Analysis of full submission inflow to power appetite expansion

by Juan de Castro, COO, Cytora

This is a shortened version of Making Risk Flow podcast, episode 9. You can listen to the full episode here

In this episode, Juan invited ex-CEO of RSA, Adrian Brown. They’ve talked about the benefits of digitised risk flows on a macro scale, and how data can power appetite expansion and profitable growth.

Juan:  Hello and welcome again to Making Risk Flow, a podcast that reveals everything you need to know about digitizing risk in commercial insurance. Today, I’m joined by Adrian Brown, a veteran of the insurance industry. Adrian, it’s a pleasure to have you today.

You probably don’t need an introduction, but do you want to give us a short overview of your background?

Adrian: I guess veteran means that I’ve been around for a long time and I’m very old! I’ve spent probably over 30 years in the insurance industry. I was on the side of insurance with RSA for 25 years and the last six I was the CEO where I oversaw the commercial loans and the personal loans business. Then I moved to the dark side, the broker side from Towergate and then Ardonagh. And now more recently I’ve got non-exec roles and consulting roles, roles and I particularly focus on tech-based businesses, either supplying the insurance industry or in the insurance industry, so that’s keeping me busy.

Juan: As I said a total veteran, you’ve done pretty much everything. Maybe the only thing you haven’t done is reinsurance, but other than that, I think you’ve touched pretty much everything.

Adrian: But I’ve spent a lot of money buying reinsurance over the years!

Juan: I’m sure! 

So in previous episodes of the podcast, we’ve talked a lot about how to digitise the new business submission flow and focused quite a lot on the key benefits from a frontline perspective. Things like accelerating growth by unlocking underwriter capacity, or unlocking underwriter capacity by ensuring they only receive winnable decision-ready risks. 

Perhaps today we can take a slightly different approach. Given your background as Chief Executive in a number of large commercial insurers, it would be great to focus on the value of submission digitisation from a macro perspective. This is something you often talk about. What are these strategic benefits of risk digitisation and how do they drive competitive advantage?

Adrian: Yes, certainly. I think the productivity gains are relatively clear and you’ve covered those in previous podcasts. There’s an opportunity to think more strategically about what you can do with the tools and platforms you’ve implemented and that are at your disposal. 

Everybody I talk to, whether it’s on the broker side or the insurer side is facing the same challenge – how to organically grow the portfolio in what’s effectively a static market.

Perhaps we could focus on some of my ideas around digital platforms enabling insurers to do things that perhaps weren’t possible in the past as it was, and sometimes still is very difficult to get that from the system. It tends to be an arduous process and it’s not necessarily all collected in the right place.

Once you’ve digitised the platform, you’ve really got a rich seam of data, and you need to think about how you’re going to use that data. I think there are probably three or four areas that we could focus on there that I think are particularly growth opportunities. One is about understanding your risk appetite, the second is about sales and marketing campaigns, which can be run in a much more targeted way. The third is improved broker service, which I believe in itself creates a growth engine for you and finally, the fourth area is around price proximity and understanding your price relative to the market and what that might do for you.

Juan: Yes and all of them are strategic areas that can drive growth in the current environment. And yes, as you said we’ve been talking about these areas for a while in the industry but some of the technology tools were not there a few years ago so it was not possible to capture those benefits.

Let’s deep dive into each one of them and hear a bit more about what you’re thinking, the first mentioned was understanding risk appetite. 

Adrian: I’ll probably upset a bunch of underwriters who are listening to the podcast. So I’ll apologise in advance to the strategic underwriters who set the risk appetite. I think there are things that commercial lines can learn from developments in personal lines.

I think quite often risk appetite has been set based on experience and art but perhaps not always science and there’s nothing wrong with art, but combining art and science is where you really can get a step change in the performance. If you look around insurers, there will be risk appetites that have perhaps been set by people feeling what’s right and where the business can really provide a competitive quotation. But often the issue with setting is risk appetite that way is that they won’t have the evidence or the data to back up why they should set that risk appetite at point A, B or C. Now, that’s not saying where they’ve settled is wrong. But what it’s saying is the way it would have been based on people’s experience and expertise but they probably haven’t got all the data out there at their fingertips to be able to test whether they’ve actually set that in the right way.

When you’ve digitised your incoming submissions and you’ve captured all that data, you know exactly the stuff that you’re currently rejecting. You know how much you’ve rejected you know why you’ve rejected it. Or, how close was it to the risk appetite that you’ve set, which then enables you to look at that and say “Well, actually, if I tweak my risk appetite in this particular factor, then I might be able to then quote for an extra hundred or thousands quotes a week.”

Now, that’s not saying you may decide that you don’t want to tweak your appetite, but what you’ll begin to understand is the constraints you’ve put around your risk appetite and what’s the missing opportunity. That enables the underwriters to look at the data and review if they’ve set it in the right place. 

What’s the risk if we just widen that risk appetite out a little bit? With a digitised platform they can decide whether they are going to tweak the appetite statement and code that really, really quickly. They can then monitor day by day, minute by minute, how much of that new appetite stuff is coming in the door. They can monitor the conversion and then make a decision whether they’re comfortable or not and either increase that flow or reduce that flow.  You can make those decisions about risk appetite in a way that allows you to react incredibly quickly. 

It’s a challenge to the underwriters, have they got all the information to set their risk appetite in the right place or is there a gross growth opportunity? I think a digitised platform gives you that opportunity to make informed decisions.

Juan: That makes sense to me. I think we often forget that in the end, it’s a balance between loss ratio and expense ratio. As you said, there will be some segments of clients are might be barely profitable with the current expense ratio. But if you’re able to quote a larger percentage of your incoming submission flow your expense ratio will go down because you’ll convert more business, which might then make those borderline segments profitable. I remember this is something that we talked about a lot back at Hiscox and interestingly enough I was just talking to a Chief Underwriting Officer of a major insurer exactly about this concept and how all that information informs appetite expansion opportunities.

The second thing which you said that totally resonated was, now after an insurer digitised the submissions and has a clear view of how they are being evaluated – they then have real-time control over what time of risks they write or don’t write. They can do experiments very easily and very quickly – they can decide on writing a particular segment for a period of time and monitor the performance.

Adrian: And you can direct those new risks to a very small group of two or three people you really trust to be able to underwrite that. You can control the whole management of the risk flow and who it goes to and how you react to it, you don’t need to open the floodgates for it to go to everybody.

Juan: Yes totally. And what we are also starting to see is some insurers are now taking up opportunities that they’ve stored in their CRM from previous years. Insurers have a wealth of data on submissions they liked in the past, but they didn’t win. But the biggest challenge is how comfortable are they that the information stored in the CRM two or three years ago is still valid? With risk submission digitisation you can refresh that information about the risk and see how they look against your current underwriting appetite and see, OK, out of the 10,000 leads I’ve gotten in my CRM I’m going to focus on the top 500.

Adrian: It’s all about using the data you’ve got, appended by the data which is available out there. You’ve got to have the complete picture of the client to be able to make sure you’re really focusing your time and your resources and your money on targeting the clients that you’re most likely to convert.

And if you do, that becomes a self-fulfilling prophecy. Your conversion rate goes up, you get that warm glow among your underwriters, and their confidence goes up. So there’s actually a halo effect which goes with that target as well. 

On the other side of the spectrum, we all know that people hate wasting the time on risks they’ve got no chance to win. And this is what frustrates salespeople. They go out and get a lead, they pass it to the underwriters, but the underwriter then looks at the risk and says, that’s outside of our appetite. The salesperson gets really upset because they didn’t really understand what the appetite is. However, if you digitise that process, you can make sure your underwriting and salespeople absolutely sing off the same hymn sheet with the same data and in a way which suits you as a business. And in that way, you’re going to build those relationships. You’re going to make everybody more productive and it will drive your business forward.

Juan: You’ve mentioned the uptake in broker service and conversion actually leads to being able to see more submissions. As turnaround times decrease you start winning more business, in some of our clients, we’re seeing over 80% submission increase year on year just by showing the service to brokers.

I think that’s a good segway into the third area you’ve mentioned, which is improved broker service. You’ve touched on a couple of areas already. Is there anything else you want to say on that?

Adrian: Yes. When I moved across to the broker side I realised that I wished I had this experience back at RSA. It becomes blindingly obvious when you work in a broker where there are some insurers, to be honest, fell and where I think some of the things we did in RSA were great. Brokers are relatively straightforward people, they don’t want to waste their time or your time. And the reason they waste your time is that they don’t understand what you really want to write. 

And the other thing I think is if a broker is constantly phoning in and at the end of the line, they’re getting a different person they are unable to build deep relationships which are critical in insurance. It was the utmost good faith that the industry was built on. In the old days when the insurer was in the same high street as the broker, they would meet face to face, they’d have a drink or a coffee, but now, people are working from home, it’s all done over Zoom so it’s hard to build that relationship.

Now, if every time a broker has a quote, they end up talking to a different person they have no chance to build that personal relationship. Also, when a broker gives a quote to somebody they want to know that the person who picks up that quote is actually able to make a decision. Nothing frustrates a broker more than going over to somebody and then bouncing between people. 

To avoid that you can start looking into how the risks flow through your business and what bottlenecks you have in your process. Then you understand the root cause of your issues and you can begin to build a profile of who seems to win with this broker. Make sure the right quotes are being directed to the right person from the right broker? With that, you can improve productivity and conversion rates.

Don’t look at digitisation as something which takes relationships out of the insurance game. It’s something which should make you even better because it means you can provide information to people in a way in which they can spend their time on value-added activities.

Juan: I totally agree. And in my experience, sometimes it’s even less about it being sent to a different underwriter, as they underwrite different parts of the business and may require different expertise. It’s more about setting expectations with the broker upfront. It’s a quick no, I’m sorry, I cannot quote it or it’s a yes, I’m going to it or it’s going to be John who’s going to be quoting it for you. 

Adrian: Absolutely that speed is important.

Juan: And then the last bit you mentioned was the pricing proximity, which is also something that we are discussing with a few clients. Tell us a bit more about that.

Adrian: In commercial business, it’s really important that all the information you collect is readily available to your pricing people for them to make the best decisions. 

Now, in my experience and this may not be the case everywhere, you might get a target price from a broker either in conversation or on the submission but you may not capture that. So what tends to happen is the insurer will have all the information on the risk that they’ve written but in some respects, I’m always more interested in what haven’t we written? What haven’t we written and what is it about that business, how far out was our technical price against the target price of the broker. If I can analyse that and work out how our price compares, and say there’s no way we can ever get near that price and somebody is providing a ridiculous price for it. And that’s fine but you need the information to see if I were able to modify the price by 10%, and if that happens I could perhaps win 40% more of that rejected because I’ve gotten into that target price area.

So I know if I move my price and give underwriters some guidance, I can monitor it for a week to see if I’ve started writing some of that business I previously wasn’t writing, what’s the conversion rate, all of that information will be available. You can turn the tap on, you can measure it, you can get a report and then you can use that again. It’s going to make you more effective. Again all that information and data don’t mean you have to do anything. What it does, it educates you whether your gut feel and your art is backed up by science and data.

And now that to me is critical, you have to keep asking questions of the data. The people who succeed as we go forward into the future will be those that embrace the digital mindset. And that’s not just about process automation. It’s about everything else that it enables. But what you need is you need intelligent, educated underwriters who can ask questions of the data and then get reports and analyse those reports and see, well, what does that mean? And those are the people you want those people in your organization who are very curious, curious underwriters, enabled by powerful data.

Juan: I think it’s interesting I think that wrap-up is beautiful – great underwriters enabled and powered by the right data, that is also my view of the future of insurance. 

Adrian, this, as always, has been extremely insightful and really helpful. You’ve touched on how risk digitisation enables insurers to understand the risk appetite, increases sales and marketing campaigns, improves broker service and informs pricing proximity, which feeds back into the underwrite underwriting or understanding the risk appetite. Thank you so much again for joining me.

Adrian: Thanks very much