The surplus lines insurance sector lags some other areas of the industry in the application of technology, but brokers and insurers are gradually introducing automation into the placement process, insurance and technology experts say.
In particular, the diligent search requirement, whereby brokers must obtain coverage declinations from standard market insurers before placing risks with surplus lines insurers, is in some instances being conducted via technology platforms, sources say.
The search process and the more general penetration of the surplus lines sector by technology face hurdles, however, including cost, the individual nature of the business and regulatory requirements.
The surplus lines sector, or nonadmitted market, is smaller than the standard, or admitted, property/casualty insurance market, with less capital for technology investment, said Michael Reilly, managing director in Philadelphia with Accenture PLC’s insurance practice. “Historically they have never been the first mover space,” he said.
There are, however, technologies that could be applied to the surplus lines sector and diligent search requirement, Mr. Reilly said.
“Between the search tools, the natural language processing tools, robotics, it’s definitely solvable, using established technologies for a new solution,” he said.
Regulations vary by state, but brokers are commonly required to obtain three declinations of coverage from admitted insurers before they can place a risk in the surplus lines market, although there are exemptions for some commercial risks.
“There are definitely technologies we are seeing that should be of interest to surplus lines,” Mr. Reilly said.
Insurance House Inc., a Marietta, Georgia-based managing general agent, built a proprietary “rate-quote-bind” system for its broker clients that features an automated diligent search which includes insurers with whom Insurance House has integrated, according to Jacqueline M. Schaendorf, president and CEO.
“The business process part of the diligent search can definitely be automated,” Ms.Schaendorf said.
The system integrates with third-party data sources including CoreLogic Inc. and LexisNexis to secure “different risk attributes” for the risk itself, Ms. Schaendorf said.
Due diligence forms are included in the process and will “pop up” on the user’s screen, she added.
A user can then obtain an electronic declination within the process from an insurer, which is integrated into the Insurance House system.
“We don’t currently have an integration with our system to all the admitted carriers systems,” Ms. Schaendorf said, but the system could ultimately accommodate any and all comers.
The next version of the technology will add to the database all admitted insurers with National Association of Insurance Commissioners codes, Ms. Schaendorf said.
Technology and insurtech firms see potential for process improvements in the surplus lines market.
“We’re doing quite a bit in the nonadmitted space with surplus lines carriers to automate as much as we can, thinking about the downstream workflows and the way that clients’ paperwork needs to flow and money needs to flow,” said Benjamin Clarke, co-founder and chief technology officer of Bold Penguin, a Columbus, Ohio-based insurance exchange.
“We’re having a lot of success using our existing (application programming interface) integrations to help us determine where to rate (excess and surplus lines risks),” he said.
“We have lot of points of entry into making E&S more fluid, more automated, more accurate, and diligent search is part of that strategic approach.”
There are, however, regulatory hurdles that need to be overcome.
“We now get automated declinations, which are then used as evidence of the diligent search,” said Randall Goss, chairman and CEO of U.S. Risk Insurance Group LLC, a broker and underwriting manager in Dallas.
The way declinations are supplied to the regulators, however, “is still relatively manual, and direct downloads would be a big step forward from where we are today.”
“More and more carriers are setting up systems to pump out declinations for surplus lines brokers,” said Zachary Lerner, a partner in the New York office of Locke Lord LLP and a member of the law firm’s insurance and reinsurance department. “Not every state recognizes it, but states do appear to recognize the concept of getting an automated declination.”
Florida, for example, has a box to check for electronic declination on the state’s surplus lines declination for, Mr. Lerner said.
There remains a disconnect, however, between the standardization needed for automation and the individual nature of surplus lines risks, sources said.
Technology “works better with more homogeneous products,” Mr. Goss said. “Over the past two to three years, we’ve seen almost an explosion of new insurtech operations,” he said, and “a lot of these are focused on the standard lines.”
“When you’re dealing with 50 states and most of the states have variations in what the process is, it becomes difficult to really streamline across the board,” said George Gorney, chief information officer at U.S. Risk.
U.S Risk has among its customers some 6,000 to 7,000 retail agency clients and over 200 insurer relationships, Mr. Gorney said.
“Not everybody operates in the same way, and carriers all have different systems and different ways of interacting” Mr. Gorney said.
“So until there are some standards in place” behind which companies can put development efforts, it will be difficult to deploy and adopt automation industrywide, he said.
“You need to be unique, high capacity or have unusual loss history” said Mr. Clarke of Bold Penguin. “Those three things make the process of broad-based automation more complicated.”
“It’s more complicated than people would imagine because things that are unique are by definition harder to automate,” he said.
