The state of commercial insurance 2023: trends and predictions for the future
Commercial insurance is likely to face a radical transformation in the near future as changes in technology and regulation continue to reshape the way businesses select and purchase policies. It's hard to predict exactly what will happen, but there are certain trends that industry experts are expecting to see in the next few years.
The shift towards automation
One of the most significant changes will be a shift toward automated insurance products and services, with more businesses relying on smart analytics and AI technology to select their policies. This could mean faster turnaround times for policy purchases, better coverage options tailored to individual needs, and less manual paperwork required by providers.
Commercial insurance consolidation
In recent years, the global economy has led to a consolidation of the commercial insurance market, with larger players taking over smaller ones. This trend is likely to continue as insurers look for ways to maximize their reach and coverage while minimizing costs.
Rising demand for artificial intelligence (AI) in underwriting
AI is becoming increasingly popular in the commercial insurance space, and its use is expected to continue to grow in the coming years. AI can help insurers more quickly underwrite commercial policies, accurately interpret risk factors, and suggest tailored coverage options for insureds. It can also be used to analyze customer data, detect fraud, and predict future claims costs.
Companies will increasingly turn to digital solutions such as telematics and big data analytics to improve underwriting accuracy and cost-effectiveness. As more data is available and algorithms become more sophisticated, AI will continue to have an increasingly significant effect on commercial lines underwriting.
The growing popularity of usage-based insurance models
Another trend to watch out for is the rise of usage-based insurance, which bases premiums on actual usage patterns instead of actuary predictions. This is likely to make commercial policies more cost-efficient for policyholders, as businesses won't have to pay for coverage they don't need or use. However, it is likely to squeeze the already thin profit margins even further, so insurers will need to find a way to maintain profitability.
Telematics and real time data
In commercial insurance, we are seeing greater adoption of telematics and other sensor-based technologies to monitor risk and adjust premiums in real time. Developments in monitoring technology enable increased adoption of usage-based insurance (UBI) models, where premiums are based on actual usage or behavior, such as the number of miles driven or the quality of driving. Commercial customers will be charged based on their actual usage of services or goods rather than a one-size-fits-all annual premium structure.
UBI is becoming increasingly popular as insurers look for ways to reduce costs, improve underwriting accuracy, and better assess customer risk.
Finally, with the growing availability of real time data there's a potential for the emergence of new insurance models, such as on-demand policies and subscription-based services. These could provide businesses with more flexibility and choice when it comes to what kind of policies they purchase, how long they need them for, and how much they pay.
Growing demand for alternative risk solutions
Insurers are increasingly looking for alternative risk solutions to help them better assess and manage their clients’ risk. In particular, they are turning to captives, reinsurance products, and self-insured retention programs to manage volatile exposures.
Alternative risk products such as residual value insurance and parametric insurance, are designed to provide more cost-effective risk protection for businesses. These offerings are increasingly attractive to businesses due to the ability to customize the coverage and better control costs.
As businesses seek alternatives to traditional insurance policies, commercial insurers look for new ways to provide coverage. We are also seeing a growing interest in peer-to-peer insurance models, which allow groups of individuals or businesses to pool their risks and self-insure. New models also include parametric or index-based products that offer quick payouts in the event of a loss as well as alternative risk transfer (ART) mechanisms that help spread out risks across multiple parties.
For insurers, this presents an opportunity to reduce costs, increase efficiency, and provide better coverage to their customers. It also presents a challenge, as insurers must remain competitive in a rapidly evolving market.
To differentiate themselves from their competitors, insurers are developing new products and services, including cyber liability insurance, business interruption insurance, or specialized coverages tailored to the needs of certain industries such as hospitality or retail.
Commercial insurers are beginning to develop comprehensive coverage options for these higher-risk areas than traditionally offered in the past, such as cyber risk and environmental liability. This is especially important for businesses operating in increasingly specialized markets. Insurers must be prepared to adjust their risk management strategies and products to meet the changing needs of their customers.
Commercial insurers will also focus on developing more comprehensive coverage options for emerging risks such as autonomous vehicles, drones, and the Internet of Things (IoT). These new technologies present unique exposures that require specialized insurance solutions.
Rising demand for customer-centric policies
Commercial lines insurers are moving away from the traditional one-size-fits-all approach and towards policies that offer tailored coverage based on customer needs. Business customers now want more control over their policy terms, including the ability to customize the coverage amounts, deductibles, and exclusions.
As competition increases, insurers in the commercial space are starting to shift their focus onto providing a better customer experience. This means understanding customers’ needs and offering tailored product packages that meet those needs. Insurers will prioritize customer experience when designing innovative policies, pricing structures, and other services they offer.
Increasing focus on digitization
Commercial lines insurers are now placing greater emphasis on digital solutions in order to improve customer experience and operational efficiency. This includes investing in new technologies such as digitization of customer-facing processes and internal workflows, blockchain, digital wallets, chatbots and AI-powered analytics tools. Insurers are also focusing more on digital marketing and customer engagement strategies to better serve their customers.
Increased transparency in pricing models
Regulators are pushing commercial insurers to make their pricing models more transparent so customers can better understand how much they’re paying for coverage and how premiums are calculated.
Improved risk management practices
Businesses will increasingly rely on insurers for risk analysis and advice to help them protect their assets. Insurers can offer proactive guidance and strategies to help commercial customers manage their risks in the most cost-effective manner possible. This could lead to better outcomes for both businesses and insurers alike.
Growth in self-service platforms for business owners
Business owners increasingly demand the ability to purchase or manage their commercial policies without needing to go through an agent or broker. This requires insurers to adopt an amalgamation of technologies, such as no-code platforms, digital data intake, chatbots and AI-powered analytics tools, which combined will make it easier for customers to purchase or understand their policies.
To achieve seamless self-service capabilities, insurers must rely on a whole stack of technologies, from cloud-based storage solutions to predictive analytics:
- Digital data intake: Insurers will increasingly rely on digital data collection to assess the risk associated with a business. Data such as financial metrics, past claims history, or industry-specific information can help insurers get a better understanding of the customer’s risk profile and offer more accurate underwriting decisions. Streamlining data collection is a necessary first step towards achieving a better customer experience that enables commercial insurers to build more efficient processes and improve customer experience by speeding up the quote process, reducing paperwork, and offering real-time support.
- No-code platforms: Traditional development can't keep up with the pace of change, so insurers are turning to no-code platforms as a way to quickly develop and deploy custom apps. This allows insurers to quickly adapt their operations as the market shifts and develop customer-centric products in an agile and flexible way.
- AI-powered analytics: AI-powered analytics can help insurers better understand customer needs and offer tailored products that meet those needs. This will drive more cost-effective coverage, as well as improved customer experience.
- Integrations & real-time data sharing: As customers demand a seamless experience, insurers need to break down the silos between their different departments and systems. Integrations allow them to share data across core and secondary platforms, both internally and with third parties, including independent agents. This will enable them to offer a more streamlined experience for customers.
The future of commercial insurance will be shaped by these trends as insurers strive to meet the changing needs of their customers. We’ll see a greater focus on digitization, customer centric policies and alternative risk solutions as well as a broader adoption of AI-powered underwriting tools. Ultimately, this will lead to more cost-effective coverage for businesses.
Altogether, these trends will shape the future of commercial insurance and make it easier for businesses to get the coverage they need. Insurers that can capitalize on these opportunities will have a competitive edge in the market. By utilizing the latest technologies and innovating their processes, insurers can provide better customer experiences and improve their overall efficiency.
Get the latest
on going digital