The workers’ compensation segment of the property and casualty (P&C) re/insurance sector is a prime target for technology investment, according to analysts at Fitch Ratings.
Analysts noted that, while it is currently enjoying a fourth consecutive year of market underwriting profits, the workers’ compensation business has historically suffered from large losses, driven by inadequate pricing and claims volatility.
Investments or strategic partnerships with outside insurtech firms may be able to accelerate the pace of change in this segment, Fitch said, by bolstering performance and maintaining competitiveness.
Advantages could include an enhanced ability to process, analyse and store large volumes of data, resulting in greater modelling sophistication in risk segmentation and pricing, as well as supporting speed resolution in claims and helping to predict high severity incidents.
Further opportunities to improve modelling and risk management capabilities are also emerging from the use of artificial intelligence (AI) and machine learning, which can incorporate information from wearable technology, sensors and other devices into decision making.
“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,” said 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.”
Fitch observed that some insurers have already begun to target efficiency by entering partnerships with external insurtechs or by developing their own innovation labs.
Nevertheless, many established companies are seeing competition emerge from start-up underwriters and managing general agencies (MGA’s) with direct, data driven on-line platforms.
Uncertainty remains as to whether these newer entrants can build a profitable business with sufficient operating scale, analysts concluded.