With the U.S. Small Business Administration estimating the nation’s 30 million small business account for over 99 percent of all businesses, insurers have long known the market potential is vast. The trick has been targeting such businesses profitably, especially the smallest of the small – the 24 million nonemployer firms that represent approximately 80 percent of all businesses.
That’s now rapidly changing. Although no one is predicting human-free policy acquisition and servicing across all business sectors, early commercial leaders have hit the ground running with fully digital experiences primarily focused on small business, workers’ comp and specialty lines.
Varying in specifics, each of the current entrants has front-end simplicity and overall velocity in common. A handful of online questions replaces multi-page printed forms, with external feeds automatically supplying qualifying data based on an insured’s address, type of business and other relevant details based on the type of applicant. Quotes are typically delivered in about a minute, with bonded policies provided in several minutes, including keying in a credit card number for payment.
“The game’s on in the small business commercial market,” says Karen Pauli, a principal at Strategy Meets Action (SMA). “If you’re not already working toward digitalizing commercial lines for businesses with under 50 employees, you probably have five years until you’re so competitively disadvantaged that you’re suffering adverse selection.”
Fortunately, commercial insurers have a variety of avenues for approaching digitalization. “Some commercial innovators are leveraging core systems suites, where the vendor integrates with dozens of third party technologies to supply a customized platform,” says Pauli. “Others are partnering directly with insurtechs or starting out as an insurtech MGA and growing into a carrier.”
Suite supports ProSight Direct
Specialty insurer ProSight took the core suites route to establishing ProSight Direct. Itself a 2009 startup, ProSight undertook a core transformation in 2015 to use Duck Creek’s solution suite hosted on Amazon Web Services (AWS). It ultimately served as the foundation for ProSight Direct.
“We were already automating operations and providing our business users with access to real-time business intelligence when we realized the expectations of commercial customers were changing,” says Darryl Siry, president of ProSight Direct. “In the summer of 2017 we decided to build out our platform to offer general and professional liability insurance to solo professionals, launching ProSight Direct in April 2018.”
Using a combination of .NET, open-source Java framework AngularJS, the Python programming language and other modern technologies in its digital stack, ProSight Direct not only offers business a digital quote/bind/issuance experience but also online policy service.
“We issue quotes in 60 seconds and policies in about three minutes, depending upon how fast the user can key in their data,” says Siry. “It takes only 15 seconds to modify a policy with an endorsement and one click for either obtaining a certificate of insurance or canceling a policy. Submitting a claim is also handled via our portal. However, customers and prospects may also contact us by phone, live chat or email.”
Of the licensed carriers offering their own proprietary solution, versus partnering with an insurtech, ProSight has one of the largest national footprints, offering policies in 48 states. At launch, the platform offered insurance to DJs. Six months later, it added fitness and wellness instructors. By April of this year, it expanded to 24 additional professions with more on the horizon.
“The products we sell via ProSight Direct aren’t available through our retail channel and vice versa,” explains Siry. “We’re pursuing a new distribution strategy in a new customer segment for us, which is nonemployee businesses.”
Moving forward, Siry foresees ProSight expanding the professions it covers as well as joining the emerging ecosystem economy. “We believe the future is frictionless insurance experiences and that means having the ability to integrate with any and all places where customers engage in commerce every day,” Siry says.
What’s more, ProSight Direct is also providing R&D capabilities to its parent company. “Much of the work we’re doing with the online platform is directly applicable to our core business,” says Siry. “For example, the technology that enables self-service endorsements can be extended to agents. Giving our retail channel the ability to make minor policy modifications, without the involvement of our operations staff, has huge efficiency potential.”
Nationwide chooses collaboration
Nationwide took a hybrid build/buy route for its Commercial Digital Direct platform by collaborating with Guidewire to create Guidewire’s Digital Small Business (DSB) suite. Rolled out in September 2018 to provide businessowners policies for 18 types of firms in the state of Illinois, Commercial Digital Direct expanded to 30 business types and three more states – Arkansas, Connecticut and Indiana – in March, with more to come throughout 2019.
“We hypothesized small businesses would respond to a mobility-enabled experience that speaks their language and meets their particular coverage needs,” says Tony Fenton, Nationwide’s vice president of underwriting, product and new product development. “We’ve significantly exceeded our expectations for the platform and are confident we’ll continue moving it further into the market.”
Available to businesses with up to five employees, Commercial Digital Direct also provides a digital quote/bind/issue experience, as well as basic types of servicing, such as certificates of insurance and first notice of loss.
“By leveraging data, we pared down the industry’s traditional 150-question commercial application to about 20 questions,” says Kasey Ketcham, director of staff products for Nationwide. “Although customers can quote in two minutes, on average it’s six because we’ve embedded information and digital guidance, which we see customers consult and then modify their quotes as they move through the journey.
“Binding takes about a minute, longer if a customer needs to hunt down their credit card number, and issuance is immediate,” he adds.
Notable for a traditional insurer like Nationwide is the initiative’s rapid time to market and the carrier’s adoption of an agile operations approach. “We launched the entire initiative in eight months,” says Ketcham. “Now, we continuously monitor and modify the experience in the production environment. In the future, we’ll certainly leverage machine learning to accelerate processes.”
To help reveal where and why platform adjustments are required, Nationwide relies on an integrated journey analytics tool provided by Guidewire partner Mixpanel.
“Mixpanel enables us to quickly track performance of AB tests and gain other insights,” says Shanna Barlow, a senior consultant for digital marketing at Nationwide. “This helps us learn from our customers and iterate.”
Using the data, Nationwide fine-tunes language, re-words questions or modifies coverage offerings, which are applied in about two releases per month. “We also make immediate changes where needed, based on customer behavior,” Barlow says.
Unsurprisingly, Nationwide is considering ways to apply its acquired knowledge across other commercial lines and to take advantage of ecosystems as they develop.
“For example, we discovered that about half of our small business customers investigate and purchase insurance during off-hours,” says Fenton. “And, separately, that telephone support still remains critical. We’ll use these, and all of the lessons we’ve learned, as they’re definitely transferable to other ways we can enhance agent and direct digital experiences.”
Building it right suits Next
Next Insurance started its commercial digitalization journey in early 2016. At that time, the company debuted as an insuretech partnering with several carriers to offer general and professional liability coverages for personal trainers and photographers. During the ensuing two years Next transitioned to become an MGA selling policies in 48 states and, in May 2018, began morphing into a licensed carrier.
Today, Next is licensed as a carrier 16 states, serves more than 100 classes of businesses with under 20 employees and has added commercial auto to its line-up. Over the coming two years Next expects to expand its carrier footprint nationwide.
Next pursued a bootstrap technology approach, engineering its cloud-centric platform from the ground up. “But it wasn’t for lack of trying to adopt an off-the-shelf solution,” says Sofya Pogreb, COO for Next. “We evaluated vended products at every step, but none were built specifically for our business model. They also lacked some of the cutting-edge technologies we wanted. Plus, we were deeply concerned about depending on external resources for making changes quickly.”
The insurer’s resulting technology stack reads more like an API-enabled software developer rather than a traditional carrier. Its microservices architecture resides on Amazon Web Services (AWS) and is automated with Kubernetes for application deployment, scaling and management. The platform also leverages various AWS services, including EC2, S3, Lambda, and RDS for operations; with Athena, Redshift, and Lambda for BI and reporting. The graph database Neo4J is also used.
Overlaid on the infrastructure is a modern, open-source Java ecosystem. It includes front-end servers built using NodeJs, for native communication with AngularJs web apps, and Kotlin-enabled back end servers. Finally, Oracle’s MySQL is used for both relational and document databases.
Next also relies on AI and machine learning. “We use AI for customer acquisition and spend optimization, as well as customizing each applicant's experience on the website,” says Pogreb. We also leverage it to create a tailored, risk-based quote for every applicant.”
Combining its platform with a continuous deployment and automated testing ensures Next can make product and experience enhancements within hours. Over time, this has resulted in dramatic revenue benefits. “For example, by iterating on underwriting guidelines and application logic, as well as using risk-based pricing, we improved the ability to quote one product from under 40 percent in the past to more than 90 percent today,” Pogreb says.
Advanced automation also assures Next’s prospective customers get an immediate answer. “We decision 100 percent of our applications instantly,” says Pogreb. “For the less than 10 percent that we decline, we share the reasons so business can go elsewhere to get the coverage needed.”
On the claims side, Next is bringing processing in-house and plans to apply AI. In the meantime, its speedy platform assures “over 50% of in-house claims are decisioned within 2 business days,” Pogreb says.
Most recently, Next introduced its Live Certificate of Insurance to eliminate downloadable COI’s in favor of a shareable link that supplies immediately verifiable proof of active coverage in real time. “Although it’s not a direct revenue-enhancer, it is an example of a value-added service our customers definitely appreciate,” Pogreb says.
Carriers partner with CoverWallet
For those that prefer partnerships, insurtechs like CoverWallet are attracting commercial customers that range from individual professionals to companies with 200 employees. Also a 2016 start-up, CoverWallet now works with about a dozen brand-name carriers in the U.S. as well as insurers in Spain and Switzerland.
Essentially an online brokerage responsible for quote/bind/issuance, billing, renewals and certificates of insurance, CoverWallet handles dozens of business insurance products for hundreds of business types. Its platform also offers online advice to help businesses determine the coverages needed. Throughout the application process, prospects see a photo of an available advisor along with an invitation to call, chat or email that person.
“We serve tens of thousands of customers across three countries and five languages,” says Inaki Berenguer, CEO and co-founder of CoverWallet. “Over the next three to five years we plan to move up the market to offer coverages for businesses with 1000 employees.”
Like Next, CoverWallet’s business model and technology platform is more synonymous with a leading-edge subscription-based software firm than an insurer. “Our automation and continuous development capabilities enable us to update our platform every hour, just like Facebook or Netflix,” Berenguer says.
CoverWallet also leverages Amazon’s AWS platform and services, such as Redshift, along with a Java-based server ecosystem. It relies on heavily on the Python along with a variety of open-source tools that enable integrating effectively with carrier systems and external data sources.
“When we started, most carriers didn’t have APIs or any way to offer their products online,” says Berenguer. “Even today, many still don’t. So we worked, and continue to work, with carriers to provide the technical expertise required to offer insurance digitally.”
Comparatively, CoverWallet is more mature in its AI and analytics capabilities, enabled in no small part by accumulating hundreds of thousands quotes over time and using the resulting data to train its algorithms. Technologies for doing so include Dash for data visualization and Jupyter Notebooks for data exploration.
“To classify things like customer behaviors we use linear regression and gradient boosting machines,” Berenguer says. “We also use custom gradient algorithms for marketing optimization and the tool Scikit-learn to implement the models.”
With these technologies, along with billions of data points, CoverWallet’s predictive capabilities range from what specific types of business are most likely to require telephonic assistance to which products are more favored by users of Android versus Apple devices.
“Because we track everything, we can provide carriers with a depth and breadth of insights,” says Berenguer. “For example, by analyzing data we can see how many businesses – and what types – will purchase immediately compared to those who will request a quote and then come back a few days later when they’re ready to purchase. This type of information is extremely valuable to our carrier partners for refining their products and online approach.”
[subhead] Success lies beyond tech
Although the commercial insurance road ahead looks clearly different from the path already travelled, digitalization doesn’t mean carriers can, or should, ditch their existing distribution channels. Whether you use your direct digital platform as a springboard for extending capabilities to distributors, or adopt an insurtech’s solution, carriers are wise to continue supporting their distribution networks.
“There’s a prevailing philosophy that everybody wants to be totally digital,” says Pauli. “But, like all make-or-break business decisions, there’s always going to be a need for humans somewhere in the process. Maybe not when a business has one location, but when it grows to 10, that’s another story.”
Regardless of your platform adoption approach, experts like Pauli emphasize that digital success requires looking beyond technology to ready your business for offering an online play. “It’s critical to get to the point where your firm can adeptly apply advanced and predictive analytics, including BI and machine learning, at an enterprise level,” she says.
“To do so, you need a data strategy that addresses the ability to extract data rapidly from your core systems as well as the ability to integrate it with external sources,” Pauli continues. “This includes internal claims, financial and underwriting data as well as external data feeds. You also need the expertise and skill sets to determine what data is needed, where to get it and how best to apply it. Insurers who get this message, and start acting now, are most likely to stay relevant in a digital world.”
