How to bring specialty insurance into the data age

We are all very familiar with general insurance providers, and no doubt use them for protecting our cars, our homes, and our loved ones. However, the world of specialty insurance is not as obvious, nor as well understood. Operating since the days when ships plied their trade to faraway trade routes over incredibly risky journeys, this marketplace - which operates primarily out of Lloyd’s of London - now has over 70 syndicates, 380 brokers, and 200 individual lines of business.

Despite this broad reach, it is a heavily intermediated market. Business can only be underwritten through the network of brokers who conduct business with the syndicates on behalf of cover holders. This places great reliance on personal contacts, established relationships, and largely manual processing of highly specialised business. How can this incredibly complex marketplace be brought into the data age today and remain competitive after over 300 years of operation?

Read next: Are you ready for the technology revolution in insurance?

The landscape today

Personal Lines insurance has seen phenomenal growth in straight-through processing capabilities and algorithmic underwriting, making the most of a common set of interfaces, portals, and data aggregators such as Compare the Market & Money Supermarket in the UK. Leading incumbents have invested in Cloud-hosted technologies, such as Guidewire Cloud and Snowflake for Insurance, citing the need to speed up digital transformation programmes, reduce IT complexity & end of life costs, and improve access to advanced data analytics tools. Advances in AI image and natural language processing have allowed cloud-hosted tools that can automatically scan, digitise, and structure underwriting document metadata to reduce the human processing needed for each case.

However, commercial lines and particularly the insurers involved in highly custom, low volume specialty insurance has been slower to adopt these tools and exploit their opportunities. Chief Technology Officers’ priorities have focused on the basics like digitising pricing sheets and standardising processes with underwriting workbenches. This is due to a legacy of on-premise, isolated technologies that do not natively connect together or operate as a shared platform. Questionable data quality limits the insights that can be generated and fragmented data models are poor at providing analytical and exposure data at a portfolio level. A highly segmented market also makes it very difficult to standardise – it is simply not practical to build connections to every single broker out there or expect brokers to switch to using your in-house portals. The focus must therefore be on internal ways to drive value and create a competitive edge.

Focus on your data

While the market is not likely to adopt one comprehensive data model anytime soon, it has already adopted a clear set of messaging standards in the ACORD framework. The best way to reduce frictions in processing risks is to align internal data to this framework, reducing the amount of translation and transformation required to get data into - and out of - your organisation. By adopting a standardised approach to your data modelling, you can better serve market placement platforms with well-formed messages. At the same time, your data & analytics function can bring together rich analytics and insights across your classes of business, providing real-time visibility of portfolio exposure and creating a feedback loop for underwriting decision-making.

The imminent delivery of the first phase of Lloyd’s Blueprint 2 in 2024 will continue to push market participants in this direction, creating early adopter opportunities to lower expense ratios for those who can make the most of the new central services on offer. Combined with a standard data model across your enterprise, this also creates an opportunity to reduce reliance on process outsourcers for manual data entry and cleansing, further reducing your cost base.

Improve your change management

As is the case across all technology roll-outs, if the change doesn’t work for users, it will not be adopted or realise the value of the business case that funded it. Each new technology will impact your existing capabilities and how your people do their day jobs. It’s therefore critical that change is well communicated, users are engaged early, and resistance to change is understood and minimised. Only then can you maximise adoption amongst your users and get the most from the investment.

The best way to achieve this is to have your end users fully participate in the change programme, which will improve business buy-in and support from senior leadership. Initiatives like introducing product owners from the business to own technology roadmaps, incorporating business acceptance testing into technical test phases, and training change champions to evangelise about new initiatives all help to improve your chances of success. Critically, it also shortens your feedback loop between users and systems. The best way to make sure that these approaches aren’t forgotten during big transformations is to have a dedicated role in your operating model looking after business change management attached to your change portfolio and responsible for running this alongside the technical efforts.

Embedding these roles closer to the front-line business users helps to ensure that core business functions remain custodians of the technology vision. Too often is technological innovation driven from the CIO function, meaning it does not have enough business ownership. The division is an artificial one and leading market participants embed technical expertise directly in their business functions to drive change together.

Treat transformation as a portfolio

The current economic climate is a poor one for investing in your business – high inflation, unfavourable interest rates, and an uncertain geo-political outlook all create a sense that spare resources must be focused on shoring up the core business or reducing discretionary spend. Even in this scenario, it is important to get more from less and plan out all change initiatives together as part of one unified portfolio.

This should be underpinned by a robust capability map and business architecture, with all programmes clear on their plans, dependencies, and wider impacts. Too much change will disrupt your core business, distracting your users from doing their day jobs. Focus your investment on generating value and clear, measurable outcomes. Track those outcomes with well-defined objectives and performance metrics, prioritising change holistically against a common backlog of work.

By identifying a couple of key strategic drivers, you will have a powerfully simple framework for assessing the value of proposed change. This can be framed as a set of contrasting priorities:

• Do you invest in top line growth, or lower your expense ratio?
• Do you improve internal productivity or increase automation in your sales channels?
• Do you bring new products to market, or improve your algorithmic assessment of existing classes of business?

Understanding the trade-offs in these choices will allow you to target your innovation to address a specific business need, avoiding the trap of investing in innovation just for the sake of it.

Modernise your core IT

Fast adoption of the latest innovations in cloud-hosted solutions to support new product lines and services requires a big investment in your IT fundamentals. It is very easy to neglect the basics as it is much harder to justify the direct business benefit in expense ratio improvements or gross weighted premium growth. However, these enabling services are critical to have in place before you can invest in market-leading technologies. This might be having a clear network strategy for secure connectivity between your global offices, enterprise-grade integration middleware to remove point connections between old systems, or an enterprise architecture built around microservices that can serve discreet pieces of data or premium calculation as part of user workflows – without needing multiple systems of data input. Creating a cohesive ecosystem built around common principles, functioning more as a shared platform than just discreet applications, will compound the value from each new investment you make. Extra technologies will not just bring their own benefits but will improve the functionality of existing systems too. Achieving this requires a technology team that works hand-in-glove with business leaders, setting out a clear technology strategy that can adapt to, and even anticipate, the needs of business functions. This way, those core IT pre-requisites will already be in place to enable market-leading tools and technologies of the future.

Closing thoughts

Specialty insurance is a rich space for innovation for companies well positioned to take advantage of it, by investing in new ideas and bringing them to market at speed . By laying the foundations of a data-driven organisation with clear and centralised data management, a strong change management process, and a unified portfolio of transformation serving business outcomes, companies will be well equipped to invest in new technology trends and gain a competitive edge. Whether it is the latest advances in AI for claims assessment and document processing, or taking full advantage of central market initiatives like Blueprint 2, it is much easier to implement these changes with a strong foundation already in place.

How we can help

Credera is a global boutique consultancy, with deep technical expertise in Data, Cloud, and Software Engineering. We have over 30 years’ experience delivering complex technology transformation programmes with ambitious organisations across the insurance industry. We build and deliver change roadmaps that embrace the three areas we have highlighted above, helping our clients to understand where they should be investing given their current position. To learn more, please get in touch with a member of our team.

If you wish to find out more about emerging technology trends in specialty insurance, explore the findings of our latest ‘Technology Trends and Innovation Survey 2023’, conducted in partnership with the International Underwriting Association of London (IUA).