Beyond the Surface: Insights from Middle Market Decision-Makers

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Text: Wednesdays with Woodward (registered trademark). Webinar Series. 

A slide shows a laptop open to the Wednesdays with Woodward (registered trademark) Webinar Series. To the left is a potted plant and on the right is a red mug with a white umbrella on the side. Logos: Travelers Institute (registered trademark). Travelers. Text: 15 Years.

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JOAN WOODWARD: Hi, good afternoon, everyone, and thank you so much for joining us. I'm Joan Woodward, and I'm honored to lead the Travelers Institute, the public policy division and educational arm of Travelers. As you can see, we are celebrating our 15th year anniversary this year. 

Welcome to Wednesdays with Woodward, a webinar series where we convene leading experts for really important conversations about today's biggest challenges. So we're really glad you're here. Before we get started, I'd like to share, as we always do, our disclaimer about today's program.

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Slide: About Travelers Institute (registered trademark) Webinars. The Wednesdays with Woodward (registered trademark) educational webinar series is presented by the Travelers Institute, the public policy division of Travelers. This program is offered for informational and educational purposes only. You should consult with your financial, legal, insurance or other advisors about any practices suggested by this program. Please note that this session is being recorded and may be used as Travelers deems appropriate. Logos: Travelers Institute (registered trademark). Travelers. 

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And a special thank you to our partners, the Connecticut Business & Industry Association, the MetroHartford Alliance, the Risk and Uncertainty Management Center at the University of South Carolina's Darla Moore School of Business, TrustedChoice.com, and the National Association of Professional Insurance Agents, and UConn Master's in FinTech Program. 

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Slide: Wednesdays with Woodward (registered trademark) Webinar Series. Text: Beyond the Surface: Insights from Middle Market Decision-Makers. Logos: Travelers Institute (registered trademark). Travelers. Text: 15 Years. UConn School of Business MS in FinTech, TrustedChoice.com, National Association of Professional Insurance Agents, MetroHartford Alliance, Risk and Uncertainty Management Center at the University of South Carolina Darla Moore School of Business, Connecticut Business Industry Association (CBIA). 

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So thank you all for being here. 

Today, we're going to focus on all things middle market. We tend to hear news focusing on the two ends of the spectrum, the small or the large businesses. But many companies, and certainly many of those that we insure, don't fall under either category. So for the next hour, we're going to discuss the biggest trends impacting midsized businesses known as middle market.

We've got a hot-off-the-presses Travelers survey of middle market decision-makers that we're going to share today hot off the press. We'll take a look at their shopping patterns and preferences when it comes to insurance and insurance carriers. So joining us today to unveil these results of the survey is my friend and colleague Scott Higgins.

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Slide: Speakers. On the left is a portrait of a woman with short blond hair. Text: Joan Woodward. Executive Vice President, Public Policy; President, Travelers Institute. Travelers. On the right is a portrait of a man with short brown hair. Text: Scott Higgins. Executive Vice President, President, Middle Market, National Property & Business Insurance Field, Travelers. 

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He's the Executive Vice President and President of Middle Market, National Property and Business Insurance Field. 

Scott plays an integral role in the overall management of Travelers’ insurance product offerings to midsized businesses. He began his career here at Travelers as a Commercial Accounts Underwriter. Then he moved over to National Accounts, where he eventually worked his way up to Chief Underwriting Officer for Construction.

Scott continued to climb the ranks and was named Senior Vice President and President of Commercial Accounts Group with additional responsibility for Excess Casualty, Public Sector, and Technology. In 2016, he was promoted to his current role as EVP and President of Middle Market. Scott also works closely with the Commercial team in the United Kingdom and in Canada. So a warm welcome to all of you tuning in from those regions.

Scott has tremendous amount of experience as a recognized leader, not only here at Travelers, but also in across the entire insurance industry. People want to know what he has to say. So we're incredibly lucky to have him here today. Scott, thank you so much for joining us. I know you don't talk very much publicly, so it's an honor to have you on the team today.

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The slide presentation changes to a split screen of the two speakers.

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SCOTT HIGGINS: Well, thank you, Joan. And thank you for, as I've said before, the continued success of this-- of the webinar. 

JOAN WOODWARD: Well, thanks a lot. Yeah, we are celebrating our 15th year. All summer, we're going to have lots of programming. So more on that to come. Scott, we would both be remiss if we didn't talk about one of the biggest weeks in golf.

We have to talk about golf, folks. The Travelers Championship wrapped up just on Sunday and a record-breaking number for charity. We raised over $3.2 million, going straight to charity. All the net record proceeds go to our charitable groups.

We've funded more than 900 over the past-- since 2007, raising more than $30 million. But Scott, what are some of your favorite takeaways from last week? You actually played in the Celebrity Pro-Am. How'd you do and what'd you think of the week?

SCOTT HIGGINS: Yeah. Well, starting with the pro-am, I certainly-- it's a great honor to be able to do that. I categorize success in that event, making sure I don't hit any of the many patrons that were on the course. But it was a wonderful day.

As far as the tournament is concerned, for somebody like myself who's grown up in Connecticut, it's been an incredible source of pride for this state, and you can see that in the crowds. And then for Travelers, I've been with the Travelers for the entirety of my career. And I've seen this company grow and the tournament grow. But again, another just incredible source of pride for all of our employees.

I think there's a waitlist to volunteer for the event. And so it's just a wonderful week for all of us, and certainly the crowd showed it. And we had just a great finish and a great champion in Scottie Scheffler. So a good, fun week for all of us.

JOAN WOODWARD: Yeah, it really was. And to have seven of the world's top 10 players and I think we had 43 out of the top 50 show up. It's really a testament to what Travelers has built here, having last year, I guess the fans-- it was a fan favorite, voted by all the fans who go to these golf tournaments. And we got the prize, I think, also for the players' favorite tournament last year.

So we're so thrilled to have that recognition, and we work hard for that, and it really does show. And it was just a great week. I think I was there every day, which, I've turned into a shallow person if I'm just watching golf constantly. And that's-- it is what it is, folks. It happened.

OK, enough with this monkey business, Scott. Let's get down to your survey. So you surveyed 1,000 middle market business decision-makers. Let's get into a discussion about this recent survey. So before we dive into some of the key findings, can you first tell us more about what the survey is and what prompted you to do it?

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Slide: 2024 Middle Market Shopping Study. Text: Research Objective: Hear directly from middle market decision-makers about their shopping and purchasing preferences and habits. 1,000 business decision-makers for external suppliers and business completed our 15-minute blind survey online. Participants represented midsize businesses across various industries, including: Transportation, Manufacturing, Construction, Healthcare, Technology, Professional Services, Public Sector, Real Estate, and others. Footnote: Midsize businesses defined as companies with 50 to 999 employees. 

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SCOTT HIGGINS: Yeah. Thank you. So I'll focus entirely on middle market customers. But more importantly, it's really the first time we've done anything like this. We had done surveys for distributors in other subjects, but we had never done direct to the customer and direct to the decision-maker in a blind format. And so we took advantage of our incredible Enterprise Market Research group and did just that, a blind 15-minute online survey of over 1,000 decision-makers to try to get a sense for what motivates them and why they buy, and how their decision-making process works. 

A little bit of context in terms of how we define midsized businesses. For us, it was companies that employ, say, 50 people to about 1,000. And we targeted almost all of the industries that I can think of, construction, technology, transportation, all of the manufacturing SIC codes, healthcare, retail, real estate, professional services, banking and others.

And so a fairly comprehensive look at a market demographic that has $152 billion worth of premium. I noticed in your opening you commented-- you talk about national accounts and you talk about small. Middle market is an enormous amount of premium volume in this space.

And 88% of that premium is bought on a guaranteed cost basis, for those listening out in the audience. I know everybody knows what that means. That's an important point as we start getting into some of the findings, as we move through this.

And the other consideration that is really important, middle market continues to grow. It's got a projected three-year CAGR of about 7% by 2026. And so this is a demographic populated by 300,000 middle market companies.

And obviously, those numbers are a little bit related to how we define the definition of middle market. But either way, it is a significant part of the U.S. economy. And we, like I said, wanted to get a real good sense for what the buying patterns were for our customers.

JOAN WOODWARD: Well, let's get into what you learned, starting with the buyer preferences, as you say. So how much of a role does price play when middle market buyers are shopping for insurance? Because we hear about price a lot.

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Slide: 2024 Middle Market Shopping Study. A chart is labeled, Key Trends. It has four sections. The top left is titled, While price matters, few buyers shop on price alone. Text: 55% of buyers cited price as the main reason they shop their insurance: however, only 6% of buyers purchase on price alone. 92% are looking for coverage beyond what is basic and inexpensive. Only 8% of companies purchase only what is legally required. The bottom left is titled, What the middle market buyer is looking for in a carrier. Text: Strong relationship, 70%. Understands their business, 69%. Demonstrates financial stability, 69%. Handles all their insurance needs, 62%. Risk management expertise, 52%. Handles complex claims, 48%. The top right is titled, Definition of value. Text: 2 out of 3 buyers define value as getting the best products and services for a fair price when it comes to working with external business partners and vendors. The bottom right is titled, Importance of relationships. Text: A strong relationship is the #1 cited reason for selecting a carrier. 70% cited in person as the #1 preferred interaction method with vendors and suppliers. 45% say they prefer to work with insurance carriers who are located in their region and understand local issues. 

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SCOTT HIGGINS: Yeah, price is certainly relevant. What I thought was most interesting here is that more than half of the respondents were very clear that price is the reason that they would shop or seek a bid or an alternative. But having said that, only 6% of the buyers actually purchase insurance on price alone. 

And so you can begin to see very clearly that the middle market buyer is not buying a basic, inexpensive insurance product. In fact, it's quite the opposite. We've got two-thirds of the respondents define value as working with external business partners and vendors. They want the best products and services at a fair price.

And we even had another 11% say that value is most important, that getting the best products and services, no matter what the price. And so it really is a powerful set of metrics that are putting priority on products and services, and making it the forefront of their decision-making. And I don't think that's necessarily a surprise to me.

I am-- our group did react to the percentages and how high they are. And so you get a real sense that gone are the days where you simply pay premium and transfer the risk to an insurance company, and it pays the bills. And that's why I commented that 88% of the buyers in middle market are guaranteed cost buyers. They could simply buy insurance and transfer the entirety of that risk.

But they're not doing that. What they're saying is, we are going to-- we are going to buy the insurance, but we have a much higher expectation around what value should be derived for that, what is in it for them. And so that was really, really important for us. And so to be successful in this space, you're not only going to be price competitive, but you have to offer products and services that really have a value proposition for the customer.

JOAN WOODWARD: OK, so putting aside price for a second, tell us more about what that middle market buyer really is looking for, then.

SCOTT HIGGINS: Yeah. Again, some numbers that I want to share. Ninety-two percent of them are looking for coverage beyond what is basic and inexpensive. And so that-- I don't think that's new news. There is an expectation that terms and conditions are important.

Seventy percent of the buyers want carriers they can develop a relationship with. And I think the word "relationship" here really means a trusted advisor. They're looking for a company who can align with their needs, and they want to be able to trust that, whether it's the account executive, or the risk control consultant, the claim professional, whoever it is on the team, they want to drive a very strong relationship with.

Sixty-nine percent want a carrier that understands their business. And that same percentage applies to financial stability. They very much want a company that is financially stable. And so it really connects to this fourth bullet, in that more than half are looking for tangible, industry-specific risk management expertise, as well as the experience associated with handling really complex claims. And so that's what the findings were, from our perspective.

JOAN WOODWARD: OK, so let's dig into that. When a middle market buyer says they want a carrier who understands their business, what can we, as a carrier, or the agents and brokers listening on the line today, what can we take away from that?

SCOTT HIGGINS: Yeah, I think on the relationship dynamic, 70% want that. I go back to those couple words, "trusted advisor." That is really important. I think every distributor or agent-broker out there understands the importance of their role in being a trusted advisor for our customers, and it feels like the same holds true for the carrier. And we're hearing that the preferred engagement model, 70% of those that we spoke with, or, I'm sorry, got the survey from, want a person to interact with them live, that they want their vendors and suppliers to be an in-person relationship.

And specific to insurance, all of the decision-makers were very specific about the engagement model needs to be more than once a year. You know, gone are the days where you just renew the business, and you meet back again 12 months later. But they want an engagement model that's far more frequent. And they also want the people that they're dealing with to be in their geography.

And so I really believe, and we've taken this to heart as a leadership team, that the best carriers, the ones that will succeed in the marketplace, are going to have to have national scale and have a local touch. And we're seeing that close to half of the respondents really want to work with individuals who are located in their region and understand the local nuances of their jurisdiction.

And the United States is comprised of 50 different states, we know that. And what's really unique to the insurance industry is each of those 50 states have a lot of regulatory environments that are not the same. And so being local is really, really important to the buyers. And so we've taken that to heart.

I think the other statistic, financial stability, 70% of the customers want that. We felt that was really important. But it's extended far beyond just the ability to pay the claim. They want to know that the carrier that they're doing business with has the capital to make the investments in the things that really matter.

And so making sure you have the best claim department, the best tools in the claim department. Making sure that you have risk control consultants that can be local, that have the best tools, investments in ergonomics capability, an industrial hygiene lab. They want a carrier that doesn't just pay the claim, but rather makes the investments and the entire experience becoming better.

And then-- and I think this one is really important, they want to do business with a company that understands their business. And so if you are a life sciences company and you're in the pharma business or the medical product liability business, they want to know that not only does their underwriter understand the nuance of the exposures that their company has, but they also want to know that in the event of a loss, they've got a dedicated claim professional who understands the nuances of the claim. And certainly you have to surround all of that with risk control capability that's specific to a life sciences company.

In the construction, energy and marine space, particularly construction, so much of our customers are on a job site, and so much of the underwriting expertise that's necessary is to ensure that you've got the right contractual insurance obligations in place. So this notion of contractual risk transfer, understanding that. That's especially important in that business. And so to be able to do a life sciences company and a construction company and not have differentiation at the underwriter level just wouldn't be successful. And so it feels as though that expectation is very, very high.

Coming off of COVID, any time you hire new customers, and there was an influx of that the last couple of years, all of the customers are looking for the ability to help with the new hire orientation. There's a causal relationship between when you hire new employees and injuries happening in the first 90 days.

They want companies that are cutting edge, relative to generative AI. And one of the examples that I always talk about is the ability to use AI in a risk control environment, just looking at an ergonomic workplace injury and using that tool to make sure that we can be not only effective in the prescription on how to avoid those losses, but also be in a position to do that very, very quickly.

And then in the manufacturer space, supply chain dependencies was another concern that has come up over the years, and how do you deal with vulnerabilities if you've got a supply chain contingency that goes away and how to mitigate that risk, how to mitigate the risk of a single supplier. Any time you have a change in operations, that requires you to, say, store materials that you wouldn't otherwise store in your facility, all of the things that we see seem to be important to our customers as well, that you have to have underwriting claim and risk control that is specialized in all of these industries.

JOAN WOODWARD: Well, thank you, Scott, for that really, really comprehensive answer. Actually, one of the things that I recently-- and you travel a lot. I certainly travel a lot.

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Just talking about the national scale of a carrier, but that local underwriting and understanding the nuances of these 50 states. 

I just thought-- recently I was in Nashville and Chicago. Today, I'm sitting in our St. Louis office. And I'll tell you, execution with excellence in the field is what we're good at. So I've seen this just repeatedly every single office I visit in talking to the underwriters, and understanding the local nature of what they write. So thank you for that. All of that just resonated with me.

I want to move on to buying patterns. So what other insights did you uncover about middle market buying patterns and preferences of that buyer?

SCOTT HIGGINS: Yeah. Anecdotally, we've seen a shift in buying patterns. There seems to be a growing interest in purchasing more lines from one carrier, and the survey has supported that. We've got 63% of the respondents telling us that there would be a willingness to buy all lines from one carrier, if the carrier has deep knowledge and expertise in that industry.

I think that was a little bit higher than I expected, candidly. But when I think about consumer buying patterns, you're seeing the same thing. A lot of folks are-- or we're all making decisions about buying in an ecosystem, and we're buying more things from one place.

And Amazon, probably a dated example, but nobody just goes to Amazon to buy books now. They buy a lot of stuff. And the same thing seems to be trickling into this particular cohort of business and how they would buy.

And so we've got another metric that says 62% say it's very important to have the ability to handle all of the insurance needs with one company. And more than half of the respondents recognize that there are advantages to placing all of the insurance with the same carrier. And you think about that within the context of, say, a manufacturer, as I mentioned before.

They're going to buy workers comp, GL, and auto, and umbrella, and property, maybe some manufacturing, E&O, cyber, a global placement. They're going to buy all of these lines of insurance, and when a claim happens, there is a lot more evidence to support that there's less confusion when the claim happens. And so you've got close to half of the folks understanding that placing multiple lines of insurance will allow them to just feel better about when that claim happens.

And so I thought that was a fairly compelling statistic. It didn't surprise me that the strength of the percentage, actually, was higher than I would have-- than I would have expected. And candidly, our distributors, our agents, our brokers have done a fabulous job in doing this.

That when they work with their middle market customer, oftentimes, their penetration into that customer is very high, in terms of multilines. And so I've been envious of that. And I think we're seeing a shift now where distributors are expecting that from carriers as well. There's an efficiency to that process. They understand the customer better, less confusion about claim.

And then very candidly, the diversification of premium that comes from selling multiple products allows a carrier to price it as a customer, as opposed to a bunch of individual lines. And so I think there just is-- there's an enormous benefit from being able to bring the entirety of all of your offerings to one customer and an equal amount of receptivity of those customers to buy that way. And so that's been intriguing to us.

JOAN WOODWARD: OK, thank you for that. Scott, I want to talk about-- I was just in San Diego at the RIMS conference, the RISKWORLD conference last month. And I spoke to a customer that-- and asked him who does he partner with to manage his insurance programs?

You know, middle market-- very solid, middle market customer. I'm going to read a couple of things to you that he told me and then I want to get your reaction. So he says, as his organization has grown from midsized to a larger business, it's a stronger partnership with the carrier and the broker. Gets stronger because they rely on them more.

They realize risk management-- That's No. 1. No. 2, they realized risk management needs to be its own function as a high-level position due to complexity, market conditions, expertise and industry knowledge. And then No. 3, with their growth into a much larger middle market customer, it can't be done well by just the controller, this risk management.

It's not easy to find risk managers these days, which adds, of course, to the challenges. Again, that talent acquisition, retention. The whole industry is struggling with the talent piece.

And then fourth, he said 20 years ago, renewal was an afterthought. Renewal may be 2% increase one way or the other. Now, he told me, it's a 12-month process that requires investments in safety and property infrastructure. And so it's a whole different ballgame than when he was a smaller company. So what does this all tell you?

SCOTT HIGGINS: Well, first, I'm glad they're our customer. That's great.

JOAN WOODWARD: Yeah. And very thoughtful. 

SCOTT HIGGINS: Yeah. A lot of what you just said there validates what I said as well. Clearly, there's an element of trust or advisor status there. You just have to have that.

And it sounds as though by naming somebody beyond a controller to deal with insurance, we have to link in with that buyer from a distribution perspective, as well as our perspective in a really trusted advisor status. I think that was very astute.

Complexity, marketing conditions, expertise, industry knowledge, all the things that we've talked about, you simply don't want to make a purchasing decision that significant and not do it with somebody who's got a high degree of industry specialization and having a broker who understands market conditions. And so there's a great complexity to this business.

I love the last comment. You said something about, it used to be a one and done. You would take the increase and then you would come back 12 months later. That is absolutely not the process in the middle market space. There's a much higher level of engagement that's expected from our customers.

And they've upped the ante. And I think to be successful, you're going to have to drive value through a 12-month process. And what I think is most interesting, goes back to what I said originally, of the $152 billion marketplace out there, the middle market buyer, 88% of them are buying guaranteed cost.

So they are paying premium to transfer all of the risk, yet they're having this much higher expectation on value. And so to me, that is-- it just speaks to an understanding that the customer have that there's complexity here, and that they do need to mitigate losses, and they do want to be with the company that's innovative and can help them do that, and understand their business. So I loved all of that. I hope this is one of the people we surveyed.

JOAN WOODWARD: Yeah. I mean, it's really interesting just to hear about the thoughtfulness of the 12-month process and the risk control, because they don't want to have to file a claim, right? And you want to avoid that. And so the thoughtfulness all year long versus just at that one renewal month.

So it's really-- I love going to RIMS, by the way. It's invigorating and it just shows how innovative you all are in your underwriting expertise. So I want to talk about what's keeping people up at night. So what is that middle market decision-maker that you talk to, what's keeping that person up at night, Scott?

SCOTT HIGGINS: Yeah. The big thing, cyber risk and then attracting and retaining talent, two different things, but seem to be the things that they're thinking about. And relative to cyber or computer-related technology, cloud, any of those things, I sort of emphatically agree with that worry.

I mean, cyber is a top concern in the news. It is a very important insurance coverage. It is still a relatively new insurance coverage.

JOAN WOODWARD: Yes.

SCOTT HIGGINS: And so I encourage all of our customers to understand, assess their exposures. Sit down with their agent-broker and carrier and have really thoughtful conversation about what your exposure is and how you mitigate that exposure through buying the coverage.

And you've done a really good job in your webinar series. I know you've profiled some of the many experts we have here on cyber and taken advantage of that great expertise. But I do think that's a very big worry. You don't have to watch the news too long to realize that it's a significant deal, not just in the commercial space, but also in the consumer space.

And then I'm equally not surprised about the notion of needing to attract and retain talent. I mean, this feels like an industry that is light on talent right now. And there needs to be a bit of an investment there.

And so if you were to ask about the challenges on talent, I'd tell you we think about it a lot. You know that. We talk all the time.

Two-thirds of our customers worry about that. And I hear it from brokers, and I hear it from customers. And we're living it here at the Travelers as well.

I think the big thing here is as the next generation enters the workforce, I've been amazed at their capacity to learn. We have a very significant, new-to-industry training program that we do across multiple aspects, whether it's actuarial, underwriting, claim, operations, finance.

So their capacity to learn is significant. And they also learn much differently than I was used to. Now it's digital. Some of it's self-paced. It needs to be on-demand.

Some of our negotiation curriculum include gamification, where you're in a gaming-type environment. And like I said, the ability to absorb information seems to be incredibly high for people joining us. And then there seems to be a high emphasis on accelerating their careers.

I mean, the impact of social media has done that. And so the development of their personal brand, we've tried to do that as well, and talk about the fact that we're going to socialize your influence amongst a lot of different leaders at Travelers.

And so we think we get great people into our organization. We work very hard to make sure the learning matches with their expectations. And we make an investment in their personal brand. And I think that will be really, really important for any company to attract and retain the top talent.

JOAN WOODWARD: Yeah. I've really been amazed at our Leadership Development Program. So the LDP program, as you say, the different disciplines of actuary, underwriting, claim, finance here, and it's a really fantastic three- to four-year program depending what discipline. And we've graduated some amazing LDP folks.

I've had a number that work for me. I know you have a number that work for you. And you really just get the cream of the crop coming to Travelers to be in those LDP programs. So if anyone out there wants to apply for our LDP programs, they're throughout the year. They're different, staggered.

But do check out our career website. And I know that our training programs are top notch. And so, and I think, too, it's a difficult industry to attract, and that's why we partner with all of our risk management university and college folks, like the University of South Carolina, or St. John's, or others in this space, UT. University of Texas at Denton has a big program.

And so we at the Travelers Institute, Scott, have taken our road show with our recruiting folks to talk about how we can get more young people in our industry. And so we're doubling down on that for sure.

On the cyber piece, just to remind folks, we do have a very large cyber in-person symposium program. Over the last eight years, we've done about 50-plus programs with our agent-broker partners educating, talking about what's necessary from the Department of Homeland Security, the FBI, the Secret Service. We partner with all those government agencies to raise awareness.

And so-- in fact, Alan Schnitzer, our CEO, is the only CEO in the insurance industry and the national carrier space to be invited by President Biden to the White House to that cyber summit about two years ago, which was a really important acknowledgment, I think, by the government and others that the insurance industry has a real big role to play to help our middle market partners get cyber hygiene clean. So on those two fronts, cyber and certainly talent acquisition and retention, we're in the game. And so it's very exciting.

All right. I want to move on, Scott, because we only have so much time here. We want to get to audience questions, too. I want to talk about customer expectations and technology, specifically when it comes to Travelers.

So you mentioned how insurance is a trusted advisor business today going to price, terms, conditions. Talk more about what Travelers specifically is doing when it comes to customer experience and technology.

SCOTT HIGGINS: Yeah. Part of being financially stable is the ability to regularly evaluate new technologies, have the capital to give consideration to all of the things that are out there. The last time we spoke, we talked about insurtechs. That's still incredibly relevant.

As of today, I mean, the hot item here is artificial intelligence. And you mentioned Alan before. Alan has made that a priority in our company to think about how can this help our business. And we've aligned leadership around the use of generative AI.

And I would think about that as accelerating transform initiatives that allow us to extend the advantage that we have in our core competencies. And so it could be things that I'm very passionate about. There is a lot of friction and time in the transaction process.

Brokers send us the same degree of information every year, even if it's a renewal. And there's so many things that we think a generative AI solution can take and improve that. And so sometimes, I think about AI as being how can that help an underwriter or a claim professional really focus on value-oriented activities?

Every job has some component of work that quite frankly isn't terribly hard to get done, but they just have to do it. And so we're thinking about AI as just making the life of an underwriter a little bit easier, supplementing information, going out, grabbing that information, not putting that burden back on the distributor. And anything that can drive a faster insight into our decision-making, whether it's at the individual risk level, or at a large portfolio of business. There's clearly application in the AI space for that.

And we think, obviously, if you can use some of this, it can support a competitive price structure. I certainly see AI, and we're going to use this in our space to accelerate the learning curve. I've talked about retaining and attracting talent.

I feel like the industry is light on talent. We're hiring a lot of people. The expectation to accelerate the learning curve, we think, can be supported in a generative AI environment.

One of the other things that I'm interested in is, is we-- and you know this. We've got a dedicated group here that thinks about nothing other than innovation. And it's becoming increasingly clear that customers expect that same dynamic.

And so we have an innovation network, and we're starting it out. And it's curating a collection of technology solutions that help customers manage risk.

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Slide: Travelers Innovation Network. On the right are three pictures. The top is labeled, Construction, and shows a worker in front of a construction vehicle. The middle is labeled, Energy, and shows wind turbines. The bottom is labeled, Northland, and shows a semi-truck. Text: The Travelers Innovation Network is a curated collection of technology solutions that help customers manage risk. 

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And one of the things that we're seeing in very specific industries is that our customers are looking for help on, well, what telematics device would be the best company to partner with? What wearable to control my workers compensation would be the best company to work with? 

And so it feels like there's an expectation level that this trusted advisor concept that I keep talking about has extended itself beyond price, terms and conditions, and risk control and claims service, but almost to the point of being consultative, and saying, hey, we think this would be a good offering for you to consider, if you were going to get into the telematics space, or the wearables.

And we've partnered with some companies that we have confidence in, and we share that confidence with our customers. We have three different networks now, one dedicated exclusively to construction, one exclusively to energy, and one to our Northland customers, which is our trucking operation. And there will be more to follow. So to me, it's another example of how we're making the investment in technology and innovation to make sure our customers are getting the answers that they need.

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JOAN WOODWARD: So let's talk about the digital experience, because we-- it feels to me like we are differentiated from other carriers out there, with regard to our Travelers digital experience for those stakeholders. Can you talk about that for a second? 

SCOTT HIGGINS: Yeah, we talked about it the last time, and I'm pleased to say that we've made a lot of progress. We feel like digitizing the value chain is critically important. And it's important we handle-- we work with 10,000-plus agents and brokers, and how we exchange information, we feel like there's an easier way to do that.

And the one example I think I shared with you last time, and I can say with a certain sense of pride that we do believe we were the first to offer agents and brokers a comprehensive portfolio loss data exchange, which would allow us to digitally transfer to a middle market distributor's loss information on the entire book with us.

And Alan went public with that, I think, at our last earnings calls in his script. We think that the exchange of information between distributor and carrier needs to be improved. And we put a high bar on ourselves to make sure that we are the most ready to do that when it's time to do that. And so we've been excited about the progress that we've made there.

JOAN WOODWARD: Great. Thank you for that, Scott. So let's talk about just some other investments real quick. Maybe go through what other investments Travelers is making for those middle market customers, then.

SCOTT HIGGINS: Renewable energy. Solar and wind, that industry is moving, and we're positioning underwriting and the corresponding specialization necessary, and claim and risk control, to make sure that we're in that space. Private equity is a business that we've always done. 

So think companies that are owned by private equity companies, and that buying pattern has taken hold, and there's an expectation level that you need to service that a little bit differently. We've announced a private equity practice for ourselves, which has been exciting, and we're off to a great start there. Advanced manufacturing is the next subset of manufacturing that's going on. We're using technologies in the process to improve. And so we've got a lot of customers in that space. We've got a dedicated Industry Edge offering for that.

So just responding to what's going on in the marketplace, relative to changes, and making sure that we're current with it. But those are three exciting things that I've been sharing.

JOAN WOODWARD: OK, great. So I'd be remiss, Scott, if we didn't talk and ask you about your perspective on the actual marketplace. And we actually have a number of questions coming in through the Q&A here from our audience members on this question. 

So tell us about what you're seeing in the middle market today. How do you feel about marketplace inflation, inflation's a big, critical topic for all of us, and any other critical factors that you're seeing today? What's keeping you up at night, maybe?

SCOTT HIGGINS: Yeah, the things that keep me up at night are the things that we pay really, really careful attention, in terms of how we price the product. There's a couple you mentioned already. You know, we pay attention to the economy. Obviously, I think insurance is a strong economic indicator. It's critical to the success in commerce in general.

Inflation is a big deal. Looking at the labor market, we're paying attention to that. The implications for us could be very real there. We talk about social inflation. So there's economic inflation.

I'm going to talk about social inflation, which we're starting to use language like legal system abuse. There is a very active plaintiff bar, and we're seeing verdicts that can be fairly significant. We offer a lot of liability coverage, and we insure a lot of industries in a very litigious country. And so legal system abuse is one.

The weather. The weather patterns have changed dramatically. 2023 was the most costly year on record for what we call severe convective storms. So think tornado, hail. And that's always occurred, but it used to occur in a certain place. Now it occurs in a lot of places. So volatility of weather is a big deal.

Workers comp. We are a very large writer of workers compensation. It's critical to pay attention to medical cost inflation there, medical trends. So we do that. And then we have to have a lens into the reinsurance community. We are a reinsurance buyer. We're not overly beholden to it, because we consider ourselves very good underwriters with a lot of capital and a lot of capacity.

But pricing starts with how reinsurers feel and their results. And so we're dealing with some of those pressures. So those are some of the things that we're thinking about each and every day. And we've committed a lot of resources to do that.

JOAN WOODWARD: OK. That's a lot to juggle, a lot to worry about. I want to talk about the different lines of business, because you mentioned a few earlier. But are there any challenges, then, for the middle market decision-maker, the buyer, when it comes to specific lines of business that we sell?

SCOTT HIGGINS: Yeah, that's a great question. I mean, if you're a broker or you're a buyer and you're thinking about auto, three things, and the first ones are pretty easy. I mean, inflation. Vehicle prices are up. Repair costs, labor, it just costs more.

The second thing is, again, probably you're very aware of, driver behavior. Distracted driving, drowsy driving, impaired driving. That's happening, unfortunately. Those two drive loss costs. There's no question that is driving an increase.

The third one, you may know about, but you may not know the magnitude of it, and that is the notion that attorney representation as a percentage of every commercial claim that comes in continues to get very, very high. And so when you have an attorney involved in a claim and it goes to suit, it is multiples of cost.

And so those three things I would tell you candidly will continue to drive price in the auto line. The industry combined ratio for that line, it's not unique to us or anybody else, but it is high. And it is going to need some pricing.

GL and umbrella, I talked about legal system abuse. I talked about courts working through the backlog. There could be some claim development there.

We look at our competitors' results, and they've had some prior year development in the recent quarters, adding or strengthening the reserves for GL and umbrella. Paying attention to that. Property, I talked about.

I feel like the property market is more organized now than it was a year or two ago, meaning everybody's got their reinsurance in place. There is some degree of ROE-- positive ROE associated with the line. And so that will trigger. But no sooner do I say it's organized that the volatility of the weather continues to evidence itself. And so that's a line of insurance where I would expect you would still see some really responsible underwriting in that line.

And then workers comp, as I've said before, the frequency has been favorable. We pay attention to medical severity. If there's a discernible change in medical pricing-- medical inflation, then that would certainly impact us.

But in all, I see a necessity for underwriters to be responsible across the big five lines of insurance, and that's what I expect you to see for the rest of the year, and certainly into next year.

JOAN WOODWARD: OK. That's very, very helpful. We have some questions coming in about is the middle market growing? Should we expect exponential growth? Is it on a slower path? But do you see evidence of the middle market growing?

SCOTT HIGGINS: Yeah. I think I opened with that. I think we have the compounded growth rate for the next couple of years about 7%.

So it's pretty meaningful. You're talking about 300,000 customers. And I don't want to-- $152 billion marketplace of available premium in the United States, that's a big cohort of business, and it is growing.

JOAN WOODWARD: Yeah. And so many things have changed. Since COVID, the labor market has changed. Lots of things going on in the world. Maybe in the last 10 years, Scott, what sticks out to you, in terms of the industry changing in the last 10 years?

SCOTT HIGGINS: Well, I mean, I still think it's a trusted advisor business. At its core, it's a customer, an agent and an underwriter figuring out what the best program is. And so I don't think that's changed.

I do think this notion of value, and the expectations for service, and product, and value, and innovation-- there seems to be a renaissance period we're in right now where there's so much of that going on. And it's really being driven by insurtechs, people looking at the industry from the outside, and is there a better way to do it? And I think we pay attention to a lot of that.

So it's an influx of data and technology into an industry, and using those things to create or drive a more efficient process. So very much still a people business, but also being influenced heavily by just technology availability and companies in the insurtech space that weren't there 10 years ago that are there now that are helping carriers think through things.

And it goes back to what I said before. Being financially stable allows you to not just pay your claims, but allows you to make the appropriate investments, if they need to be done to better your business. And I think that will be critical for carriers in this space.

JOAN WOODWARD: OK, good. So Scott, we're going to wrap up, and we're going to go to audience questions because we have a ton coming in. So I want to get to as many as we can.

But what do you want people to take away from this conversation today? So we've talked now for 45 minutes or so and we covered the waterfront. And we're kind of an inch deep and a mile wide on all the things happening in middle market. But what are those key takeaways do you want people to understand from this conversation?

SCOTT HIGGINS: Yeah. Just that the customers don't make a change for the sake of change. It feels like the expectation level for a customer in this space is much higher than it's ever been. And I've been in the industry for a while, and price played a much, much bigger role before.

And it's the numbers I shared with you before: 55% go to market for price, but only 6% make the decision on price. That speaks to a cohort of buyers that are much more value driven than they are price driven. And so our leadership team reacted to this by saying the same things.

Customers aren't going to make a change for the sake of change. They're going to make a change because there's something compelling with a carrier that they want to take advantage of. And so I think that's probably not news to any of the distributors that we're with, or customers that may be listening in. You really have to raise the bar relative to what you can offer.

JOAN WOODWARD: Yeah. No, that's great. OK, some audience questions. Here they go.

Daniel Lathrop of Lathrop Insurance. Are there solutions for fleet auto that can actually reduce risk over time?

SCOTT HIGGINS: Well, that's a great question.

JOAN WOODWARD: OK, yes.

SCOTT HIGGINS: You might not like the answer, but fleet auto, or a heavy fleet auto right now is certainly attracting some price change. I mean, there's some rate dynamics with that. And I suspect Daniel's question is predicated on price. But astutely observing what can we do beyond price, I think, again, relative to technology, the utilization of this will be really important.

So vehicles equipped with advanced driving systems. So think about, in the consumer space, if you've got a new car, you've got things like forward collision warnings. You've got emergency braking. You get a little light if you're about to leave the lane, or it keeps you in the lane. Those technologies are available for big fleets.

Now there's certainly a cost associated with buying a bunch of new vehicles, but we think that would have a significant impact in reducing risk over time. Telematics. And what I mean by telematics, it really needs the proper usage of it.

A lot of big fleets probably have telematics. They're using it for logistic purposes. But if you use telematics and actively monitor the driver behavior and actively commission somebody to look at it and provide the feedback, and candidly, if it's not working out, if they're not doing it the right way, then you've got to take action.

We're intrigued by electronic logging devices. I think they've been around five years now for all fleets and it really is a mechanism to limit the hours-- I'm simplifying, but limit the hours that a truck driver can drive. Those logs can be incredibly beneficial, if we play by the rules here. So I think there are things that have taken place through the use of technology that I think can have-- that can have an impact.

There's a lot of good drivers out there. The best drivers for fleet are going to want the best vehicles. And so there's going to be some cost associated, I think, with driving the best vehicles.

But at the end of the day, I waited till the end here. Price is still going to play a role in auto space. There's just too much-- there's too much inflation, vehicle parts, labor, attorney involvement, and there just hasn't been a return for the industry. And so I suspect price will still play a role there.

JOAN WOODWARD: And another couple of questions coming in. Just staying on this topic of auto and fleet, do you see autonomous 18-wheelers in the near future? We know autonomous cars have caught, obviously.

We thought we'd be farther along in autonomy now, but what about fleet vehicles and autonomous-- I forget what they call them. When they all line up, there's two or three behind each other. Forget the name of that. But do you see autonomous 18-wheelers in the near future, or five years, 10 years down the road?

SCOTT HIGGINS: Yeah, I don't see it in the near future. I certainly think the technology will get there, and it will be a part of our life. But I don't think-- I don't think it'll be in the near future, for some of the reasons that I said before.

I mean, there's going to be a cost associated with making that happen. And so I suspect we probably have somebody in the company that's got some forecasting as to when you would get x percentage of autonomous vehicles in a fleet basis on roads across the U.S. I don't see that being anytime soon, but you could certainly fact-check it. We've got a bunch of people around here thinking about that.

JOAN WOODWARD: Thinking about it, yes, we do. We certainly do. OK, another question coming in from Greg Knapic of Risk Strategies in Texas. Putting premium aside, what are the top five items most important to middle market decision-makers today?

SCOTT HIGGINS: Yeah, I think we went through a lot of these. A great question. Certainly industry specialization. It is-- it's, I've said this a couple of times, increasingly clear that the buyer wants to engage with a carrier that understands their business. And so that means underwriting, risk control, claim, etc.

Gone are the days where you're just a generalist underwriter. So specialization, it definitely feels like in-person engagement. The person you spoke to at RIMS, for example, it's not one and done. It's something that happens in the course of 12 months.

Stewardship, making sure we're responsive. So in-person engagement. Certainly, the trusted advisor concept is important.

I think they want a company that's making-- or knows-- is investing in innovative products, anything that can help guide the way. Should I buy this telematics device? Should I buy this wearable?

Is the company setting up an innovation network for me to give consideration to? So it's all around value. And if you don't have it, I think it's going to be-- it's not going to work out.

JOAN WOODWARD: Yeah. OK, great. Another question from Cole Adams. Can you talk about the differences of some of the Middle Market divisions you run, specifically CAG, Middle Market, Construction, Middle Market Construction. So what is the difference between Middle Market and Middle Market Construction? Some of the--

SCOTT HIGGINS: Yeah, think about Middle Market being sort of a holding company. One big segment that we have is called Commercial Accounts Group. And I would think about that as all things in the-- all industries but for construction. And so in that space, Commercial Accounts has manufacturing, retail, real estate, educational institutions, auto dealers, 24 to 25 different industry head segments.

Also included in that group is our Technology Life Sciences space, our Public Sector business, and our standalone umbrella business as well. We also have another division within Middle Market called Construction Energy Marine. It's exactly how it sounds. It is construction contractors. It is our energy contractors, whether they be solar, wind, or oil and gas. And then our two marine businesses, Inland Marine, as well as Ocean Marine. That is another subset.

And then we have a national property space. Large property monoline. We have an entity that deals with that. And then we also do boiler, both on a direct and a reinsurance basis. So in its entirety, Middle Market is comprised of 11 different business units, some as big as six or seven billion commercial accounts, all the way to a very specialized organization like Ocean Marine, for example.

So in total, about $14 billion. The Middle Market moniker, it really denotes the definition that I shared with you earlier. About 50 employees to about 1,000 employees is how we operate in that space.

JOAN WOODWARD: Scott, this has been an amazing conversation. I want to thank you so very much again. I know you don't come on a lot of these programs and speak publicly about our business, so it's so valuable just to get your personal perspective, given all the many years of you in the business.

But I have one more question coming in from the audience, and I think this could be the most difficult for you. So of all the years of playing with pros in the Celebrity Pro-Am, what was the number one piece of advice that you could share with our listeners today about maybe what a pro had given you a tip along the way, whether it's chipping, putting, holding your head down, watching the ball, not paying attention to the fans. Give us a piece of advice for our golf games this summer.

SCOTT HIGGINS: Well, I'm not sure I ever asked for playing advice, because-- not because I didn't need it, but because I didn't know if I could actually understand what it is they were saying. But I have had-- one of the things that-- the advice that I've always given people who play for the first time is get to know the caddie.

I think the caddie for the pro is a fantastic resource to get a sense for how things are going to flow. But my experience with everybody who's come, every professional that I've had the opportunity to play with in the pro-am, is they've been extraordinarily generous with their time.

If your nieces are running along the rope line and they want a picture with the pro, they come over. And so I think that's them, and I also think it's the environment that we've created at Travelers. It's sort of a hometown event.

But the most important advice that I think they've given me is they've seen every bad shot that every person can do. Relax. Just have fun. And if you think everybody's watching you, they're not. And so if you can get over those, then you'll be OK.

JOAN WOODWARD: Sounds like a good time. Scott, thank you so much. It's been really a joy to have you on the program.

And I'll let you go, but again, appreciate your time. We're going to talk about some other exciting webinars coming up. Thank you, Scott.

SCOTT HIGGINS: Thank you, Joan.

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The Travelers Institute Risk and Resilience Podcast is now available on Apple, Spotify. Subscribe today. Again, we're going to throw that link in the chat so it's easy for you guys to subscribe. 

And I hope you'll join us for the next coming-- 

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We have a summer series coming up here. On July 17th, veteran diplomat Dr. Richard Haass is going to join us to talk about geopolitical risk around the world. He's worked for seven presidents, both Democrat and Republican. He's a wealth of knowledge about geopolitical risk. 

And then on July 24th, we're going to be at the Insurance and Business and Home Safety Institute in South Carolina. We're going to do a behind-the-scenes-look at how they test for all these weather perils, wildfire, hail, wind-- well, wind-driven rain. So join us live for that.

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And last but not least, as I said, I'm in St. Louis tomorrow on our National Security Education Tour. So if you're there, please meet me in St. Louis, 1944 Judy Garland movie reference intended. Registration is still open. We have a few seats left. 

We're dropping that link in the chat for tomorrow's event here. So as always, visit us at travelersinstitute.org for replays and information.

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Have a great afternoon, everyone. And thanks again for all your support over these many years. 

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