It’s Time for the Commercial Property Insurance Industry to Adopt Tech Efficiencies

Buyers of commercial property insurance are facing many challenges. Rates are rising, capacity is becoming scarce (particularly in catastrophe exposed zones), and large programs, often involving dozens of insurers, are proving harder to syndicate. Today, brokers and their clients are looking for new solutions, many of which have been moving to the forefront over the last several years.

Brokers in particular are expanding their toolkits. In addition to traditional roles such as placing insurance, they are helping their clients to analyze and take control of their total cost of risk, to optimize their buying strategies and to proactively manage their risks. Whether through resiliency investments or the establishment of captives, property owners are leveraging risk retention and mitigation to complement, or even supersede, traditional insurance practices.

Additionally, new methods to structure, capitalize and transfer risk have emerged. Catastrophe bonds, initially designed to cover re/insurers, are increasingly being adopted by large corporations to directly hedge their risks to supplement and/or replace sources of traditional insurance coverage. Then there are parametric policies — a type of insurance contract insuring policyholders against the occurrence of a specific event. These are outgrowths of the industry finding ways to sustain itself through a difficult period, moving fast and making changes for a dynamic risk environment.

But the industry can’t let up now; commercial property markets continue to harden and higher frequencies of severe weather events (such as hurricanes, flooding, severe convective storms, and wildfires) will be likely as the climate warms. It’s time for the industry to truly embrace technology and digital transformation to ensure that insurance remains a viable solution for commercial property owners.

While the commercial insurance ecosystem has traditionally been a laggard in its adoption of tech, leading insurance brokers are now well positioned to accelerate adoption of artificial intelligence (AI), software and data to accelerate the transformations needed to unlock these risk and insurance challenges, and deliver new solutions for their corporate clients. Brokers have traditionally been relationship-driven firms, yet in recent years, leading intermediaries have been reinventing themselves. Embracing technology further can accelerate these trends.

But for tech to truly shine, brokers first need to help their clients overcome the “original sin” of this market, which is the inconsistency of accurate, trusted, granular and actionable data about the underlying insured exposures and their risks. Take the markets’ pervasive use of spreadsheets, and in particular the notorious “Statement of Values,” which stand as the most stubborn holdover of past processes in an analog insurance ecosystem. Disconnected, incomplete, inconsistent and often inaccurate, this state of data cannot serve as the critical lifeblood needed for more analytically rigorous risk management decisions.

Connected Data Networks

Insurance brokers must now use technology to establish the data networks needed to efficiently source, verify and connect their clients’ property exposure and risk data, and establish the data-driven workflows that enable them and their clients to make more proactive and analytically-driven risk management decisions.

Connected data supports connected decisions along the full continuum of risk management action — from the due diligence owners perform when developing and acquiring new property assets, to the accurate valuation of the exposures and quantification of the risks, to the investment to mitigate existing properties’ vulnerabilities and increase their resiliency, to the optimization of risk retention and insurance programs.

Connected, trusted and actionable data will also enable brokers to extend and improve their placement syndicates, sourcing the widest and best sources of insurance capacity for their clients’ programs. By reducing the friction for underwriters, brokers can better compete for scarce capacity and improve their clients’ outcomes. Better yet, connected data can unlock entirely new and alternative sources of risk capital to supplement or circumvent the constraints of traditional markets.

It’s time to connect the property risk market in a truly seamless fashion. Commercial insurance brokers, at the critical intersection of corporate buyers and risk transfer markets, are ideally positioned to adopt the tech necessary to make this happen.