In many cases, PEO’s adopt the same risk position as a small insurance company with retentions in the seven figures. Understanding how to properly value and price business is paramount, while understanding trends through key performance indicators after the business is written fundamental to a profitable portfolio of workers’ compensation business. The smart will be faster then the big in the new world of underwriting decisions by empirical evidence versus instinct and intuition.
From our friends at the Insurance Journal –
How Predictive Analytics Boost Commercial Insurance Profits, Smooth Cycles
The increasing use of predictive analytics among commercial lines insurers has helped improve their bottom lines and led to more balanced underwriting cycles, A.M. Best says in a report.
“Underwriting cycles have been impacted by the quicker determination of underwriting, pricing and claims trends and the ability of companies to react to them through the depth of analysis made possible by the integration of data and predictive analytics in insurance,” the report said. “The evolution of more sophisticated underwriting tools, along with improved company risk management capabilities and greater scrutiny by regulators, has paired with the proliferation of enhanced data and predictive analytics to dampen the highs and lows of underwriting cycles.”
“Enhanced enterprise risk management processes have helped companies improve decision-making through different disciplines,” A.M. Best said.
As an example A.M. Best cites how this helped carriers process record commercial lines catastrophe losses in 2017.
“Despite catastrophe losses within the commercial lines segment nearly doubling in 2017 from multiple events, the losses were most often within stated risk tolerances and fell within company catastrophe retentions,” A.M. Best noted. The reason: advances among commercial lines insurers’ enterprise risk management programs. A greater use of data and analytics has also enabled better underwriting choices.
“Greater utilization of data and analytics has led to better insights into risk selection – when and where to grow or to shrink – and the establishment of technical prices while expanding into other areas, such as claims management,” A.M. Best said. The ratings agency added that these actions, in its view, have helped dampen “the effects of the commercial lines underwriting cycle,” benefiting carriers that used data and analytics to help them respond better to market changes.
Quick vs. Slow Adapters
Successful carriers use the new data/analytics/enterprise risk management systems to gain better insights and make quicker decisions than their rivals, according to A.M. Best, which added that this trend should spread over time as the use of these newer technologies grows.
A.M. Best also warns, however, that carriers that don’t properly use these technology tools to adapt to market changes will suffer.
“Those that do not improve their responsiveness risk being adversely selected against in their chosen markets,” A.M. Best said. “Simply investing in technology and analytics will not ensure success for commercial lines insurers. Those companies best positioned to outperform competitors in the future are those cognizant of the limitations of data and which acknowledge that predictive models are just tools. More data does not directly correlate to better insights.”
A.M. Best’s full report is “Predictive Analytics Aids Performance, Balances Underwriting Cycles for Commercial Lines Insurers.
Source: A.M. Best
Join the Conversation on Linkedin | About PEO Compass
The PEO Compass is a friendly convergence of professionals and friends in the PEO industry sharing insights, ideas and intelligence to make us all better.
All writers specialize in Professional Employer Organization (PEO) business services such as Workers Compensation, Mergers & Acquisitions, Data Management, Employment Practices Liability (EPLI), Cyber Liability Insurance, Health Insurance, Occupational Accident Insurance, Business Insurance, Client Company, Casualty Insurance, Disability Insurance and more.
To contact a PEO expert, please visit Libertate Insurance Services, LLC and RiskMD.
