Enhanced Trading: Unlocking Distribution Efficiency and Placement Effectiveness

May 2, 2023

Enhanced Trading: Unlocking Distribution Efficiency and Placement Effectiveness

We are well into the hard insurance cycle with rising insurance premiums, tightening of underwriting criteria and a generally more challenging environment for customers to find adequate coverage. The last time this cycle was as pronounced was in the early 2000s  largely in response to factors such as poor investment returns, rising claims costs, and changes in regulation. While difficult to predict the duration of market cycles, we evaluate opportunities for participants to emerge from this cycle with businesses that are more resilient and poised for sustainable growth.

The Importance of Risk Management and Accessibility in a Hard Market

Striking a balance between risk management and accessibility during a hard market is crucial for insurers and MGAs to ensure long-term growth and sustainability. While common practice in cyber insurance, other products need to catch up in terms of loss prevention programs, safety training and risk engineering. Innovative product providers not only provide insurance policies, but also actionable advice on measures that companies can implement to ensure they are adequately covered. We’ve witnessed approaches by innovative MGAs in products like commercial combined policies where actionable advice is provided by underwriters to assist the broker in ensuring that their client is adequately covered by implementing actionable steps at their premises.

The by-product of adequate risk management programs are the long term reduction in claims’ frequency and severity, thereby making coverage more accessible and affordable. Strategic collaborations with insuretechs and other specialised risk management companies can provide insurers and MGAs with access to innovative tools and insights to help with these goals.

Underwriters play a central role during this time and taking an adaptable stance to underwriting is important. While adjusting criteria is necessary in an ever-evolving market; taking a flexible underwriting approach in the evaluation of individual risk profiles is required to provide brokers and ultimately policyholders with their needs. This customer-centric approach will be rewarded in the long run as it promotes loyalty by both brokers and policyholders.

The Shift in Distribution Channels and Broker Placement Models

As cycles change, so do shifts in distribution channels. Alternative distribution adoption is on the rise as new products emerge and technologies evolve to cater for digitalisation of historically manually underwritten products. In addition to increased digitalisation of distribution to brokers, many insurers are pushing for direct-to-consumer models, particularly in personal lines and micro SME insurance spaces. Brokers as well are adapting in enhancing their own placement models, which alleviates the pressure on operational time constraints and allows for the increase in scope of their advisory role. Challenging times such as these require participants across the value chain to implement innovative solutions to counter against rising expense ratios and underwriting performance. The result is increased collaboration between underwriters and brokers to continue providing policyholders with their needs while managing internal goals and priorities.

Distribution Efficiency and Omni-channel Strategies

With distribution maximisation (growing market share at the expense of lower profit margins) long gone by now, strategic imperatives have shifted towards distribution efficiency. This involves optimising the entire process from product development, channel diversification to marketing and automation.

Insurers and MGAs are increasingly adopting innovative channels to improve distribution efficiency while not compromising on the end customer experience. In recent conversations, we’ve witnessed strides being taken on products development to cater for new market segments and improve the operational aspects in front-end distribution, underwriting tools, policy administration and claims management. API-ready businesses are also growing at a rate more than ever given the adoption of modern policy administration systems.

Businesses that have and are implementing the necessary steps will emerge more resilient in the long run with more automated workflows, lower operational costs and more sustainable distribution models.

A Delicate Balance: Effective Underwriting in a Digital World

In today’s ever-evolving landscape, the industry finds itself grappling with an intriguing irony: brokers now find themselves more reliant on underwriters for guidance, particularly when navigating the placement of non-vanilla type risks. These increasingly prevalent risks demand a higher degree of expertise and human attention. Yet, at the same time, insurers and MGAs are increasingly focused on achieving distribution efficiency, driving the desire to reduce manual intervention and streamline operations.

This finds underwriters caught in the delicate balance between providing the personalised attention brokers require while striving to maintain their goals. The industry is adapting to this new reality by leveraging tools and innovative technologies and processes to allow underwriters to maintain their high standards of service without sacrificing the pursuit of efficiency.

We’ve witnessed a remarkable transformation as underwriters collaborate with digital platforms and harness the power of technology to navigate this challenging environment. While complete automation of underwriting for complex risks is not feasible at the moment, digital platforms have proven invaluable in improving the underwriting process by eliminating manual processes and workflows. By allowing technology to shoulder the burden of tasks such as data collection, organisation, documentation and overall automation, underwriters can focus on the critical aspects of risk evaluation. The blending of human expertise and technological advancements allows for a balancing of personalised attention alongside achieving distribution efficiency.

A Broker’s Perspective: Navigating a Constrained Underwriting Environment and Enhancing Placement Effectiveness

On the other spectrum in the insurance value chain, brokers are improving their placement effectiveness and contributing to their partners’ goals by embracing several interconnected strategies. Further deepening their specialisation in certain markets and lines of business allows brokers to gain a more profound understanding of their clients’ risks and identifying the most appropriate coverage options. Utilising certain tools can help brokers to access invaluable insights into their client risk profiles, which inform their placement decisions.

Leaning on a more advisory role allows brokers to provide clients with guidance on risk management strategies, loss prevention programs and ultimately help them secure coverage in difficult market conditions. Leveraging collaboration and digital platforms to streamline communication and the placement process improves decision making and information exchange. This not only strengthens customer relationships, but also grants broader access to new markets.

This is particularly relevant in an environment where brokers are confronted with the realities of a constrained underwriting environment, with challenges such as the limited availability of coverage for certain trades like scaffolders. Further to the above, brokers are currently diversifying insurer partnerships and accessing the expertise of MGAs to assist their clients in obtaining the protection they need. Demand for access to specialty insurers is on the rise and one we explore further below.

The Rise of Retail Distribution for Wholesale and Specialty (Re)Insurers

As the insurance market evolves, the demand for specialty products has grown substantially. This change prompted wholesale and specialty (re)insurers, who have historically traded mostly on a wholesale basis, to embark on strategic initiatives to target and access retail brokers for direct distribution.

By directly partnering with retail brokers, these insurers can cut high wholesale expenses, bolster efficiency, and offer more competitive pricing with better coverage. This closer connection to the policyholder allows insurers to gain an even deeper understanding of their clients’ needs, to refine their underwriting models and enrich the overall customer experience.

The path to successful retail distribution is not without its challenges. A talent shortage and the potential for much increased internal operational costs dictate a targeted go-to-market strategy. Innovative approaches must be considered, whether through harnessing the power of digital platforms, nurturing strategic partnerships and / or adopting internal agile business models to navigate these hurdles.

By overcoming these obstacles and effectively targeting retail brokers, wholesale and specialty insurers can unlock significant opportunities for growth that have the ability to completely transform the market landscape. This shift has the potential to significantly benefit clients and ultimately steer the industry towards a more dynamic and customer-centric future.

Navigating the Cycle: from Risk management, Distribution efficiency, Underwriting Transformation to New Market Entrants

In conclusion, the industry must address the following critical aspects to navigate the cycle effectively:

• Risk management and coverage accessibility: Enhance loss prevention programs, safety training, and risk engineering to strike a balance between risk management and accessibility, ultimately making coverage more affordable and available.

• Impact on distribution and brokers’ role: Adapt to changes in distribution channels by adopting alternative distribution methods, enhancing placement models, and increasing the scope of brokers’ advisory role.

• Distribution efficiency and omni-channel strategies: Shift towards distribution efficiency through optimising product development, channel diversification, marketing, and automation.

• Underwriting in an online world: Balance personalised attention with the pursuit of efficiency by leveraging tools, innovative technologies, and processes that streamline the underwriting process.

• Brokers’ vital role in placement effectiveness: Embrace interconnected strategies, deepen specialisation in certain markets, and leverage collaboration and digital platforms to improve placement effectiveness and navigate a constrained underwriting environment.

• Wholesale and specialty insurers strategic distribution goals: Overcome operational constraints to effectively target retail brokers by harnessing digital platforms, nurturing strategic partnerships, and adopting agile business models.

Upsurance is the first insurance marketplace that leverages the most modern technology stack to effortlessly place and manage commercial insurance. Join the industry-leading players using Upsurance to transact insurance digitally today.

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