Paradigm shift: London’s new digital value propositions

Blog -- 17 May 2022

Author: Marketing

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Ecosystems are ushering in a new era in London’s modernisation, and brokers, carriers and MGAs must ensure their operating models are fit for purpose.

London is still a long way from where it needs to be in its modernisation drive, but progress is certainly accelerating, with data standardisation, automation, real-time data and data augmentation now touching virtually every part of the insurance process.

In the latest wave of innovation, ecosystems like Sequel Hub and others are moving the market beyond the debilitating ‘portal wars’ that require brokers and carriers to manage and maintain dozens of API connections, logins and platforms to do business. By enabling multiple parties to connect and communicate in a common digital language, ecosystems like the Hub will over time create a more manageable environment, enabling many brokers to connect seamlessly with many capacity providers in a single workflow.  

Everyone stands to benefit as fast, consistent, cost-effective, real-time data exchange provides the foundation – or springboard – from which to innovate, compete and differentiate. However, in this new paradigm, all players must also revisit their value propositions and re-evaluate what their optimal operating model looks like.

Brokers, for example, must reiterate their importance in the value chain as the drive for cost-efficiency threatens disintermediation. Underwriters and MGAs must showcase their expertise and judgement in a world of increasing automation. And all of them must prove they can transact with each other more efficiently and effectively than in the past.

The role of the intermediary

The biggest advantage of these new ecosystems for brokers is the ability to access products faster, more efficiently and from a wider array of partners. Common question sets combined with carrier algorithms enable a broker to enter a single submission or piece of information and receive a range of comparable quotes from a variety of carriers through a single interface rather than logging onto dozens of insurer portals, each with their own unique question sets and data formats.

This not only saves time and money at the broker end, but also improves the speed at which the broker can deliver quality quotes to clients. Brokers must demonstrate their value where it matters most – reacting to product needs quickly and placing difficult risks efficiently on behalf of the client while bringing distribution and deal flow to carriers. The broker still must define its products, the client’s risk appetite, the rules for distribution and everything in between. What they no longer have to do is waste time asking carriers “how does your API work and what data do you need from us?”.

Next Gen underwriting

Today’s big challenge for insurers is to deploy underwriting resources only where needed to avoid wasting time writing business that could have been written more efficiently. Rather than manually considering thousands of submissions, automated triage frees up intellectual capital to focus on the decisions that matter, driving down expenses and improving profitability. We recently saw a book of business that was being referred 92% of the time, but 99% of those referrals were written. Just think of the amount of time those underwriters wasted saying “yes” to business that could have been approved automatically.

Ecosystems like the Hub enable straight through processing and automation by ensuring consistent data flows between the carrier and its distribution partners. This enables the carrier to deploy multiple underwriting approaches in a single place, including fully automated underwriting; scale up new and existing lines of business quickly; and draw on multiple sources of real-time data to enhance decision-making.

Algorithms provided to the Hub by carriers reject or refer business that falls outside their rules and risk appetites, meaning human underwriters only see business that is worth considering. Submissions referred by an algorithm can also be passed to a negotiated distribution platform like Whitespace to close the business.

Underwriters are naturally wary of the algorithms taking over and automating too much – they want to keep their jobs, after all. Some people also believe an algorithmic approach that enables fast quote comparisons will create a ‘race to the bottom’ in pricing. The reality is brokers have been performing a price comparison role for hundreds of years. Ecosystems like the Hub simply accelerate the process and bring more parties into the mix.

Certain lines of business and ‘add-on’ coverages are more commoditised and naturally lend themselves to price comparison while for more complex specialty risks, price is never the only factor. Either way, as brokers become more digital and embrace the ecosystem approach, carriers must be API-ready (not just say they are) and participate in these environments or they will miss out on deal flow.

We will also see more ‘coopetition’ between insurers. We have already seen this with the Sequel6, in which six leading London underwriters came together with Verisk and ACORD to develop the SURTS data standard and a standardised question set for war and terror business as well as other initiatives to drive efficiency in the market.

This collaboration led five of them to team up to offer war and terror capacity. They compete for the business as hard as ever, but regardless of who wins and leads, the other four will take a percentage of that risk provided it meets certain criteria. We will see more of this because brokers want to assemble capacity and place high quality products quickly – and markets that create an environment in which capacity can be aggregated from a single submission will be highly attractive.

Building trust

With often limited human resources, MGAs also stand to benefit from real-time data exchange and automation as their highly skilled underwriters are freed up to focus on doing what matters most – sourcing opportunities, writing profitable business and differentiating from the crowd.

The biggest change to the MGA’s operating model is the removal of manual bordereau, which can instead be generated automatically - it quotes, rates and binds through the Hub. This enables the MGA to write with confidence and report in real-time back to the capacity provider rather than on a lag of several weeks. With binding authority rules delivered automatically to MGAs through the Hub, this gives the carrier real-time visibility and control over how its capacity is being deployed.

Ultimately, MGAs, carriers and brokers are all becoming more digital. The market is now agreed that API connections are the way forward and most players are invested in making modernisation initiatives succeed. Ecosystems will be at the heart of that process in the years to come, and those who define and adapt their API strategy to participate most readily will reap the rewards.

Author: Paul Latarche, Chief Commercial Officer, UK & EMEA at Verisk Specialty Business Solutions
Published: Insurance Day 10 May 2022