Chris Kessler is the Vice President Corporate Development at Bold Penguin, an integrated digital solution platform founded by insurance agents, for insurance agents. Chris was interviewed by Andrew Daniels, Co-Founder and President at CrashBay and Founder and Managing Director at InsurTech Ohio.
Chris, can you give us an overview of Excess and Surplus Lines (E&S) in insurance?
“E&S is the part of the property and casualty industry for risks that are harder to place. When we think about that on the commercial side, there are a number of reasons that a risk might be harder to place. Maybe the business operates in an industry that’s challenging to write, or maybe their property is challenging to write due to location. There could be many other factors. Whatever the case, it ends up falling out of what they call the ‘admitted market' into the excess and surplus world where it gets written. That's the shape of the E&S space.”
From an innovation standpoint, what are some of the investments that are being made in E&S?
“Thinking about the value chain is a good way to break down the pockets of investment. A number of carriers have made investments in digitizing their submission process. Whether that's creating some straight-through processing capability, creating API capability and extending that out into the market or creating efficiencies in their workflows, some carriers and underwriters have invested there. If you move up the value chain into the wholesale broker space, some exciting things are going on there. Companies like Pathpoint and Limit have become digitally-native wholesalers. Some incumbents are investing in digital platforms to process E&S risks more efficiently because there’s a lot of paper shuffling, emailing, calling, and a lot of documents floating around.
The innovation around making that process more efficient is pretty cool. Moving to the retail agent and insured side, easier ways to collect data and get it into the E&S workflow have seen a little bit of investment. It has probably not seen as much as other areas, whether it's admitted commercial or standard personal lines, but there’s definitely some innovation there, with a lot of opportunity in front of us.”
Is there anything in particular that is driving that innovation adoption in this space?
“The complexity of all the different workflow pieces to get a piece of E&S business written and then serviced on an ongoing basis is driving the adoption of innovation. Given the number of hands the submission, and ultimately the policy, has to touch and the steps that need to be completed through that process, it’s a ripe workflow for innovation. Generally, the early wave of the submission work in insurance has focused on the admitted side of the business because there were fewer steps and fewer pieces of complexity. As we look out at the next frontiers, E&S is one of them, and it's very ready given some of those challenges.”
Why are there so many steps in the process, and how have people already tried to make it more efficient?
“The number of steps is largely driven by several different factors. We talked about the complexity of the risk. To size that up from an underwriting standpoint, you have to do more work to understand that, to go a bit deeper, and to do your due diligence as an underwriter to price that risk as well as possible. That's one piece. The other piece is as you think about an insured and their relationship with a retailer, the retail agent is trying to place that piece of business in the admitted market first. It's the easiest, cleanest, most straightforward, and the fastest.
At Bold Penguin, we see admitted business being written in under 20 minutes, so it's very efficient. The regulatory process for admitted carriers filing their products is more stringent. The coverage packages look different, and it's generally where agents look to place risk first. There are actually state-by-state regulations that say retail agents need to check whether their business can even fit in the admitted market. If it doesn't, you have to document why that’s not the case. The regulatory landscape is in place to protect the small business, making sure the business gets an opportunity for coverage in the admitted market before going toward E&S.”
What friction points still exist for E&S coverages, and how can we fix them?
“A lot of the friction points still exist today. While there’s investment, it's in the earliest of the early innings. The friction points start out of the gate, which I alluded to just before, capturing what they call declinations. This means that the retail agent has checked the admitted markets and evaluated them to make sure that admitted carriers A, B and C will not take that risk. The agent needs to document that process, which is different state-by-state. That takes time. That's complex. There's friction there, and that's not going away. This presents the first opportunity to fix a friction point - programmatically checking to see if the business fits in the admitted market and completing the required documentation when it goes into that E&S workflow. This is an area where we’ve made good progress at Bold Penguin and continue to make the process easier and faster for agents to proceed to the E&S market with the programmatic capture of admitted declinations.
Once the risk has shifted to the E&S path, typically the retail agent is working with a wholesaler who provides access to E&S carriers and markets. That interaction gets complex because you have multiple parties, so there's a lot of back-and-forth. The wholesaler may want to work with multiple markets, and each of those markets will have different forms or pieces of information that they as underwriters want to collect. The wholesaler works up and down the value chain to make sure all of the paperwork and details are collected. It gets very complex, takes time and adds a lot of latency to the process.
Once all documents have been completed and collected, the carrier provides a quote to the wholesaler, who in turn provides it to the retail agent, who then provides that quote to the insured. However, the quote and payment process include additional complexities as there are fees to be thought through and understood. The taxing structure can be more complex, and to be able to understand that going all the way back to the wholesaler, to the retailer, and then all the way to the insured is even more of a complex process. Often these policies are larger and require premium financing - introducing another party and additional documentation to the process. And that's just to get to the bind and issuance.”
What still needs to be done out there?
“Pick any spot in the value chain where there’s friction, complexity, manual steps or forms that need to be filled out. For example, PDF forms get attached to emails and are forwarded up and down the value chain for review and completion. As you think about what business fits in the admitted world versus the E&S side, how that transition happens from admitted to E&S, how data collection and review are currently done, and ultimately how all of that converges to the underwriter’s desk, the data that’s actually needed and models that data feeds may evolve over time. We’ve seen significant opportunities for the Bold Penguin Data & Analytics product suite gain traction here as third-party data increasingly becomes a part of the E&S process, making it more efficient and driving underwriting performance to improve the risk experience.”