In a past feature on the WillisWire I explored the idea of electronic trading and insurance brokers beginning to use platforms and algorithms to advise their placement activity. The pace of this development is picking up remarkably and insurance companies, buoyed by the idea of brokers using algorithms to predict likelihood of success with a carrier, are now getting in on the act too.
In personal lines, the collection and comparison of the market place is commonplace. Though the principles of these systems to the layman are founded on aggregating numerous quotes to compare the market (sounds familiar?), the underlying theme is about a complex matching of carriers’ appetites to risk, based on the individual carrier’s wants and needs. Every carrier is searching for the ‘killer question’ to distinguish a good and bad risk by studying the analytics.
New Carrier Models
Carriers are increasingly working on predictive models that will direct them to submissions that they are most likely to win, retain, and have fewer losses, based on their historical experience. This type of submission prioritization system is already in use by a handful of markets, and other systems are well on the way to being launched with competitors.
This latest development may lead to much bigger changes within the industry. Not only do insurance carriers have a broader data set than insurance brokers, but they also hold greater and longer records on loss history.
The ramifications of this could be fundamental. Potentially a broker’s role could no longer be focused on understanding carrier appetite. That is like a caddy not recommending a club—but before I comment on why, let’s look at some other dynamics in the industry.
Social media, security breaches of the ‘cloud’, criminal prosecution for use of Twitter, have made us all paranoid about ‘our data’. There is no coincidence that insurance clients are becoming just as uneasy.
Increasingly clients ask that their data not be shared widely. The knock-on effect is that brokers are struggling to be able to release data including client names broadly, but rather are being boxed into approaching specific carriers.
Brokers combat this by adding wordings to client terms of business agreements (TOBAs) to allow them to use such data, but the FCA are putting increasing pressure on brokers to actively explain TOBA’s to clients so they can make an informed decision—and no one doubts that’s the correct thing to. That said, an informed decision must be just that—informed—so a careful understanding of the potential changes in the market dynamics is key.
Future of Placement
I’d argue that the possible future of placement is a mass, but controlled, distribution of key client data to many markets. On receipt, carriers’ proprietary algorithms will evaluate such and provide an immediate ‘desire score’ back to the broker—in effect confirming their appetite for individual risks.
Brokers will need to interpret the no-doubt varied ‘desire scores’ and be able to compare and make recommendations – but those recommendations will not be about appetite, but rather about proposition and service standards.
The ramifications are clear, clients need to understand how their data is used to ensure ‘opting out’ is not requested without realizing the ramifications. These may include a serious compromise of their broker’s ability to find them the best insurance solution, let alone reducing the ability of the broker to be armed with the best analytics and data when negotiating with underwriters on their behalf.
Brokers are now faced with the challenge of joining all these themes up, and begin to educate their clients that the ‘way to market’ is fundamentally evolving and it is in their interest. A caddy not recommending a club might sound strange, but if that caddy provides more value, then it would quickly catch on.
Jonathan Prinn is the Chief Operating Officer of Willis Global Placement. Based at the Group’s London Headquarters, Jonathan is responsible for the WillPLACE and Market Match design, roll out and implementation.