Information contained in this article was originally presented by Eric Weisburg, VP of Research and Consulting at Aite-Novarica, as part of a keynote address to Vertafore customers and industry thought leaders. Eric has over 20 years of insurance experience in industry, consulting, and software.
There are three main ways to make a profit in the insurance industry, but to succeed at any of them MGAs need effective technology. All business capabilities rest on core systems of processing and storage, digital systems of communication and engagement, and data systems of analysis and decision-making. With these systems operating efficiently, insurers have the potential to profit in each of the three ways.
Sell more with faster, simpler, smarter MGA technology
Selling more is heavily dependent on speed to market for new or modified offerings, and smaller insurers tend to have an advantage of greater speed. On average, larger insurers are 20% slower at launching new products and 10% slower at releasing modifications. Additionally, newer technology correlates with faster product modification speeds in most lines.
Another key component to selling more is a focus on optimized distribution systems because the ease of an insurer’s overall quoting and issuing process significantly impacts their agency partners’ sales success. By now, close to 90% of property and casualty insurers have mature or partial capabilities when it comes to pre-fill data or performance reporting, but fewer than half report the same proficiency when it comes to rating their partner network optimization or rules-based offer guidance.
In today’s distribution ecosystem, there are many points of connection between agents and underwriters. Comparative raters, appetite transparency, and submission streamlining all make it faster and simpler for agencies to connect with MGAs and sell more, and data from each of these interactions can power future analytics, allowing insurers to serve new market segments that were previously unreachable, unprofitable, or unknown. Looking at small commercial lines, it’s significant to note that 66% of MGA per-account premiums come from small to mid-market accounts under $20K. Coupled with the forecast that direct online small commercial sales should double over the next three years—from almost $6B in 2022 to $12B in 2025—growth in these lines illustrates the opportunity in using technology to bring in new business with analytics-based targeting.
Manage risk more effectively with better underwriting processes and decision making
Improved digital channels and workflow, smarter core systems, and enhanced artificial intelligence (AI) and analytics are driving new trends in underwriting. For example, the prevalence of predictive modeling is increasing across the industry, and it’s not limited just to insurers. Even at midsize MGAs, natural language processing, machine learning, and other intelligent tools are helping insurers to better manage their risks by transforming underwriting processes and making better, smarter decisions.
Another common technique that helps some insurers better manage risk is straight-through processing, which allows human underwriters to focus more time on complex risks and producer relationships. While certain insurance can never be fully automated, for simpler producer and program-business-style targeted offerings it’s beneficial to streamline as much as possible, wherever possible. In personal lines and small commercial, it’s possible to aim for 100% straight-through processing rates.
With automated task creation, assignment, and escalation, it’s possible to deliver better outcomes and reduce turnaround times. Any tasks that an MGA can automate will ultimately benefit their operations, their partners, and their policyholders.
It’s also important to look at data and analytics for further automation opportunities. By utilizing AI, MGAs can gather, process, and analyze large sets of data—including publicly available datasets from third parties—to speed up processes and enable automated decision-making. Among midsize and large property and casualty insurers, it’s essentially table stakes to rely on integrated data and analytics. That’s why competitive MGAs are embracing a data lakehouse paradigm to evolve their data practices.
First came data warehouses, then came data lakes. Today, the data lakehouse combines the data structures and management features of the data warehouse with the low-cost storage used for data lakes. It represents a way for MGAs to get the most out of disparate data systems when accessibility and actionability matter most.
Reduce operating costs with increased digital capabilities
The third way to make a profit emphasizes the importance of efficient operations to maximize productivity. One broad approach to lowering operating costs is digital self-service, which varies across users and lines of business. Self-service capabilities depend on the extent to which each insurer has prioritized them for their agents and policyholders, but as demand among customers and intermediaries grows it’s likely the overall trend toward increased digitization will continue. Leading the way are digital premium payments, which might not yet be universal, but have been widely adopted for their convenience.
MGAs that leverage their core, digital, and data systems are well positioned to experience growth and profitability enabled by their technology initiatives. Faster product innovation, increased connectivity enabled by technology partners, and better underwriting processes all empower MGAs to get the most out of their business operations.