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Challenges impacting the commercial property insurance ecosystem

Published: January 31, 2022

Commercial property insurers are facing major challenges which could require fundamental changes to the ecosystem in which they operate. A severe shortage of professional adjusters, declining property insurance claims due to the COVID-19 pandemic and technological transformation are among the challenges insurers are facing.

When dealing with commercial property, there are loss adjusters and damage adjusters. Loss adjusters are responsible for quantifying the loss and also applying the policy terms and conditions to determine if there is cover or not while damage adjusters inspect property damage to determine how much the insurance company should pay for the repairs or replacement.

Industry experts within the commercial property insurance sector predict a severe global shortage of professional adjusters in future, as many of them have retired or are about to retire. Most adjustment professionals are older than 55 and insurers have struggled to recruit millennials, leaving a considerable experience gap within the commercial property insurance industry.

Most of the experienced loss adjusters or insurance assessors that we have today were previously trained in-house by insurers.  Although many of these trained professionals have ventured into their own businesses, insurers still use them by contracting them as part of their outsourcing strategies. A concern is, however, that many of the loss adjustors, professional adjusters and insurance assessors operating in the market may not be adequately trained. 

The impact of the COVID-19 pandemic and declining claims

Another major challenge facing the industry is the impact the COVID-19 pandemic has had on commercial property. Many small businesses that rented office space have closed down and property owners have lost millions in income as a result of unoccupied properties. This led to most of the insurers experiencing a decline in the number of claims reported. As a result, many adjustors closed their businesses. The pandemic and its aftermath are expected to continue hitting some property-casualty lines harder than others in the next few years.

Furthermore, small business premiums, battered by shutdowns and bankruptcies, may also be slow to recover. Many more retailers, restaurants, and personal services outlets may have to close down permanently.

Disputes over pandemic-related business interruption claims have been resolved. Going forward, policymakers and industry leaders will likely seek public-private solutions to provide affordable commercial insurance coverage for future outbreaks as the majority of the insurers have already indicated that pandemics are excluded in their cover.

The COVID-19 pandemic has also brought about a change in how inspectors and adjusters operate. Traditionally they would visit properties in person to take measurements and determine damages. However, clients have been opting out of on-site visits with inspectors and adjusters due to the risk of infection. Technology, therefore, was vital in helping insurers shift to remote working environments and providing employees or suppliers with the tools to conduct business while remaining connected with distributors and clients.

Technological transformation in the insurance ecosystem

The long-term impact of the COVID-19 pandemic appears to have accelerated several tech-related adoptions across the insurance industry. In fact, before the onset of the pandemic, insurance businesses had already started to realise the need to seamlessly interact with their vendors and partners using digital platforms. However, the sudden shift to remote work propelled the need to strengthen digital platforms and processes.

This shift also potentially exposed just how reliant insurers are on their key suppliers and partners, bringing the subject of ecosystems top of mind for the insurance businesses and providers.

A strong ecosystem within the industry can help boost collaborative capabilities and reduce risks associated with third-party dependencies. This also helps create more consumer benefits than any one company can create on its own.

With the advancement of digital technology, property insurers must improve the speed of the settlement and the transparency of the claims process and communication regarding the status of clients’ claims. It is imperative to have an adequate professional list of service providers available and keep communication open and frequent with the client. Most clients are happy to wait for a day or two as long as they are updated about the status of their claims. 

Yes, there are still challenges for which solutions must be found, but the way insurance providers have already adapted to many of these, bodes well for the future of the sector.

By Wilma van der Walt, Executive: Customer Experience and Operations at PPS Short-Term Insurance

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