"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," says Jim Auden, Managing Director at Fitch. "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."
Technology enhancements are a consistent theme in the insurance industry's history. Expanded ability to process, analyze and store large and more diverse volumes of data is creating greater modeling sophistication in risk segmentation and pricing. Data analytics in claims can help speed resolution, uncover fraudulent activity and predict high severity incidents. Further opportunities to improve modeling and risk management capabilities are emerging from the utilization of artificial intelligence (AI) and machine learning to more readily incorporate new information garnered from wearables, sensors and other connected devices into decision making.
Although most workers' compensation underwriters are operating from a position of strength as 2018 represents a rare fourth-consecutive year of market underwriting profits, the business has also experienced historical instances of very large losses fueled by inadequate pricing and claims volatility. Success of insurers' technology initiatives is measured in part on generating steadier results over the long term.
Outside insurtech firms, mainly funded by venture capital and focused on providing technology solutions in many operational areas and across multiple business segments, represent a nimble force accelerating the pace of change.
In response, insurers are more actively investing in or creating strategic partnerships with insurtech firms to gain insight or are developing their own innovation labs to foster creative development. Insurers are seeing competition emerge from start-up underwriters and managing general agencies (MGA's) with direct, data driven on-line platforms including Next Insurance in small commercial lines and Pie Insurance in workers' compensation. Uncertainty remains as to whether these newer entrants can build a profitable business with sufficient operating scale.