes to buying insurance.

“But we are seeing several customers under such significant cost pressures that buying insurance is necessary for many of them. And you can see it affecting attitudes.”

This can be an unhealthy place if customers only buy because they feel they must. Indexation, used to prevent commercial customers from underinsuring their assets, may make the customer resent the insurer or broker and be less likely to renew. And yet, it’s no secret that many businesses are underinsured.

“It’s an ugly truth in our industry that there isn’t enough attention to the adequacy of sums insured,” says Green. Both brokers and insurers should pay more attention to it, but right now, 15% indexation increases to maintain coverage is painful for a business. Even if it is a logical step, brokers have difficulty selling rate increases.

“As a result, a number are choosing not to buy some cover because they simply can’t afford it,” adds Green. “One obvious area is cyber protection, which still has poor penetration.”

Aviva is just one insurer working with its broker clients to highlight that customers aren’t updating their sums insured, according to Jason Chambers, its head of digital and data solutions for commercial lines.

One-quarter (25%) of Aviva’s commercial customers have not updated their sum insured in buildings for four or more years, while almost 60% have underinsured their buildings in the last 12 months.

“We’ve addressed well more than £650m of underinsurance across buildings, machinery and plants where they’re not being updated,” says Chambers. “That was always an issue before the current inflationary challenge, but it is now an acute problem.”

Underinsured business owners have misplaced confidence that if they suffer business interruption, there is a turnkey solution to get the company up and running again. Supply chain issues make that impossible: a claim can take over 12 months.

With help from outside agencies

Brokers and insurers can use third-party data to augment what they know of existing clients or gather from new ones.

The Crif research showed that claims history remained the most important factor for underwriting business risks among 83% of respondents. After that, industry (76.1%) was the most important, although brokers considered it more important than insurers, but those positions were reversed for location (51%).

Time is the biggest challenge when onboarding a new business, according to respondents overall. However, insurers deemed this a lesser challenge than others (20.7%), whereas brokers feel they do all the heavy lifting by registering 76.3%.

 

Both groups listed sourcing relevant data to assess risk profiles and requesting extra data to meet changing regulations as their second- and third-biggest challenges, indicating considerable alignment of purpose in ensuring things got done properly when bringing a new business on stream.

Where these groups use third-party datasets, almost all (95.6%) would rely on Companies House. More than half (57.4%) used credit agencies, although there was a considerable split between insurers (69.0%) and brokers (50.0%). However, almost half of brokers relied on the Financial Conduct Authority’s (FCA) Financial Services Register as a source (47.4%), compared with just 31.0% of insurers.

 

“Data is a crucial factor for insurers and brokers when taking on a new client,” says Nick Hobbs, chief distribution officer of Allianz Commercial.

“The information a client provides to a broker forms the basis of the relationship and the beginning of their insurance experience. The data passed from broker to insurer informs the underwriting approach.”

While every business is different, there are existing risk profiles that can help establish a baseline, which has internal and external data applied to it from a multitude of sources, with a variety of enrichment options now available.

“The data in itself is typically trustworthy: it’s how it’s applied to each request for cover that is key,” adds Hobbs.

Trusting the data for new business clients

The whole point of data enrichment is to have faith in it and be confident that the underwriting will be accurate.

The Crif research showed that insurers considered catching fraud early, finding a balance with digitisation and validating companies, directors and individuals a bigger challenge than brokers did. As a proportion of their group, twice as many insurers saw creating frictionless digital journeys as challenging (27.6%), compared with brokers (13.2%). (See charts further up.)

This comes as a surprise when brokers and insurers alike place the creation of frictionless journeys at the top of their wish list for improving the process of bringing on board a new business owner.

In fact, the top half of their priorities are remarkably similar – although brokers favour streamlined automation above data pre-population more than insurers do, and vice versa.

There is greater divergence in the use of alternative data sources, such as open banking, which brokers place as least important, compared with insurers’ fifth place. Insurers also place automated know your customer (KYC) and know your business (KYB) at a lowly eighth, while brokers put it in the top half, at number four.

This must be a concern when fewer than one-third (29.4%) of the total respondents say they were ‘extremely confident’ in the data they checked when bringing on a new business client. As that means that more than two-thirds (69.1%) were ‘slightly confident’, more work needs to improve.

 

Part of the trouble is that risk changes as businesses change. A small engineering firm fabricating metal has set risk prices for decades. However, these days, a metal fabrication business is just as likely to be 3D-printing parts in a near-sterile environment as welding steel in a hot, dirty shed.

Changing technology also has an impact, but not in the way one might think.

“Press fit was a huge technological leap forward, making life easy for DIY plumbers,” says David Ovenden, chief underwriting officer at Axa.

“But for insurers, it’s been an absolute nightmare because there’s this scope for water release across our books and across residential real estate.”

Trust the process – and the data

So, how can brokers and insurers use data to create seamless onboarding and renewal journeys for their customers in the commercial insurance sector?

Some of it comes down to knowing your customer, says Aviva’s Chambers. Modern insurance is all about personalisation. That can be achieved in commercial through KYC, but where there is no existing relationship, make the data work, so you ask the right questions.

“There are opportunities for customers to share contemporary information to support a slicker onboarding process, but currently, there’s too much friction, too many questions,” says Chambers.

“Those questions aren’t always relevant to the customers, so we need to adopt ‘professional intimacy’ with the customer to demonstrate we understand how they operate, and then deliver a personalised service, only asking the relevant questions.”

Such an approach should improve confidence in the data and help the business owner trust that the broker and insurer understand their needs, and are trying to help achieve them.

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