BIA Countdown: 20 years of commercial lines

How has commercial lines insurance changed over the past 20 years?
Neil Clutterbuck, underwriting & technical director, Allianz Commercial: At one level, many of the features we saw 20 years ago remain true today in mid-corporate commercial lines business. What has developed, however, is the increased accessibility of data, which in turn has led to an improved understanding of the nature and complexity of risk. 

Ray Cox, Ecclesiastical group underwriting director: The UK market is now less influenced by domestic carriers that rely on their UK business result and there is less focus on the long term. Because of increasing commoditisation, there is sadly also less expertise in the market.

Joe Brown, commercial lines underwriting manager, Hiscox: It’s all about technology. Platforms have changed how underwriters and brokers work together to quote. Underwriting tools have also contributed to helping make pricing more tailored to individual risks.

Jon Hancock, managing director of UK Commercial Lines, RSA: Over the past 20 years the UK commercial insurance market has become probably the world’s most mature market based on its longevity, multiplicity of channels, and customer sophistication. And it’s the last one – sophistication of our customers – that drives all the rest of them. The expectations the modern commercial insurance buyer has of their broker and insurer are greater than ever.

Matthew Reed, managing director of commercial intermediary, Axa: There used to be a certain degree of ‘finger in the air’ when it came to assessing risks, but underwriting is much more sophisticated now, which allows better assessment of risks and provision of better products and services. There is also much more acknowledgement that brokers may know more than insurers about a particular class of business and realisation that insurers don’t always have to be the expert.

Dave Smith, managing director commercial broker business, Zurich:
Distribution has seen the greatest change – fewer brokers, more managing general agents/scheme arrangements, greater differentials in remuneration between larger and small risks, and more transparency for the customer.


How has technology affected the sale of commercial lines insurance since the BIAs started?
Clutterbuck: Technology has changed the way business is transacted. This is particularly the case in the small business sector, with the development of e-traded solutions and the prospect of using enriched data from external sources to inform the underwriter. In addition, the development of commercial direct and aggregator sites have increased the levels of price competition across the small business market.

Cox: Smaller business, in particular, is increasingly handled using IT. [In terms of other areas] there is some evidence that the opportunity offered by cyber to obtain greater insight into risks – which leads to improved risk selection and pricing – is being grasped. We’ve also seen a steady increase in ‘comparison’ type capabilities.

Brown: Smaller, less complex risks can now be sold online through broker portals, and there is much greater focus on customer segmentation. There are also more ways to buy insurance for customers.

Hancock: Speed and simplicity are key to doing better business. Over the past 20 years insurers have improved their technological footprint, but social media, tech-savvy customers and a demand for convenience mean the pace will only increase.

Reed: It certainly isn’t as automated as the personal lines market, but technology has had a huge impact on the way insurers and brokers trade and communicate.

Smith: We’ve only scratched the surface on e-trading – the industry is light years away from social trends in the application of technology, both in trading and communication.


What does it take to be successful in commercial lines insurance?Clutterbuck: A disciplined underwriting-led approach, sophisticated pricing and the effective deployment of capital are critical. All delivered via a lean and cost-effective operating model that can provide access to multiple channels of distribution. 

Cox: Technical knowledge – including risk selection expertise and pricing excellence; volume and the appropriate capacity; a consistent approach; the appropriate financial strength; and ideally one or more unique insights or unique selling points in target segments.

Brown: It’s about understanding the customer and developing products that are relevant to their sector – and allowing people to buy using the method they find easiest.

Hancock: Having real experts is a basic entry ticket to the game, and use of big data will only get more critical. To be really successful, insurers and brokers must work collaboratively on customer service. Flexibility, access to decision makers, consistent servicing and communication all need to be dialled up to reflect the value of the partnership that the insurer and broker share, and give customers what they want.

Reed: Fundamentally, it is about managing the customer’s expectations, being responsive to their needs and having good technical ability to underpin it all.

Smith: Expert customer propositions, superb underwriters, swift and trusted claims service and great support for and relationships with brokers. And keep your discipline – there is too much self delusion from insurers about how good they are in their perceived sweet spots.


How has the regulation of commercial lines insurance changed over the past 20 years?
Clutterbuck: Over the years, regulation has been shaped more by international and European standards. There is an increasingly risk-sensitive approach to the measurement and management of capital. In addition, the growing presence and involvement of the regulator has encouraged insurers to engage more from a customer-based perspective.

Cox: Regulation is now significantly more intrusive than previously – findings from the ombudsman are also presenting increasingly interesting challenges for insurers.

Brown: Regulation has undoubtedly tightened, with the ‘light touch’ approach of the pre-recession regulator firmly kicked into touch. With Solvency II on the horizon and the Financial Conduct Authority ramping up its operations, I expect regulation to only get tighter.

Hancock: There is no doubt that regulation has significantly increased in its scope as well as its pace. This is partly natural evolution, partly driven by the shocks which have hit the broader financial services sector. All of these regulatory changes have resulted in a robustness to the sector. The recent establishment of the FCA will raise standards and the reputation of the sector overall, and as an industry we have to make sure we continue to get the balance right.

Reed: It didn’t exist before and now it does. It has made a huge difference. Some people moan about it, but fundamentally what the regulator wants is to ensure good outcomes for customers – nobody can argue with that.
Smith: More intrusive and bureaucratic, but it’s not gone beyond the bounds of reason. At the end of the day it’s a hygiene factor, and if you run your business to high ethical and moral standards then regulation should hold no fears.


How have the challenges facing the commercial lines insurance industry changed?
Clutterbuck: We are operating in an increasingly uncertain and ambiguous world, where the speed and intensity of business transactions is driving change. The market faces a multitude of challenging factors, such as the uncertainty of the economy, climate change and the fast-paced technological landscape. Insurers must ensure that they constantly scan the external environment and have the capability to adapt quickly to change.

Brown: Distribution is unrecognisable. Aggregators and consolidators have
transformed how many businesses buy insurance. Also, underwriters and brokers alike need to develop new skills in developing new products such as cyber liability and, in an age of instant communication, [evolving] how they communicate and interact with their customers.

Hancock: One challenge is the reduction of commercial insurance business traded on the open market, while business traded within schemes has grown. For insurers that have successfully [created] schemes, this has been a positive trend. But we cannot get away from an increasing over-capacity in the market, with the continued low interest environment meaning profits remain really challenged – the current margins in commercial insurance aren’t sustainable.

Reed: Technology, regulation and perhaps most importantly, customers are much more demanding. Customer expectations of insurance companies was pretty low 20 years ago, but nowadays, the customer is much more educated and confident and as a consequence, much more demanding.

Smith: The generic challenge facing insurers and brokers remains the same –
differentiation in a highly competitive market. But the importance of management of capital has risen significantly.

What have been the highs of the past 20 years?
Clutterbuck: The way the insurance industry has responded to a number of natural catastrophes has demonstrated its capability to react quickly and provide crucial support for our customers in times of need.  The industry has also successfully managed its way through a financial crisis which, of course, is no mean feat. In addition, it’s very pleasing to see a greater and growing emphasis on professionalism, which I believe to be crucial to the continued success of the industry.

Cox: The continued wellbeing of the Lloyd’s market, which is a critical part of the UK’s uniqueness. Also, the property and casualty sector weathering the financial downturn.

Brown: Well, I only joined the industry in 2001, but in the past 10 years, I’ve really seen a readiness and belief in the insurance world to do the right thing on behalf of all our customers. As an industry we’re better at knowing and understanding the customer’s needs – but we could still do more.

Hancock: Significant takeovers, mergers and new entrants into the market have made UK commercial one of the most competitive and sophisticated insurance markets in the world. The continually increasing focus on customer experience – evidenced by industry initiatives such as the creation of the motor insurance database – all bode well for an industry determined to do the right thing.

Reed: How much better we are at responding to crisis events. The way we responded during the recent floods was brilliant.

Smith: Ability of the industry to continually respond to catastrophic events, increased transparency, and ever-increasing focus on tailoring solutions to customer needs.

And the lows of the past 20 years?
Clutterbuck: A low point of the past 20 years was witnessing the insolvency of some companies and the reputational impact that this had on our profession.

Cox: Insurers being seen in the same light as bankers, who themselves have taken a lot of criticism – much of which could have been shared more widely; increasing criticism of the insurance industry by the government, for example on flooding – which the industry has been highlighting as an area of major concern for more than a decade; also, reduced customer choice as more products are effectively being written by machines.

Hancock: Generally poor press for an industry I genuinely believe does a huge amount of good for our customers and for society.

Reed: The industry not standing up for itself as a profession during the banking crisis. We didn’t do a very good job of differentiating ourselves as a financial service distinct from banking.

Smith: Inability of the industry to articulate their superb response to catastrophic events, slow pace of technology change and a series of failed insurers leaving customers in the lurch.

How have the employers’ liability and public liablity markets changed over the past 20 years?
Clutterbuck: The biggest area of change in these markets was led by the Jackson Review, which benefited the industry by addressing the disproportionate costs of litigation. However, one thing which hasn’t changed over the years, is just how difficult it is to make a reasonable level of profit in casualty lines.

Cox: Fundamentally, not a lot has changed – insurers are still exposed to long-tail claims. However, riskiness has potentially increased as things have moved from the traditional processes to the increasing use of technology.

Hancock: The EL and PL markets have changed considerably with consolidation and new entrants in to the market. Also, the market response to the issue of asbestos and mesothelioma claims is ongoing and the introduction of the EL £5m limit following 11 September 2001 and the underwriting of terrorism on GL contracts was a major change for the market. The creation of the Employers’ Liability Tracing Office was also a key development.

Reed: They have changed in relation to the behaviour of accident and claims management companies. Their behaviour has completely changed the way insurers approach and manage these markets.