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 concluded in a new special 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.”

A.M. Best said a number of factors over the last decade within the commercial lines market segment have made predictive analytics a more useful and successful tool. Among the more impactful advancements: enterprise risk management technology advances.

“Enhanced enterprise risk management processes have helped companies improve decision-making through different disciplines,” A.M. Best said.

An example A.M. Best cites where this has helped involved the way carriers processed 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 why: 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 Adapters vs. Carriers Slow to Change

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

Topics Carriers Profit Loss Commercial Lines Business Insurance Data Driven Underwriting AM Best Risk Management