E-trading is now commonplace in commercial SME insurance, however, the challenge of referrals, ambiguity around eligibility and fraud remain, which can stall progress in automating the application and quotation process further. At the heart of the issue is that it has proved difficult for the commercial insurance market to adapt to using data enrichment at the same speed as personal lines.
The limited use of automation in the commercial market is evident in a LexisNexis Risk Solutions UK study into commercial property providers which found that close to half could lose market share if they fail to adopt a greater level of automation across their businesses. Just 23% of providers confirmed their underwriting and pricing processes are all or mostly digitised, whilst 49% said they are all or mostly manual, leaving 28% using a mix between the two.
Over the last decade, the personal lines market has undertaken a data enrichment journey, particularly at point of quote, with datasets like fraud and identity, No Claims Discount (NCD), vehicle, motor policy history and residential property data available to give a more holistic view of risk.
Until recently there has been a big difference between the availability of data for personal lines versus that for commercial, added to the challenge that commercial risks often come with more complex data requirements.
The other major consideration in the commercial insurance market is the ‘duty of fair presentation,’ which obliges the insured when entering an insurance contract to disclose to the insurance provider all material facts and not make material misrepresentations. This means that performing due diligence checks up front and having the correct tools to conduct searches is crucial.
Unfortunately, this can be easier said than done due to the complex nature of verifying key information about commercial entities. Businesses can range from sole traders, partnerships, limited companies and non-profit organisations, which can be difficult to pinpoint. Then comes the address, what type of property is the business run from? Is the policy for a portfolio of residential properties?
An insurance policy needs to be set up in the correct name, from both a legal and regulatory perspective, but it’s also essential that the data returned is specific only to that business. There are hundreds of commercial insurance products, and historically the data capture in the market has not been to a high enough quality to support the level of data enrichment the market needs.
The solution to the problem focuses on the precise business and the person that operates it. Business data can confirm information like, how long it’s been trading and what its financial position is. Once these facts are established the data can be applied at the pre-quote stage.
This verification also means that bespoke risk management per risk becomes possible. In essence, verifying the risk more fully up-front means insurance providers can get on the front foot to help mitigate some of the risks their customer could face.
Office of National Statistics data shows an unprecedented rise in new company registrations in Q1 2021 versus Q1 2020 continuing a trend seen in 2020 – ‘the year of the start-up’. While Government support has helped many firms through the worst, the pandemic created a big strain on many high street and hospitality businesses, leading the Government to pledge to build back the high-street with £10billion worth of funding. These dynamics create a mix of risk and opportunity for the market, underlining the need for commercial insurance providers to leverage data to speed the quoting and on-boarding process, free up underwriters’ time to focus on more complex risks and deliver right first-time quotes to customers.
As the commercial insurance market shifts more towards automation, some of the barriers of ambiguity around eligibility, referrals and fraud can start to be broken down. With access to data enrichment opening up to the commercial insurance market and the quality of validation information improving, more quotes can be traded straight through leading to more accurate pricing and improved efficiency for insurance providers and their customers.
By Martyn Mathews, senior director of commercial and personal lines, LexisNexis Risk Solutions