Category: Blog Post

The insurance industry is undergoing significant transformation as the market seeks to balance profitability with the increasing demand for distribution. This shift is especially pressing for carriers who need to continually benchmark their underwriting, regions, and accounts to assess profitability. 

As the market evolves, several key themes have emerged that are shaping the future of insurance distribution and innovation. Here’s what’s top of mind for carriers, brokers, MGAs and the broader insurance ecosystem.

Profitability in distribution and the rise of MGAs

Carriers today face mounting pressure to broaden their distribution channels without sacrificing profitability. To address this many are buying, or opening their own MGA, or supporting others with capacity to provide flexibility and more focused distribution channels for niche products.

MGAs have become a critical part of distribution strategies, enabling carriers to efficiently reach niche markets and align with the changing needs of customers. For carriers, MGAs offer a way to diversify their portfolios while maintaining tighter control over underwriting standards, helping them achieve that essential balance between growth and profitability.

Innovation as a strategic imperative

Innovation has become a central theme for brokers, carriers, MGAs, and others in the insurance sector, often via dedicated in-house ‘Innovation Labs’, dedicated to fostering new ideas and processes that add value across the supply chain.

Further, many are now recognising the need for their businesses to modernise their core platforms to embrace innovation more quickly, which in turn enables them seize new business opportunities more swiftly, maintain control of the development of their technology and support, and integrate emerging technologies such as AI and data via APIs.  This means they have total autonomy and agility with their platform, eliciting partnership support from their vendor as and when needed.

This drive toward innovation will only accelerate with the anticipated BP2 plan set for 2025, which will bring new standards to the industry and spur further progress. BP2, when delivered, is expected to create substantial opportunities for brokers, carriers and MGAs alike to develop data-driven innovations.

Climate extremes and insurability challenges

The insurance market faces an increasing challenge with climate extremes becoming routine rather than rare. Secondary perils such as flooding are proving particularly troublesome, as despite their title, they cause more losses overall than the likes of primary perils, such as hurricanes. 

These conditions strain policyholders and insurers alike, with many people unable to afford insurance coverage and carriers being reluctant to insure high-risk properties. 

The wholesale insurance market is particularly impacted, as premium pricing and risk management become ever more complex. For insurers to navigate these challenges, it’s crucial to use high quality climate data to build resilience and effective risk management into their policies. 

There are now many modelling firms to support carriers, from early stage Insurtechs such as Fathom, which provides specialist flood data, to established players like Moody’s RMS, covering hurricanes, etc.

The role of AI: hype or reality?

AI, including Gen AI, is one of the most talked-about trends in the insurance space, but it remains largely in the realm of ‘smoke and mirrors’ without the right digital infrastructure. While AI has huge potential, it can only deliver meaningful impact if insurers have robust digital architecture in place. 

Recent industry events have underscored this reality, as AI-specific innovation remains sparse and the need for foundational digital transformation is clear. As the market advances, we can expect to see mergers and acquisitions focused on building these capabilities, with companies like Intellect AI and Intelligent AI setting examples in real-world applications.

Redefining talent and skills for the modern insurance landscape

The skillsets required in the insurance sector are evolving rapidly. Where data scientists were once highly sought after, the emphasis is now shifting toward innovation leaders who can drive change across every aspect of the industry. 

Insurers are increasingly embedding innovation into their core functions, creating a culture that not only adapts to, but also initiates and anticipates change. This shift is essential for companies looking to stay competitive and responsive to market dynamics to support growth and profitability.

The rise of ecosystems built on cloud-native platforms

The rise of insurance ecosystems marks a transformative shift in the insurance industry, from underwriting and claims processing to risk assessment and customer engagement. This shift not only enhances the customer experience, but also fosters innovation, allowing insurers to respond more effectively to changing market demands and consumer expectations.

Building these insurance ecosystems on data-driven cloud-native platforms is essential for maximising scalability, flexibility, and efficiency. Cloud-native technologies enable the market to rapidly develop, deploy, and iterate on applications and services without the constraints of traditional on-premises infrastructure. 

This agility enables the market to leverage real-time data, enhance analytics capabilities, and implement advanced technologies like AI and machine learning to improve decision-making and risk management. 

By embracing cloud-native solutions, insurance firms can create a resilient and adaptable ecosystem that can easily integrate new partners and services, ultimately driving growth and ensuring long-term sustainability in a competitive market.

*first published in Fintech Global, December 2024

There was a time, not so long ago, when businesses were nervous about depending on the cloud. Today, that has all changed (source Forbes), and most technology vendors are positioning themselves as being in the cloud.

So, what’s changed?

Some would argue that the Covid pandemic was the driver. And whilst it’s true that the need to work remotely accelerated the adoption of cloud-based technologies, big tech providers like Salesforce (150% 2016-2020 growth) had already made great in-roads into forward-thinking businesses.

Further, most organisations across all sectors now expect to significantly ramp up adoption and migrate a growing share of their IT environment to public cloud, with a projected 32% annual growth in cloud services by 2025 (source McKinsey).

What does ‘born-in-the-cloud’ actually mean?

True born-in-the-cloud solutions come with powerful benefits over the retrofitted legacy approach. This blog aims to explore how these can help our sector, from insurers to agencies, brokers, and MGAs, to improve operations, reduce costs, and increase revenues. 

At its simplest, born-in-the-cloud (or cloud-native) solutions are those that have been entirely designed, built, deployed, and managed within a cloud computing environment. Novidea is an example of this approach since it was built on the Salesforce SaaS platform.

Many insurance technology vendors claim to offer cloud solutions, but when you examine them more closely, solutions that are labelled as ‘cloud-based’ are often little more than legacy off-premise offerings that have been retrofitted to be available remotely.

You can learn whether your current vendor is really cloud native here

This happens when legacy software providers skip the time-consuming and expensive rebuilding of their applications for the cloud and instead create web-based, front-end interfaces that are still attached to legacy application architectures in the back end.

True cloud-native software delivers a lower total cost of ownership, zero maintenance for you as the customer, automated product updates, elastic computing power that increases and decreases according to a business’ needs, and seamless integration with other cloud-based systems.

Cloud- Native – the benefits

If you want to be sure that your organisation is leveraging cloud-native software, ask yourself whether you are benefitting from these four areas:

1. Scalability: A cloud-native insurance platform allows users to increase or decrease their usage based on their changing needs – without the need for any additional hardware or any software downloads. For instance, if an MGA needs more computing power because they’ve just partnered with a new underwriter, a cloud-native platform can scale up to accommodate. Alternately, say a broker offers a top new cyber product, a cloud-native platform can expand as needed to meet increased demand.
2. Cost-effectiveness: The users’ hardware and maintenance costs are all wrapped up in the monthly SaaS subscription fee, meaning you never pay for more capacity than you need. [1] Also, with cloud-native software you get instant access to the latest features and enhancements developed by the vendor.
3. Working on the move: A cloud-native platform is accessible from any device, anywhere, with a good internet connection and the right security access. Brokers and agents can download documents, such as claims and premium data, to their phone and make deals in clients’ offices without needing to contact their own office. Claims adjusters can enter clients’ risk profile details in real-time from any claims location with just a few clicks. MGAs can agree new capacity deals with carriers without needing to head back to their desk. This is insurance on the move, and only a true born-in-the-cloud platform enables this level of flexibility and accessibility.
4. Iron-clad security: True born-in-the-cloud platforms come with top cyber security measures that ensure you are 100% compliant with all customer and client data privacy legislation in every jurisdiction in which you operate. The chances of losing client data or being hacked are incredibly remote. Salesforce, for instance, has security built into every layer of its platform. The infrastructure layer comes with replication, backup, and disaster recovery planning.
5. Born-in-the-cloud, now six years old: Novidea’s insurance platform was born-in-the-cloud in 2017, and built on Big Data firm Salesforce’s platform. It took time, focus, extensive resources and specialist expertise, along with our insurance market know-how.

Book a meeting now to discover why we now have over 100 customers in 22 countries enjoying the above benefits. You can too, while effectively managing the entire customer journey, end-to-end, with greater operational efficiencies, reduced costs, and accelerated growth.

While not new to the insurance industry, the proliferation of digital technologies and the increasing availability of structured and unstructured data has exponentially increased the use cases for data and analytics. 

Today, these include new forms of risk analysis, which are driving revenue growth, reducing fraud, and increasing operational efficiencies. 

Data-driven decision-making helps not only underwriters, but also agents, brokers, and MGAs to grow into new markets while boosting profitability. Here are some of the most compelling ways insurance firms throughout the value chain are using data and analytics:

1. More accurate risk assessment and underwriting

Ever since the industry’s origins in the 1600s, underwriters have used the available data to analyse and predict the likelihood of certain events. Back then it was the odds of merchant ships arriving back in Europe loaded with tradable goods. 

In the centuries since, data usage has transformed to incorporate almost every type of risk, including those that are new or rapidly evolving, such as natural catastrophe and cyber security. Fast-moving risks like this require huge volumes of data and the ability to collect and analyse them in as close to real time as possible. 

MGAs are increasingly combining specialist market knowledge with sophisticated risk models to underwrite new business more profitably than many carriers can. Brokers and agents are also benefiting from the ability to sell a wider range of more specialist products into new markets, worldwide.

2. Driving business growth

We have seen how MGAs are able to use their specialist knowledge to drive business growth by winning capacity from carriers in new emerging or fast-moving risk types, such as cyber and niche SME business. The same is true across the value chain, where those insurance firms with access to more data – and the ability to analyse it – can either win business from their competitors or else carve out new, under-served markets. 

Many brokers and agents are using data and analytics to improve customer retention through relevant cross-selling and identifying better value products for clients at renewal. Those insurance firms with cloud-native insurance platforms are also better able to segment their customers and tailor their offerings and marketing messaging.

Many InsurTechs and tech-savvy carriers are also analysing customer data to devise more appealing and appropriate products for specific customer segments. Embedded insurance is another way carriers can meet their customers at the point of sale by offering insurance products through new channels or by bundling it in a product experience.The London market is seeing a lot of this sort of innovation in the commercial space, while carriers in emerging markets are developing new products for small businesses and communities who have lacked competitive tailored coverage up to now. 

3. Improving claims ratios 

With escalating claims inflation, reducing claims where possible is sure to be as important as ever. Many carriers are increasingly using sophisticated data analysis to spot fraudulent claims, eliminate higher risk customers from their books, and process genuine claims faster and more efficiently. Some are even going one step further by leveraging IoT or wearables to collect even more data to better drive their decisions. All of this is leading to lower claims costs and improved ratios. MGAs’ sophisticated underwriting models are also in many cases leading to better claims ratios. 

4. Optimizing operations 

Another way many insurance firms across the value chain are using data is to improve operational efficiency. Analyzing data from various business processes allows firms to identify bottlenecks and inefficiencies and implement changes to eradicate them.

Overall, the use of data and analytics in the insurance industry is increasingly essential for informed decision-making and improving business performance. However, many legacy brokers, agents, and underwriters suffer from operating multiple systems and data silos, making customer data harder to access, harder to analyse, and harder to keep secure. 

This is why so many fast-growing companies within insurance are increasingly looking to consolidate their data and systems onto a single, modern cloud-based insurance platform. 

Get in touch today, to find out how Novidea’s born-in-the-cloud insurance platform, built on Salesforce, can help your business grow revenues and optimise operations, through better use of data and analytics.

MGAs have become an increasingly vibrant and innovative part of the global insurance market, often addressing niche or underserved markets. McKinsey estimates that there are 600 MGAs currently operating in the U.S., and 300 MGAs in the UK. And these numbers are growing.

Their role in the insurance industry is providing another vital, cost-effective distribution channel for carriers and specialist solutions and products for customers in specific insurance lines, such as management liability (like D&O or EPLI), Product Recall, Flood, Specialty Insurance, Transportation, Work Compensation are some other common examples.

MGAs also provide access to isolated geographic areas. An insurer may want to write business in a remote location, but don’t want to spend the money and resources to open an office there. With an MGA they can gain access to these markets without having to open an office or hire staff.

Indeed, MGAs play an especially important role across a variety of commercial lines, where their specialty market expertise means they can identify and underwrite emerging risks more profitably than mainstream insurers, who find it more difficult to target niche markets. 

The three most common types of MGA in today’s market are:

1. Underwriting-led: MGAs founded by experienced insurance specialists to capture a niche in the market not currently well served
2. Technology-led: MGAs that have acquired capacity and are writing business for commoditised lines where they can offer higher margins due to having lower operating costs and new methods of pricing
3. Service-led: companies that are offering a range of services in a specific niche, of which specialist insurance cover is a key part

In the US, the majority of focus is on the second category: those technology-led MGAs who can write commoditised lines at a higher margin than the competition. In the UK market, categories one and three are more numerous. 

In all three categories, technology is facilitating more rapid growth. Although MGAs have been growing in importance and influence over the years, they are still young businesses by insurance industry standards, and so most of them lack the same constraining legacy technology that holds back many larger, incumbent carriers. 

Even traditional underwriting-led MGAs are therefore leveraging technology to streamline their operations and – in many cases – augment their pricing models. 

Those consumer-facing MGAs enjoying the most robust growth are those that enable customers to handle everything seamlessly online. One standout example is the UK-based MGA ManyPets, which hit a valuation of $2 billion in 2021 following rapid growth in its customer-base throughout the Covid pandemic. 

Let’s take a deeper dive into how MGAs are using technology to drive growth, according to recent research from McKinsey:

1. Automation

Many MGAs are using artificial intelligence or machine learning to automate routine tasks and improve efficiency. This can include automating underwriting processes, risk assessment, and claims handling. By automating back-office processes, MGAs can operate much more efficiently.  

2. Digital platforms

Consumer-facing MGAs are using digital platforms to interact with customers, agents/brokers, and carriers. These platforms enable MGAs not just to provide online quotes, but to issue policies and even handle claims digitally. In this way, they are the equal of even the largest incumbent insurers. What’s more, MGAs in specialty lines are increasingly offering this kind of slick all-in-one digital service to commercial clients too, cutting out the need for printed paperwork altogether and speeding up sales cycles. 

3. Data analytics

MGAs are using data analytics in several ways. Obviously, for any MGA, their single most important client is the carrier which gives them capacity. As Insurance Insider puts it, “Insurers now see MGAs as part of the strategic direction for their business. They are not as nimble as they would like to be, so working with an MGA gets access to new markets and helps develop new products.”

The savviest MGAs are therefore using analytics to track the kinds of business that would be most beneficial for their carrier partners, and to prove where they are adding the most value – a crucial competitive advantage in a hard market where spare capacity is beginning to dry up in many lines. 

Secondly, MGAs are using data analytics to develop more responsive and more accurate pricing models, allowing them to underwrite the better risks at higher margins, as well as develop products for more specialist risks, such as cyber. 

Thirdly, MGAs are using data analytics to look at more granular segmentation of customers and offer coverage that better suits their needs – and their pockets.  

Many MGAs have obtained their competitive advantage through use of a born-in-the-cloud all-in-one insurance platform like Novidea’s. If you are an MGA looking to work with the best, why not have a conversation with one of Novidea’s insurance platform experts? 

If you’re a broker or agent that wants to work with a technology-driven MGA, why not get in touch and see what Novidea could do for your business?

Last month over 1,000 insurance professionals gathered at Chelsea Pier in New York City for the InsurTech New York Spring Conference. This event was a great opportunity to connect, network, take in thought leadership sessions, share best practices and learn more about the current state of the commercial insurance industry. The event featured innovative new startups to large multinational organizations. Representatives from brokers, carriers, InsurTechs, MGAs and more gathered together to discuss what is happening in our industry. Novidea was proud to sponsor, present and exhibit at the event. 

Here are the top five trends we identified for InsurTech New York.

1. Digitization Increases in Popularity: The growing number of companies developing ways for brokers, MGAs and carriers to digitize their operations. For decades the insurance industry has relied largely on paper documentation and spreadsheets. These often require repetitive manual workflows and are inefficient and error-prone. To help solve this problem many companies are coming up with ways to help turn physical assets into digital ones. As underwriters begin requiring more and more data to effectively cover and price insurance, the ability to quickly access information in a digital format is critical.

2. Investors Still Interested in InsurTechs: There have been many reports that given the current economic situation there has been a slowdown in the amount of investment in the InsuTech space. While many indicators demonstrate that this is accurate, the conversations and presentations at InsurTech New York showcased that there is still strong interest in investing in InsurTechs. Representatives from the leading VC and PE firms such as MS&AD Ventures Inc, ManchesterStory, Avanta Ventures and Bessemer Venture Partners were in attendance and were busy talking to the exciting startups at the event. The biggest change in InsurTech investing is that terms may be different, valuations might be lower and due diligence will be more thorough, but there is still great interest from leading firms to continue to bet on InsurTech.

3. The Number of MGAs Continues to Rise: MGAs have been on the rise for years. They connect the strength of established carriers with a network of trusted brokers through cutting edge technology. InsurTech New York featured dozens of different MGAs specializing in unique verticals to help deliver innovative products to the market. Many of the speaking sessions featured representatives from MGA discussing how they are helping carriers bring specialized products to the new areas.

4. Delivering Better Customer Service with Embedded Insurance: For years insurers have been looking for ways to meet their customers’ insurance needs where they want them. Years ago, portals were the method carriers could reach their customers by allowing them to request quotes directly from their website. Now they are using InsurTech companies to reach their customers through embedded insurance. When you purchase airline tickets, reserve a hotel room, or buy an expensive electronic device, you are presented with an opportunity to insure the transaction. This is embedded insurance and it gives carriers an opportunity to meet their customers insurance needs, in real time. Many companies are helping insurers develop products and find ways to distribute insurance to their customers directly. 

5. Progressing the Industry with Specialization and Niche Insurance: It was only a few years ago that the idea of pet insurance became mainstream and now there are dozens of carriers writing billions of dollars in premiums helping people protect their pets. This trend has continued with more insurers specializing in unique solutions. Insurtech New York featured a number of companies that focus on very specific areas. Some of these include coverage for boats, perishable cargo, wildfire, climate change, tornadoes and many more. These companies are helping move the industry forward by developing new products and coverages that were often ignored or never existed.

Ready?

Using the best technology is vital for navigating this high-price, low-margin insurance industry. When you’re ready to go digital, reach out to the Novidea team. We’d love to discuss how we can help inflation-proof your business.

Why now’s the time to digitalize your business

Inflation is squeezing every section of the economy, and the insurance industry is far from immune. One estimate shows that rising prices in 2021 led to an increase of approximately $30 billion in loss costs (the amount insurers pay to cover claims).

MGAs and agents are already operating on thin profit margins, with the average around 2-3% per customer. So, passing the rate hike on to your customer simply won’t work. Achieving and maintaining operational resilience is going to require squeezing every ounce of efficiency from your operations. There’s never been a better time to digitalize your insurance business. Streamlining operations and improving efficiencies is a long-term strategy to help insurance organizations become more resilient, no matter what outside trends and developments come your way.

Given all that, let’s look at the ways going digital can help your insurance business thrive in this economic climate.

Activating Your Data

Soaring prices and thinning margins mean there’s less room than ever for inaccurate business decisions. Insurance businesses must begin gathering their own customer data and gleaning the insights that data has to offer. The question is how to do that, and the answer is a more powerful and flexible agency management system.

It starts with true and comprehensive integration. The right modern AMS will provide real-time access to all customer and policy data at the point of need. This is achieved by bringing every aspect of a business into a single platform, providing 360-degree visibility of the front, middle, and back office. Your people must have the power to access the data they need, when they need it, from anywhere.

Smoothing the seams between offices creates new efficiencies that already contribute to a healthier bottom line. But that’s only the first step. Once your data is consolidated, what’s to be done with it?

Putting Your Data to Work

You’ll need a platform that provides powerful analytics tools to help turn your raw data into actionable insights, facilitating better-informed decisions.

For example, a modern AMS will track the resources that are being spent on each account, from time spent selling, supporting, and traveling to relevant salary and commission costs. You can use this data to determine which accounts are most profitable. The results are data-driven insights into what kind of new accounts you should pursue, as well as better planning for the resources you’ll need to effectively manage those accounts.

Using Data to Win and Retain Customers

Encore Insurance, a digital-native independent insurance agency specializing in personal lines, needed to to revamp how its sales team managed and assigned incoming business opportunities. Unleashing their data and creating a single source of truth across the agency was paramount. Once Encore had a clearly defined picture of where growth opportunities existed, everything changed. For the first time, Encore had the ability to accurately evaluate its new business closure rate and determine whether they’re spending too much on the leads they acquire.

There is tremendous value in learning what kind of customers you want to acquire, but there’s arguably even more in retaining and optimizing the profitable accounts you already have. In fact, the cost of acquiring a new insurance customer is seven to nine times higher than the cost of selling to an existing customer. Increasing the lifetime value of your customers, then, is crucial.

Of course, along with robust and accurate service, today’s customers also expect increasingly short turnaround times. Which brings us to:

Leveraging automation

Automating workflows allows you to free your team from repetitive tasks that can become a bottleneck. For example, Novidea’s comprehensive approval process workflow can confirm authority limits, view peer reviews, and notify the right team members of activities ready to be approved.

This kind of intelligent automation helps your bottom line multiple ways, including:

• Eliminating human error from repetitive workflows, helping protect you from potentially costly errors and omissions.
• Reducing processing time for new policies, thereby increasing your customer satisfaction and retention.
• Helping you keep talented team members who want to flex their expertise, not do busywork.    

Ready?

Operational efficiency, customer retention, and data-driven decision-making are vital for navigating this high-price, low-margin insurance industry. When you’re ready to go digital, reach out to the Novidea team. We’d love to discuss how we can help inflation-proof your business.