New Technologies Introduce New Loss Opportunities
New technologies introduce new loss opportunities. These losses often mean the introduction of new exclusions to traditional insurance coverages because the premiums on those coverages do not anticipate the new technologies. But the good news is that the incredibly flexible specialty markets are developing new products to meet the coverage challenges.
Cyber liability, healthcare-related challenges, ride and home sharing, drones, 3D printing, hour and wage suits are just a few of the challenges that are being met within the specialty market. When the phone call comes asking about one of these or other coverage needs, a retail agent should feel confident in calling a specialty marketing expert so that they can work together in offering appropriate coverage.
Market Preview 2016
An increased pace of change will add responsibilities for agents and brokers
By Dave Willis
Technology, competition and regulatory issues will continue to affect the specialty lines insurance marketplace in 2016, just as they have for the past few years. Experts say the pace of change is increasing, and this will mean added responsibilities for agents and brokers looking to find and serve specialty lines customers.
"We're at a fascinating point in time," says Andrew Robinson, president of Hanover Specialty Insurance. "The world as we know it is undergoing technology advances as significant as any we've experienced to date. With these advances come new types of exposures and new types of insurance needs, making the advice of independent agents and brokers increasingly important."
He says these changes are affecting virtually all lines of insurance. "They're especially visible in product and general liability, healthcare, management and professional liability, among other specialty categories," he explains.
Adds James Forshey, vice president, field management, for Travelers Bond and Specialty Insurance: "As our own Business Risk Index shows, cyber and technology-related risks, as well as healthcare-related risks, are among businesses' top concerns. Both of these present continued opportunities for agents to demonstrate their value through counsel, value-added services and expertise."
According to Mark Kollar, chief executive officer of Edgewater Holdings, "We are going 'back to the future.' Today the products we provide in the specialty segment of the market are, by their very nature, novel, complicated and often expensive. They also are critical to our customers." Adds Robinson, "We will continue to see new risk infiltrate the world we live in."
Trends and changes
Robinson cites several noteworthy trends that will drive insurance changes over the coming years. First, he says, "Internet everywhere will make what historically were stand-alone mechanical and non-mechanical products smart. Information about performance and even the environment around the products can be monitored and shared."
Continued advances in accident avoidance and driverless features in cars and trucks also will have an effect, as will the social economy. "Ride sharing business models of Uber and Lyft and Airbnb in the hospitality sector are being applied to endless categories," he notes. "Among the more recent developments in the social economy are valet parking service, Luxe, and personal tools and equipment sharing via Toolbox."
Kollar believes the rise in the "Uber worker economy" will place more and more responsibility on service providers. "Independent contractors are not only expected to have their own equipment and maintain their own professional credentials, but they also must be prepared to handle their own insurance to protect themselves and their property," he notes.
"Soon," Kollar adds, "they could be expected to protect the clients with whom they contract their services." He believes the primary buyers of professional insurance, including cyber protection, will be individual practitioners who "will buy it on their cellphones," he notes. "Companies that don't adapt to the 'mobile economy' trend will be doing it at their own peril."
Robinson also points out that drone technology and the use of this emerging technology in a variety of commercial applications will have an effect. "3D printing, like drone technology, also is becoming more viable in commercial applications, and with that, exposures will continue to change," he notes.
Equally important, he notes, is the fact that advances in technology have made more data and analytics available to carriers and agents than ever before. "One of the biggest issues affecting the specialty market today is how to wrestle that amount of data to inform underwriting," he explains. "For example, within employment practices liability, there are now data models emerging that scrape from web message boards and other sources to assess employee satisfaction, engagement and the like."
He adds, "In the hospitality industry, where wage and hour employment practices liability claims have been particularly troublesome for the industry, this sort of insight in combination with historical performance and sound underwriting can be the difference between profitable and unprofitable underwriting."
Robinson sees this as "a significant step forward from the individual 'Google-like' searches underwriters may do. There's vast untapped potential that big data can provide for underwriting selection and pricing, but we're in the very early stages of understanding this and having economically reasonable approaches."
Industry impacts
Certain customer groups are being affected more by changes. "We're seeing structural shifts in a number of industries," Robinson explains. "In addition to livery and hospitality, for example, retail, energy and healthcare are among those facing change, with healthcare being most notable. Significant movements have been made, both in the U.S. and increasingly throughout the Western world, to get control of healthcare costs and meet the needs of the aging population."
He adds, "In the United States, the combination of legislative changes and a healthier aging population are driving dramatic cost shifts. Hospital networks are getting larger, consolidating and driving efficiency, and physician networks are doing the same. At the same time, driven by the need to deliver efficient and effective healthcare, we're seeing significant growth in the allied health segment, where specific purpose-driven facilities and services are increasing in number, but independent of the major hospital networks."
Perhaps the most obvious trend, Robinson notes, is data privacy and cyber protection. "As information systems and the world around us become information-connected, the never-ending exposure to data privacy breaches and cyber-attacks grows," he says.
Distribution issues
"We expect to continue seeing more consolidation and fewer agencies and agents than in previous years," Forshey remarks. "The remaining agencies are larger, they're more specialized, and they tend to wield greater influence with the carriers that depend on them."
At the same time, he notes, more than ever, specialty lines customers can and want to use multiple channels to connect with agents and insurers. "This is especially true when they're looking for risk management expertise and resources," he adds. Forshey believes the best carriers will offer additional tools and value-added services to agents to support their success and help them reach customers through non-traditional channels.
Kollar stresses the crucial role retail agents and brokers play. "They can't be eliminated by disruptive technology," he says. "Technological advances that smarter underwriters and brokers need will be those that function seamlessly within the independent agency system and help retail agents to properly and profitably serve their clients."
He believes retail agents would prefer to have their own application portal and not someone else's. "Those specialty lines brokers who can help agents own a start-to-finish system will prevail," Kollar asserts. He says that's the reason his firm launched a platform that electronically submits an application from any online-connected device, such as a smartphone, tablet, laptop or desktop.
He sees a trend in the industry where specialty lines underwriters and brokers are increasingly viewing account executives and the CSRs who support them as true customers. "If we empower this important link in the sales chain through user-friendly technology that transfers sophisticated information, such as specialty coverages, account executives will be better equipped to articulate a value statement for critically important but often turgid insurance products and services," he explains. "We see this channel as a 'must-know' target audience for specialty insurance underwriters in 2016."
Also, Kollar says, "Agents who can brand their own products and meet their clients on their cellphones or tablets are the ones who will win the loyalty of their clients in the coming year. Over and over, the insureds who buy our products say they buy what the agent tells them to buy. The agent who has the product knowledge, who has done the due diligence research and who can technologically pull the trigger wins the day. Carpe diem!"
Forshey points out that the specialty lines market represents an opportunity for agents to truly thrive and differentiate with something beyond price. "With these lines of business and others, specialization will matter more than ever because the products are evolving rapidly to help meet the changing marketplace," he comments. "Agents and brokers with that expertise will be well positioned for success."
He cites as an example a regional agent he recently observed who was developing a deep expertise in cyber. "Through these efforts," Forshey notes, "the producer has been able to win major Fortune 500 business over larger competitors."
He stresses the importance of solid and stable agent/insurer connections. "In the specialty arena, particularly on the surety side, we're seeing new competitors and competitors with expanding appetites," Forshey says. "Agents and brokers need to be thoughtful about whom they do business with. In the end, they need to make sure their customers' interests are matched with a surety-or any provider, for that matter-that is both proven and stable."
Robinson concurs. "It's important for agents and brokers to work with carriers that are dedicated to the segments in which they operate," he says. "Carriers that are in tune with evolving market trends and customer needs are delivering insurance products that meet these needs. They also complement them with market-leading risk management services and online capabilities, all of which help producers grow and develop their business."
The author
Dave Willis is a New Hampshire-based freelance insurance writer and regular Rough Notes magazine contributor.
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