Keeping Pace with Shifting Markets

Most of the commercial insurance markets are in transition, so it’s not one simple story across any of the lines. For example, in property right now we’re seeing softening, but rates are still at a pretty solid level. A lot of carriers are able to give a little bit back and still be comfortable with the absolute level of pricing.

Casualty hasn’t had really significant rate increases over the past couple of years. They’ve been steadier—upper single digits— but it seems like each quarter, different carriers are coming out to address prior-year reserves, meaning the reserves established to cover claims losses that are incurred but not settled. And a lot of LPT deals are getting done, meaning loss portfolio transfer, where carriers are looking to lock in reserves at a certain level, removing uncertainty with the help of a reinsurer.

So there’s a fair amount of continued pressure on casualty. The industry is also facing heightened legal system abuse giving rise to big nuclear verdicts, as well as increased costs to adjust and settle claims, both of which are leading to a rapidly changing pricing environment.

To deal with all that, carriers need to have really tight feedback loops of the information within their firm. They also need to prioritize investments in expertise, technology, and teams that match up with the requirements of partners and insureds.

Data strategy covers both the information you want to put in front of decision-makers of any kind, and how you are able to do that. Step one is identifying the data that carriers already have or that they create through their work. This includes having a good sense of where all that data sits across the value chain and being able to look at that data in a cohesive way.

The next step is determining how this internal data can be best supplemented by outside information. This might include third-party data that is relevant to a specific account or risk, or data about what is happening in the macro environment.

Insurance tends to have a lot of homegrown systems, from agency management to billing to policy administration, claims and actuarial. APIs, application programming interfaces, are something you hear a lot about in this context. APIs don’t always have to be about pulling data from an external source. We can also use them internally to help some of our legacy systems talk and share information with each other, as opposed to requiring heavier integrations from a technology standpoint.

If you’re going to be using outside data, particularly if you want to use it to inform something like product pricing or reserve setting, you also have to factor in the needs of your unique book of business. For example, Markel is a specialty insurer. We’re in specific niches that are unique for a reason, and we handle upwards of 130 of those niches in Markel Specialty.

While our book of business is not going to perform exactly like the industry as a whole, there may be data from the industry as a whole that we can use to enhance our thought process.

Outside data is also often needed when a carrier enters greenfield businesses, and so doesn’t have multiple years of established reserves to provide insights into how losses typically would develop. By using APIs and other digital tools to integrate data from carriers, brokers, insureds, and other outside sources, carriers can obtain a more complete picture of risk profiles and deliver a smoother process for the customer.

In general, it’s smart to move beyond just rate change and how it compares to expected loss cost trend, and to focus instead on the absolute level of return on capital at the account level. If you know that in comparison to what the market is yielding, you can orient your portfolio to maximize your overall return on capital while differentiating each risk on its own and in contribution to the overall portfolio. This supports a more differentiated approach to each client and moves away from the more historical thought process of always pushing for rate increases alone.

The next level of sophistication is arming the underwriter with the information needed to wield more of a scalpel, as opposed to a blunt instrument. Not feeling like, “OK, I need to get 10% across the whole book, so that means I need to ask for 10% on every account.” That’s not how it should work.

There are some accounts where carriers might want to give some rate back, because it’s a very well-priced deal and they want to keep that business, even if it means they’re not getting the type of rate they want in all instances. As long as they have a good sense of where their absolute pricing is, it gives them the confidence that that is the right decision.

For Markel, if we believe there is a new, emerging need out there—anything from cyber to what is happening in the renewable energy space around grid instability created by the volatility from solar and wind—we’re looking to determine whether insurance products could be utilized to provide stability and absorb volatility. That’s what insurance products are for.

We then need to determine whether we can find a way to absorb that risk from customers while the economics still work, including whether we can get an appropriate return on our capital over long periods of time. Also, whether the economics are sellable, and whether the offering is perceived as a value-add by that customer.

Those are some of the considerations we use to determine where our product development should focus, as opposed to waiting around to see if submissions show up.

Brokers and carriers need to focus together on value-added services that make the insurance product itself much stickier.

Insurance is just one of the factors in the relationship between a client executive, a risk manager, and trading partners. It works best for everyone involved if carriers are providing value-added services, such as engineering or loss control, and to do that they need to invest in the right kind of people.

At Markel, we write insurance for everything from horse farms to D&O for some of the biggest Fortune 100 companies in the world—very different types of business. The person running a horse farm is looking for a different type of advice and support than a very, very large corporation. And we’ve invested in providing those different kinds of advice and support, in collaboration with our trading partners.

It’s critical that Markel has specialists on the underwriting side, but it’s equally important that we also have claims specialists who understand the niches where we underwrite. I mentioned horse farms as an example: when a horse breaks its leg, and you know it needs to be put down, this is not really something that can wait three or four days. That claim process is much different than resolving a professional liability claim that might involve litigation. So we believe in investing in different claims service models based on the different customers we support.

One constant is how quickly you can get to claims resolution. We’re using some tools like AI, and truthfully, just good human judgment on claims that come in, particularly in first-party lines, where it’s very easy to validate. Another factor is how quickly we can get claims paid: for example, sending a check in two weeks, versus using Venmo right now.

A claims experience done well creates new advocates for everybody involved in that transaction—hopefully for us as the carrier, but also for any trading partners, because they were involved in selecting us as the carrier where they placed their customer. We’re a people-driven business, and having a strong claims capability is good for us, because that’s what we exist to provide: good service and speedy resolution of something that’s happened to one of our customers.