Workers compensation insurers are ongoing targets for technology investments designed to keep the sector competitive and boost performance. Without it, market consolidation is likely, Fitch Ratings said in a new report.
“As the largest U.S. commercial lines segment, workers compensation is a focal point for insurers’ efforts to leverage new technologies to gain operating efficiency, reduce workplace injuries and improve claims outcomes,” Jim Auden, managing director at Fitch, said in prepared remarks. “Insurers that lag in innovation face the risk of adverse selection in their underwriting portfolio and expense disadvantages – changes that make them more likely consolidation targets given recent market M&A activity.”
It’s not like workers compensation insurers are suffering. As Fitch notes, 2018 was the fourth year that the sector experienced market underwriting profits. But there has been trouble, too, with historically large losses fueled by claims volatility and inadequate pricing. Fitch argues that technology initiatives will create an environment where steadier long-term results are possible.
There’s a lot at stake, with employers spending $96.5 billion on workers compensation coverage for 138 million jobs in 2016, according to statistics cited in the Fitch report. Of that number, 62 percent of the spending involved private insurers, with the rest spread between state funds, federal government entities and self-insured groups.
The Fitch report states that the technology upgrades are designed to help in a number of areas, including reduction of workplace injuries, claims outcome improvements and “broader societal benefits.”
According to the Fitch report, there are a number of areas where technology upgrades could help workers, including:
- Direct investment in and strategic partnerships with InsurTech firms, in order to tap into their expertise.
- The use of data analytics in underwriting to make risk segmentation and pricing more sophisticated, in order to improve loss ratios and reduce underwriting volatility.
- Expansion in the use of connected devices for risk management, such as wearable devices and other sensors, which Fitch said could help promote safer work environments and fewer claims. Drones surveying work sites would also help here, according to the report.
- Artificial intelligence in claims would also be useful, Fitch said, because it can better help “optimize claims effectiveness, uncover fraudulent activity and predict claims prone to large settlements.”
- Technology can also help positively shape distribution and customer experience, such as direct online platforms and sophisticated underwriting analytics, Fitch said.
Not everything will be smooth sailing as workers compensation insurers turn to technology. Fitch warned that carriers face challenges including staffing, operations and corporate culture in gaining the full support and environment they need for upgrades to work.
“Measuring the ultimate success of technology investments is also difficult but ultimately lies with the ability to retain and grow the customer base in a profitable fashion,” the Fitch report said.
The Fitch Ratings report is “Innovation in Workers Compensation Insurance – Disruptive Technology: Insurance.”
Source: Fitch Ratings