60 Minutes in the Middle Market: Opportunities in a Changing Marketplace
February 16, 2022 | Webinar
Scott Higgins, Travelers’ Executive Vice President and President, Middle Market, National Property and Business Insurance Field, headlined our February 16 Wednesdays with Woodward webinar for a deep dive on the state of business in today’s changing risk landscape. Higgins discussed the biggest trends impacting midsized businesses and shared insights that insurance agents and brokers can use to find opportunities amid ongoing change – from how customers want to interact, to the rapid acceleration of digital distribution and supply chain disruptions.
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Title card, Wednesdays with Woodward (registered trademark) Webinar Series. Video feed in upper right, Joan Woodward.
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JOAN WOODWARD: Good afternoon and thank you for joining us today. I'm Joan Woodward, President of the Travelers Institute, which is the public policy division and educational arm of Travelers. Welcome to Wednesdays with Woodward, a series we created two years ago to help us all stay connected during the pandemic by talking to leading experts about some of today's biggest challenges facing our businesses and our personal lives.
So, before we get started, I'd like to share our disclaimer about today's webinar.
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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.
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And a special thank you to all of our partners today, the Connecticut Business and Industry Association, the MetroHartford Alliance, the American Property Casualty Insurance Association, and the Masters in Fintech Program at the University of Connecticut School of Business.
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Slide, 60 Minutes in the Middle Market, Opportunities in a Changing Marketplace. Logos, Travelers Institute, the American Property Casualty Insurance Association, the MetroHartford Alliance, the Master’s in Financial Technology (FinTech) Program at the University of Connecticut School of Business and the Connecticut Business & Industry Association.
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Today, we're going to focus on all things middle market. We tend to hear a lot of news focused on the two ends of the spectrum, either the small or the large businesses, and the things they're going through, but many companies don't fall under either categories. So, for the next 60 minutes, we're going to discuss the biggest trends impacting mid-sized businesses. We will explore insights that insurance agents and brokers as well as business owners can use to find opportunities among ongoing change in the marketplace.
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Slide, Speakers. Two profile pictures. Joan Woodward, Executive Vice President, Public Policy, President, Travelers Institute; Travelers and Scott Higgins, Executive Vice President; President Middle Market, National Property and Business Insurance Field; Travelers.
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To help us understand the current trends, I'm honored to introduce our special guest today, my friend, Scott Higgins. Scott is the Travelers’ Executive Vice President and President of Middle Market, National Property and Business Insurance Field Operations. So, Scott plays an integral role in the overall management of Travelers Insurance and offerings in the mid-size area. That is an $11 billion business that Scott oversees, larger than a lot of GDP of several small countries.
So, Scott, he began his career at Travelers as a commercial underwriter, then he moved over to the national accounts, where he eventually worked his way up to Chief Underwriting Officer in Construction. Scott then continued to climb the ranks and was named Senior Vice President and President of Commercial Accounts, with additional responsibility for excess casualty, public sector, and technology. In 2016, he was again promoted in his current role, which is Executive Vice President and President of Middle Market.
So, Scott also works closely with the commercial team in the UK at Lloyds and in Canada. So, a warm welcome to all of those tuning in from those regions of the world today.
Scott has a tremendous amount of experience and is a recognized leader not only here at Travelers, but also across the insurance industry and among the broker community. We're incredibly lucky to have you with us today, Scott. I know you don't do these very often, so you're going to kick us off with a high-level overview of all the current trends in the marketplace.
And then after that, I'm going to rejoin you and we'll have a little fireside chat, without the fire, of course. But then the most important part of our whole webinar series, as everyone knows, is getting to your questions. So please drop your questions in the Q&A feature while we're speaking. And Scott, welcome, and the virtual floor is yours.
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Slide, Industry Trends. Diagram. Along the bottom is a rectangle called the marketplace. Above it are three smaller squares called distribution consolidation, acceleration of digital, and supply chain risks. Video feed, Scott Higgins.
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SCOTT HIGGINS: Thank you, Joan, for having me. I know we've talked about this. I'm glad we finally got it on the calendar. And congratulations on this whole series. I think it's incredibly, incredibly well done.
So, what I thought I would talk about today are the things that we think a lot about, and we certainly hear from our distributors and our customers. The first being distribution consolidation and whether or not that's a continuing trend, and what it means for us, and really for the industry. And another topical thing that people are kicking around a lot is acceleration of digital, and what does it really mean, and how will it impact the business. Certainly, supply chain is in the news every day across multiple industries. And I'd like to make some comments around how we're in a position to help our customers navigate that.
And then, of course, we're starting off 2022, and we've got a marketplace out there, and would love to share some perspective and certainly take any questions on any of those four topics.
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Two video feeds side by side.
JOAN WOODWARD:
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OK, terrific. So, let's just get off to the start here on talking about consolidation. So, consolidation we know there's continued M&A activity with our distributing partners. What are your thoughts on this activity and what it really means for Travelers, and middle market, you know, your business in particular. So, M&A is such a hot topic out there. Let's talk about before the pandemic, kind of what was going on, what you saw during the pandemic in terms of M&A, and where you see it headed.
SCOTT HIGGINS: Yeah, no, it's a great question. And I certainly think it is a hot topic, and I don't think it's necessarily going to slow down. You know, whether it's pre-pandemic or during, it's been really very, very active.
On the business side, our initial reaction to the consolidation is it's not terribly impactful for us. And I say that within the context of Travelers typically has a fairly strong relationship with the acquirer and the acquiree. And so, in many ways, it's benefited us.
The one thing it has done is forced us to think about how we trade with these companies. Obviously, the companies acquire and merge to gain scale. And when they gain scale, I think they're looking for operational effectiveness. And oftentimes, that means they're looking to trade in a more efficient way with their trading partners. And we pride ourselves in having efficient interactions, but we also know that the world is such that we're going to continue to have to do that even better.
And so, there's a degree of disruption that I think is taking place among consolidation. It's an opportunity for us to take a fresh look. We continue to be steadfast in our commitment to be an indispensable partner and an undeniable choice for our customers.
And at its core, it's really about ease of doing business. That's, if I were to simplify what it is our distributors are looking for from their carrier partners, it's really can we transact in a way that's more efficient than the way we do it today. And so that's really the cornerstone of what we're seeing on the consolidation side.
JOAN WOODWARD: OK. So, let's shift over to something that everyone is anxious about, which is this real acceleration of digital, right, and digital enablement. So, what does it really mean when you say the phrase "a more efficient means of doing business." Can you make that more tangible or better for us to understand in terms of the digital?
SCOTT HIGGINS: Yeah. I think acceleration of digital is a big topic, and you know, I try to simplify it as best we can. Digital to me is just a different way of doing things, or a way of doing things differently to create value. And for us, the first thing that comes to mind is we would love to be in a position to transact digitally. And by we, I don't necessarily mean the Travelers, I mean the industry.
For the middle market, ourselves included, a vast majority of the exchange that we have with our distribution partners is through email. And there's really no other modern industry that does that. And so, the notion of sending customer information and loss runs, accord forms, new exposure bases the same way each and every year via an email type environment, we think there's a digital environment that can change that and make it much more efficient.
And so, we very much intend to be a first mover in this space, and we suspect that when we do that, competitors will follow. But it's a business model that, quite frankly, can benefit from some digital interaction. We also just look at data exchange, you know, how we share what it is we do with our distributors and our customers, and can we do that in a more efficient manner in things like appetite or marketing collateral, or anything that we share with our customers and distributors, could we do it differently.
I would tell you as an industry, ourselves included, oftentimes the way to do that was built in a proprietary method. And what we're seeing now is there's an abundance of insurtech-type companies that are going to influence the way carriers do business. And so, it's an important conversation for us. It's an extension of this acceleration of digital and how we're thinking about it.
JOAN WOODWARD: I'm really glad you mentioned insurtechs, because there's so many out there. There's so many trying to be in the insurance business, not knowing much about insurance. So that's interesting to watch also. But what role are they currently playing in your view, both for the carrier side and for the agent-broker side?
SCOTT HIGGINS: Well, first, we're going to continue to do what we do internally in terms of innovation. But we absolutely recognize the value and the speed of working with insurtechs. And to that end, we were actually an early adopter of an innovation office, to sort of scan the industry to make sure that we knew exactly who the thought leaders were out there, and most importantly, making sure we were part of that conversation.
So, if you look back at that transaction process that I just talked about, there is a faster way to do it. And candidly, this is the first time the process between distributor and carrier has been scrutinized by companies outside of the industry, and looking at it and saying, hey, there may be a more efficient way.
And so, these insurtechs come in all shapes and sizes. Some are looking to enable insurers and distributors. And some are looking to disrupt the industry. And quite frankly, I think we look at all of those. And it's a motivation for us to make sure that we're staying in the conversation and taking advantage of all that's out there.
JOAN WOODWARD: So, staying on insurtechs for a minute, can you provide an example, maybe, for us of something you're doing, or you have done with an insurtech?
SCOTT HIGGINS: Yeah, there's a bunch. I mean, a couple come to mind that are in the flow now. And the first is digitizing lost data for the folks out there. I'm sure they're keenly aware that every year that we look at loss runs, whether it's from another carrier on a new business perspective or we're working on a renewal, whatever the circumstances.
But that's a process that you need to make a prudent underwriting decision. You have to analyze loss data. And that's something we do. We need it. What used to take three to four days for us to take that and put it into a consumable format for our underwriters, we now have that down to less than an hour. And so, we worked with one of these insurtechs to make sure that we were able to do that.
And thematically, that's one of the things that we keep stressing. I want to make sure that our underwriters are doing activities that are value oriented. I want our customer-facing people quoting more business for our distributors, establishing stewardship plans for our customers, taking advantage of the service offerings that we have.
There's a necessity to thoughtfully negotiate with customers and distributors as we do renewals. So, anything we can do to take time away from tasks that aren't value oriented, we're going to make those investments. Digitizing lost data is one of those.
Another example that we're particularly proud of, and we think we're a leader on this, is the notion of a digital submission. So, as I mentioned a couple minutes ago, typically, that comes in via an email format. Now we're talking about intaking through a digital means. And we have that set up now with 10 distributors. And so that's pushing a button to send the necessary information, as opposed to typing an email.
And so, we're excited about that. And we think the adoption will continue as we move through the years. But as a culture, we've become incredibly active. We try things. If they don't work, we learn from them. But what I'm most excited about is I know we're working on the right things. We're in lockstep with our distribution partners. Nobody's suggesting that we're not addressing the right topics.
And that's what I think is so important. We've got thousands of underwriters across the country in our group. And we want to make sure we're creating opportunities for all of them to do the things that matter most to our distributors and customers. And that's things, like I said before, working on their deals, stewardship with our customers, just being engaged in understanding their business. That's what we really think about.
JOAN WOODWARD: Yeah, it just comes across so strongly in your comments that we're so customer-centric, right? And it's hard, because we have a distributor in between the customer. But how do you think about that? I know you just talked a lot about it. But why is the customer, at the end of the story, really most important in this value prop that we're talking about?
SCOTT HIGGINS: Well, I think, to me, it's always been about the customer and the distributor. I think we have just an incredible advantage in our distribution network. We pride ourselves in that relationship. And we're really beholden to the distribution group. And if you solve for the customer, I think you're going to solve for the distributor as well.
And I think about it as one underwriter, one customer, and one distributor working together to find the best possible solution. I don't think that's going to change anytime soon. I do think that we are thinking about the forces of change. And that is prompting us to think differently about a lot of things as respects customer and distributor. And the first is consumer expectations are changing, not just from a personal perspective, but also from a commercial perspective.
And there's an abundance of technology that's out there. We talked a little bit about insurtech. Data and analytics have always been core to what we do. But now there's so much more of that. And rendering that in a structured manner and using it as actionable intelligence for our underwriters, that's important. And we talked about it--the opening--the changing landscape and distribution.
So, all of those things are prompting us to think differently about what exactly a customer wants. And so early in my career, it was really around terms, conditions, and price. And those were the predominant things that a customer gave consideration to. Now our research is telling us that they want to be part of an ecosystem, that the customer is more inclined to buy multiple products from one carrier.
And when you do that, you get, obviously, the best coverage. And you get the best price. And so, you have an opportunity to look at a manufacturer and fulfill all of their coverage needs, from workers' comp, and GL, and property the traditional things. But also, they're probably going to have a global exposure. Well, we make that really easy. And they're probably going to have a management liability exposure. And certainly, they're going to have a cyber exposure.
We're sort of dedicating ourselves to delivering those things in a seamless manner and taking sort of the burden off of distribution to do it for us but making it really easy for a distributor to consider it and then have a thoughtful conversation with their customer as to why they should think about doing the business with Travelers. We have a broad appetite, a lot of product. And we think the combination of those two things are going to help us win.
I also think customers are transitioning their mindset from, do I want an insurance partner that's just going to act in an indemnification manner after the loss? That's critically important. We do a great job. But they also want a trading partner that can help prevent, and repair, and reduce loss at the beginning, at the forefront, sort of these pre-loss dynamics.
So, when I talk about ecosystem, when a customer comes into Travelers, it's a holistic view of risk management. We welcome them in. We make available all of the services that we have to offer. We are incredibly specific in our industry expertise. And so, we match that up pretty efficiently.
So, as I've said a couple of times, efficient engagement with distributor, making it really, really easy to work with our agents and brokers, we think ultimately benefits the customer. And so, our vision really anchors on, we want to be the most efficient trading partner, while offering a broad array of customer solutions. And those customer solutions now are far beyond what it is we thought before.
I mean, pandemic is one of them--supply chain, and supply chain not just for parts, but also labor. These are really interesting things that are taking place that customers want counsel and solutions for. And so that's how we're thinking about it.
JOAN WOODWARD: All right. You mentioned it, so supply chain, not only for goods and services, but people. And then also, we're going to talk about the marketplace. But first, tell me, Scott, how was it running your business--again, $11 billion business--during a pandemic? What lessons did you kind of learn? What takeaways in the last two years can other people use in times of crisis for running their businesses?
SCOTT HIGGINS: Well, first, I'm just so incredibly proud of all of our employees. We've got about 29,000 employees that moved from an office environment to a virtual environment and did it incredibly, incredibly well. And I think it was challenging for a lot of industries.
In this industry in particular, so much of it is interpersonal communications and interacting. And to have that go away, but remain capable of transacting and running the business, I just thought was spectacular. On the human side of the equation, I can tell you, I am especially excited about the notion of getting back to work. A lot of us are in the office now. And we're expecting, in the coming weeks, more and more people will be returning back into Travelers' offices. So that's really, really exciting to me.
I think collaboration is such an important word in our company. And we really mean it. And if asked, is collaborating better in person versus over a Zoom call? I would say it's better in person. And so that's one of the areas that I think our leadership team really worked on. We knew that we had to engage our employees in a meaningful way. And we worked really hard on it from Zoom calls and staying focused, because we weren't seeing people in the hallways.
One area that the virtual environment, we were really equipped to handle was in risk control. You know, risk control is so core to our offering. And we had been equipped for a long time to operate virtually, because our customers were asking for it. They wanted to be more efficient. And then when the pandemic came, we saw the adoption of some of these tools just increase dramatically. And it gave us a decided advantage early on and through the entirety of the pandemic.
We do things like virtual risk control visits, where we've got an opportunity for the customer to just simply film what it is they're looking for. And we can provide counsel back in a virtual environment. A lot of our construction customers--we have a big construction book--continued to build during the pandemic. And things like zone checks for vibration--we were able to do those things in a virtual environment.
And then I guess the most significant thing that we rolled out really early on was this notion of a supply chain pressure test, five simple questions around supply chain vulnerabilities for all of our customers, irrespective of the industry that they were in. And so, took a couple of minutes to do. And we've got an abundance of feedback on this. People like it.
But most importantly, what it does is you start it online, but you finish it with one of our risk control consultants. And you start having a meaningful dialogue around, what is it you need to do to make sure that those dependencies are taken care of, and then we're not overly vulnerable. So that's been the biggest thing for us in supply chain, is making sure that we've been connected with our customers.
JOAN WOODWARD: And was that in place before? I mean, did you actually have--not a pandemic plan, because who had a pandemic plan? But obviously, we have contingency planning. So, was that part of the Travelers contingency planning for the risk control team? Or did you start from scratch and say this whole risk control process for the customer's benefit-- was that all new during when the pandemic hit, or did you have that in your bag before?
SCOTT HIGGINS: We've been talking about supply chain for a long, long time. I remember doing work on it. The supply chain sort of preceded the pandemic. The adoption sort of accelerated dramatically during the pandemic because of the impact. Supply chain's a critical component, whether we're in a pandemic or not. It's becoming particularly important now.
And so, we had it. And like I said, the adoption just moved so quickly. And I think what we'll learn through this pandemic is probably what we already know--that you can operate a business in a virtual environment. You'd love to be in person a lot of the time. And the combination of those two things, I think, will make us work even better going forward.
JOAN WOODWARD: Well, it's great to hear that the pandemic pivot for risk control really worked. And you guys were very thoughtful about it years ahead. I want to shift a little bit and talk about a different part of the supply chain. You mentioned it a little bit. But I want to talk about employees and the Great Resignation. And what do you think of it? And do you think people--in this period of just like chaos and disruption, people are just looking for something else? Or how do you counsel those brokers and agents to keep their employees?
Like, we talk a lot about Travelers' engagement. So, it's not just about getting a little more cash on the table. It's, you want an engaged workforce. So how do you maintain an engaged workforce, Scott, and kind of fend off this Great Resignation?
SCOTT HIGGINS: Yeah, great questions. And I think there's a couple in there. I think from a customer perspective, we're hearing a lot from our customers about--you know, they've lost people, and now they're out hiring new people. And what they've asked for, and what we've been able to deliver, I think is really important. And the recruitment process of people--there's a very strong relationship between a new employee and a worker's comp accident. And everybody's trying to be safe and limit their accidents.
And so, one of the things that we do really well is we've got in place for any customer safety education training protocols by industry, because there is a causal relationship between newness of hire and a corresponding accident. And that's been work that we've been doing for a long time. We've known that it's particularly relevant now, because companies have lost people, and now they're trying to ramp up and hire new.
One of the examples that I think is really important that will impact a lot is this notion that--and we've all heard about driver shortages for delivering products. That's a very real dynamic. And the US DOT has just introduced a pilot apprenticeship program for drivers that can be younger than 21 to operate commercial vehicles doing interstate commerce. And so that means there's going to be drivers, because there's a necessity for it, of under 21.
And so, to your point about pivoting and reacting, we've done a really good job of reaching out to our customers that will be impacted, that are going to look to fulfill some of their shortages through drivers under 21 and providing the necessary driver training resources. That will be a big deal. That's a new exposure that our customers are feeling that we have to provide for them, and so another good example of how we manage risk on a holistic basis.
I think from the distributor perspective, one thing that we've had a lot of success on, because again, they've lost some people, and then they're hiring back. And we have always had what we call commercial lines producer schools. And we were able to pivot that very quickly into a virtual environment. And we have three classes a year. It's at no cost to any of our producers. All you need is to be nominated by a Travelers’ employee.
So those are opportunities that were given to our distributors to try to get them up and running. And if we can help in the education process, we're happy to do it. But that's been a very successful program for us. And then finally, the Travelers, we're not immune from this as well. I mean, our approach to--and you said it really well. We want engaged employees, people who really align with our beliefs, are excited to come to work. And we think that's a big part of our culture.
It's three things for me. It's always been three things--inclusion. We want diversity of thought, experiences, and people in the workplace. We work really hard at that. You heard me mention collaboration. That's item two. In our place, everybody's opinion matters. The best idea wins. We love the idea of taking a problem, and getting the best heads around it, and sort of coming up with a collaborative answer on how best to solve it.
And then of course, every one of our managers, sort of, takes the role of developing people and the next generation as to where they want to go, what they want to do. There's an abundance of opportunities at our company. And so really, it's those three things, inclusion, collaboration, and development. Those are the things that we work on to make sure we have an engaged employee, and we can continue to be successful.
JOAN WOODWARD: Great. There's a lot to unpack in there. And so, your supply chain of employees for customers, thinking about the CDLs for the 18 and up, which actually was passed in the Infrastructure Bill, in the--that was included in the Infrastructure Bill. So, we're going to see some, hopefully, alleviation. But as you say, they're younger drivers, and there's more risk associated.
Again, on the worker's comp, I think it's great to think about our customers and our new employees dealing with worker's comp claims. And then you took it to the brokers, and you took it to Travelers. I have one more question on kind of the talent, the war on talent--the war for talent. What are the benefits, really--what's your elevator pitch for people to get into the insurance industry as our brokers and agents are trying to attract people who may have never thought about being in insurance? And specifically, what is the benefit, or what's your pitch working in middle market compared to other parts of the business?
SCOTT HIGGINS: Well, listen. It's a great question. And I can't remember if--I've known nothing but insurance for 30 years, right out of college. And it's been entirely at Travelers. So that might be part of the pitch. That speaks to the quality of the company. But I think what's so interesting to me about insurance, and you don't realize it when you first start, but it is such an important part of the economy of the world. It is, in many cases, a compulsory buy. It's a necessary financial instrument to make sure companies continue to run, and people can protect their personal assets, as well as their commercial assets.
And so, there's real meaning and purpose to what we're doing from an economic, grow the world type perspective. And of course, we're there to provide protection for when there is a loss. And then those can be--nobody wants to have a loss. But those are very meaningful moments for our folks, to know that we were there when our customers needed us the most.
And the other unique thing about the industry that I've always appreciated is it's an opportunity to learn a lot about a lot of different industries, particularly at our company, right? Because we have underwriting appetite, I want to say, for 85%, 86% of all of the SIC codes in the country. And so, on any given day, if you're an underwriter in our organization or risk control professional, premium on anybody who touches the customer.
It may be a manufacturer in the morning. It may be a real estate account in the afternoon. It could be a high-tech electronics company. It could be a whole host of things. And so, it's just a great opportunity to be part of an important industry. And you learn a lot about a lot of different industries. There's great job offerings across the board.
What I like about middle market--and candidly, I've been in a bunch of different parts of Travelers. The middle is a place where you've got an abundance of opportunity, companies that employ over 50 people, up to 2,000 people--a lot of opportunity, a lot of different industries. And those companies really need what it is you're selling. And now we're in an environment where we don't just sell insurance, but we're selling an ecosystem, a holistic view, and helping these customers really manage their risk. And we're looking for people. So, thank you for asking the question.
JOAN WOODWARD: Good, OK. We're hiring. That's for sure.
SCOTT HIGGINS: And I would say one more thing on supply chain, if I could, Joan, because it's so important, something that I never would have thought of before, and how our risk control team reacted to the ask. But during the pandemic, there are a lot of companies that realized there was a necessity for certain things. People needed masks, for example.
And so, we had customers that made surgical gowns. And they were converting to masks. And they called us. And they said, well, we're changing our exposure. Can you help us? We had hotels that were moving from a traditional hotel to being a quarantine shelter. We had auto parts manufacturers who realized that there was a necessity to make ventilator parts. And so, they shifted.
We even had a winemaker who went on to say, we're going to use our facilities to make sanitizer. And so, these were the early days of the pandemic. We were just so proud to be a part of companies that were shifting the way they do things and asking our advice to help them get there. So just a really, really important part of the consultation strategy that we try to bring to our customers.
JOAN WOODWARD: Wow. Thank you for sharing that. I even myself did not know that we were helping our customers to change their manufacturing to help the whole effort for the world. So, thank you, Scott, for that. It's really amazing. I'd like to talk to the winemaker who's shifted to sanitizer. So OK, let's shift from supply chain, both employees and goods. Now let's go to the marketplace.
So, everyone on this call wants to hear your thoughts about the marketplace. So, it's February, right? How do you feel about inflation, pricing, and the other kind of critical factors that you really think about in the market?
SCOTT HIGGINS: Well, there's a lot going on. I think, from an overall perspective, weather, climate, the inability to predict it--I think that's really, really relevant. And I'll talk about that a little bit when I get specific on the property line. I think the other things that we're thinking about that's new to us, in addition to weather, is the impacts of the pandemic. There's still a high degree of uncertainty on that. There's some short-term reductions in frequency, as you would imagine, fewer people on the road.
But then again, as frequency reduces--it'll likely come back. But as it reduces, up went severity, because of what we talked about before, supply chain disruption, the ability to get goods in. And if you do, they cost more. That's inflation. And so those things are really resonating with us.
I mean, there's been loss activity that prompts our reinsurance partners to focus on pricing and terms and conditions, whether it's property or casualty. We've been wrestling with those. And then finally, social inflation, which is just a fancy way of saying, there's a lot of attorneys out there. And there's a lot of claims now that have representation. And the tactics are different. And there's litigation funding companies. And jury attitudes have changed.
And so that's a very real headwind across all of the liability lines that we just, as an industry, have to contend with. And if I talk more specifically about the bigger lines--commercial auto--the industry combined ratio on that is well over 100. Think 105-ish, 106-ish. And so that's significant. And I can tell you, in everybody's data, there is a shift towards more attorneys and more suits in auto claims.
And then we talked about supply chain, the physical damage component of a loss. The severity is going up, as you would expect, because material costs are going up. And quite frankly, what body shops are charging are going up. And so that line of business, I would tell you very candidly, is going to continue to have to have some price associated with it.
And we're going to do everything we can to advance our segmentation and make sure we're applying price to the right risk, certainly. But that--commercial auto, across the industry, I think people can expect that there will still be price associated with that line. Property--I pulled the stat that I thought that was interesting, as well as being daunting. Between just the first--in 2021 alone, just through October, there were 18 weather events that exceeded a billion dollars each.
JOAN WOODWARD: Wow.
SCOTT HIGGINS: That's just--it's dramatic. And it becomes more dramatic when you think about, between the years of 1980 and 2020, 40 years, the average was seven events per year. I just told you there were 18 just through October. 2016 and 2020, the last four years, have average 16 events over a billion dollars each.
And so that is a decidedly different amount of loss activity. And that, we just have to simply deal with it. And so, it is becoming incredibly unpredictable. And it used to be seasonal. And you used to know when it was going to happen. And it used to be sort of a fire product. Things would burn. And weather was sort of a secondary peril--tornado, hail, secondary perils. Now those perils are becoming the primary perils.
And it's prompting reinsurers and ourselves to think about price, terms, and conditions. From a transformational perspective, we have made great inroads with our underwriters. Each of our underwriters have geospatial mappings at their desk, looking at where properties are so they can make the most informed decision about pricing. But I think the weather is the weather. You guys have all seen it. And it's going to continue to have impact on the property line. And then--go ahead. I'm sorry.
JOAN WOODWARD: No, no. I think--you're talking about commercial auto. And that's really obviously-- and then the weather and national property. But let's get in--let's dig a little deeper into some of our actual businesses, business lines, like construction, for example, or energy.
So, we mentioned earlier that the US government and Biden just signed this huge Infrastructure Law, $1.2 trillion being injected into the economy. When I worked on Capitol Hill, the infrastructure spending spends out at a slow rate. So, for every dollar in that first year gets appropriated, I think only $0.17 in the second year, and then another $0.30. So, it's a slow spend-out rate, even for shovel-ready projects.
But how are you thinking about--let's talk about infrastructure. We mentioned the CDLs going to 18s and above on a kind of apprentice program. What about our business in terms of--is that going to accelerate surety bonds or other business-related construction projects in your view?
SCOTT HIGGINS: We absolutely think it will. We are a very large construction casualty provider, as you know, and equally so on the surety side. New infrastructure products are exciting for our existing customers. I would tell you that their backlogs are such that they're in good shape from a work perspective and excited about it. It creates jobs and additional insurance opportunities.
What I love about our offering in construction is we really equally represent the three key SIC codes. We are a heavy insurer of subcontractors. We are a heavy insurance provider for general contractors, and of course, street, and road, and infrastructure contractors. We do all three. And so, whether it's a highway, a bridge, or buildings, we're going to be in the conversation.
So, we're incredibly excited about that. It puts people back to work. It creates opportunities for everybody. And I think you've got Lisa in our team joining us, Lisa Morgan joining you at some point. And I suspect she'll probably talk about that and how they're geared up for that. But that's going to be an exciting opportunity for us. Love to see growth. And it's good for everybody.
JOAN WOODWARD: Yeah, I agree. And it's been a long time coming from Washington. So finally, they got it done. OK, let's shift a little bit to energy. So, we write a lot of oil and gas, but also clean energy. And this Infrastructure Bill had a pretty big chunk of money going for, for example, building, I think, $6 billion of new electrical vehicle chargers across the country, a whole new web of electrical vehicle chargers, but also a lot of investments going on in solar and wind. So, what are you seeing in clean energy?
SCOTT HIGGINS: Yeah, we call it green energy, and we like it. And I think you're going to have Eileen Kauffman from our group on there as well in the coming months, I hope. Let me give you some things that we're thinking about. The green energy investment is--it's now expected to pass the traditional oil and gas investments for the first time in 2021. And so that's a big deal.
In 2019, the cost to build solar and wind projects are now cheaper than coal and nuclear. So clearly, that's where the money is going to go, into these solar and wind projects. And that's where we've had early success. And these are interesting risks. You really have to have a dedicated clean energy, green energy unit to address this.
And so, we're definitely excited about this. If people were to ask me, what do we think is a growth market? I think this is it. You see our distribution networks rallying around these same things, where they're trying to bring their expertise into these products, whether it's a solar farm or a wind farm, battery generation. There's just so much going on.
And we've seen just huge double-type projections of growth in this space. So, we're in it. We're excited about it. We do it in the US. And we also have offerings through our Lloyd's syndicate as well.
JOAN WOODWARD: OK, good. We're going to have Eileen Kauffman on March 2. So, her and a couple of other customers, actually, are going to join us talking about that. So, March 2, everyone, on--
SCOTT HIGGINS: Oh, that's fantastic. Thank you for doing that.
JOAN WOODWARD: Yep. And we'll talk construction later in the spring with Lisa Morgan. So, we're going to have all the leading ladies of our insurance world on. So, let's talk about overall--the industry has changed so much in 10 years, Scott. So, what sticks out to you the most, in all of your time? You say you've been at it 30 years.
SCOTT HIGGINS: We had to say 30, I guess. I think the buying pattern of the customer strikes me as changing a lot. When I started, it was not uncommon for a middle market customer to have multiple distributors and multiple carriers fulfilling all of their needs. It feels like the buying pattern is a little bit more how you and I interact with Amazon.
We don't just go there to buy books. We go there to buy a bunch of different things. And so, it feels like the efficiency of buying all your products in an easy, more efficient way--that feels different to me. And that's a force of change that I think we need to react to.
As I said before, we would never want the burden of selling all of our products to a customer to be on the distributor. It's really our obligation to make sure that we make it easy. And so, I think consumer buying patterns, as well as commercial buying patterns, are changing to be much more efficient in how you do things.
And I said this early on. I think there's just this renaissance of technology capability out there that we just hadn't seen before, third parties getting into the insurance space, making us react, because they're either trying to help or disrupt. And that feels different to me and exciting.
And then certainly data and analytics--not a new concept. It's always been out there. But there's so much of it now. And the ability to structure it and render it in a more consumable way and make it actionable, that feels different too. And so that's everything that we're--that's everything that we're sort of working on, but all about making it easy for the customer, making it easy for the distributor. It's an industry that's a great industry. And I think anybody listening would say, at times, it feels like it's a little behind the times on the technology side. It feels like that's changing.
JOAN WOODWARD: OK. Good, good. And what is the relationship now between the carrier and the insurer? It's really evolved in terms of going from post-loss to kind of more pre-loss services. Do I have that right in terms of what you're doing?
SCOTT HIGGINS: Yeah, I think so. I think a customer joining Travelers, they come because they know that we're a specialist in what it is they do. And so, if you're a contractor, and you're interested in wearables, as an example, for your workers, and whether or not putting on a wearable vest will help them better control their loss costs, that's important.
If you're a customer of ours in the boiler space, something that's in our group that we like a lot, are water sensors going to be something that are important to prevent the losses. Telematics--just a fancy way of saying whether it's in a car, or a home, or anything--prevention is really, really important. That's what the customers are expecting--not just great service when the loss happens, but what can you do to make sure that the loss doesn't happen.
You see that in the cyberspace as well, having good sort of cyber hygiene or MFA, any of those things. That feels really, really important to the good customer, that if they're going to move their insurance to somebody, they're moving it to somebody who can help on the front and the back.
JOAN WOODWARD: Right, right. Actually, let me mention that Jeff Klenk, our new President of Bond and Specialty, was on with me in the Fall, and had really good practical advice for not only customers, but brokers and agents. So, we have two webinars on our website, travelersinstitute.org, on cyber. And we're going to have them back in a few weeks to talk more cyber, because as you know, Scott, this is really, really critical on all these businesses' minds.
SCOTT HIGGINS: Hot topic. Jeff and his team are terrific.
JOAN WOODWARD: They are.
SCOTT HIGGINS: I think they're sort of leading the way in terms of MFA and what that means and making sure that--it's a product that everybody needs but making sure that we do it in the most responsible manner. They've been real thought leaders on that. So, you'll probably talk to him a couple more times.
JOAN WOODWARD: Yes. Not going away. All right, Scott. This is the time we're going to take all our audience questions. And we have a ton coming in. So, before I get to them, though, I mean, tell us about you. Tell us what you did during the pandemic. Let's get a little personal-- not too personal. But what are your passions outside of, obviously, insurance? What do you like to do with your family?
SCOTT HIGGINS: I didn't even know there was a world outside of insurance. No, I obviously love to spend time with my family. I like to golf a little bit--not very good. I like to fish a little bit--not very good. The one thing I did pick up during the pandemic--I will say this--and they probably need the--they need it a little bit. I did pick up one of those Pelotons. That was fun. And I found that to be exciting.
I'm not prepared to hand out my Peloton handle to anybody or anything like that. But that's been fun. You know, great opportunity to connect, obviously, with family. They're getting a little bit older. And so, if they had their druthers, they'd probably escape the house, but had to hang around a little bit more.
JOAN WOODWARD: OK, good.
SCOTT HIGGINS: But yeah. I am anxious to get back. And you can feel the buzz a little bit in our company now. And people are walking the halls. It's exciting.
JOAN WOODWARD: Yeah, I think we should just mention, because I get asked a lot on these calls, Scott. We did hear from our CEO and the management team. We are coming back in person in a hybrid mode at Travelers mid-March. So, we're really excited by that. And of course, we'd love to come out and see our agent broker friends and maybe play a little golf too, Scott. So, we'll have to see on that.
OK, we're going to take the audience questions now. Again, if you have a question, put it in the Q&A. So, the first one--this is obvious. We've got this a lot--many questions on this one. It's pricing. So, what are your thoughts about pricing? Are we still on a hard market? And if so, what lines? How do you see pricing moving, if at all, through 2022? And I know you mentioned all the factors that go into pricing and different lines with commercial auto, et cetera. But overall, what are you thinking?
SCOTT HIGGINS: Yeah, I think pricing will be up in 2022. I don't think there's any way around it. I mean, just the notion of traditional inflation is really relevant. And so, in order to sort of maintain any degree of ROE or margin, you're going to have to at least get inflationary trend. And so that, to me, is a starting point.
You move around the lines of insurance, those influenced by social inflation. Again, as the pandemic begins to dissipate, and things open up, you'll see courts open up. And so, some of the dynamics around social inflation could definitely impact the GL, and the auto, and the umbrella lines. And so, I suspect underwriters will be prudent about how they price that product.
Property is, like I said, really difficult to predict these days. And reinsurers have reacted a little bit, because there has been some significant global losses, and not just here in the US, but really, across the globe. And so, pricing is going to continue. I think for us, our formula around how we think through pricing is really about one account at a time. And we look at the merits of the account, and the exposure, and the experience. And we do it thoughtfully. And we do it one account at a time.
JOAN WOODWARD: All right. Another question here. How does the Travelers--this is from Johan Sabbath at an insurance broker here. How does Travelers' digital experience for middle market stakeholders differentiate from other carriers? So, what are we doing differently, Scott? And obviously better. But what are your thoughts on that?
SCOTT HIGGINS: Yeah, it's a great question. I think it goes back to what I said before. We're really spending a lot of time at; can we digitize the transaction process from distributor to the Travelers? And that's what I said before, if it's an e-submission, where instead of typing an email to submit, it's pushing a button. We have that with 10 distributors. We think, ultimately, that will be the vehicle by which information is exchanged.
I talked a little bit about taking things that are necessary for the underwriting process, like loss runs, but instead of retyping those in, digitizing that in a way where you can literally just have the technology to scrape the data, dump it into a consumable format, and move faster. So that's what I think is benefiting us most in the middle right now, is having underwriters spending their time doing things that are value oriented.
And so that's what you'll continue to hear. I don't think underwriting judgment is ever going away at all. I think we will empower our underwriters and anybody who touches the customer to be able to consume information more easily, readily, and make a better judgment. But it's all about speed. It's all about efficiency. It's all about how a digital world can make us do things differently that add value, is how we're thinking through it.
JOAN WOODWARD: OK, great. Another question coming in from Lockton this time, Alicia DePalma. Are you seeing clients in the middle market space engaging more with risk control to mitigate their exposures now? Has that really changed during the pandemic? I know you talked all about how we pivoted with our risk control servicing of our clients. But is there more appetite out there now than before the pandemic?
SCOTT HIGGINS: Yeah, I think the short answer is yes, they are. Over 90% of our middle market customers engage with risk control in some form or fashion. So that can be anywhere from the necessity of an inspection periodically, but that's not really--customers aren't looking for us to inspect to determine whether or not we want to underwrite it.
What they're looking for is thought leadership around their particular industry and what it is we can do for them. So yes, it feels like customers have a much stronger expectation around, help me figure out how to mitigate my losses. Help me figure out how to onboard new employees. Help me figure out how to make sure that my supply chain disruption can be mitigated if we can. Help me protect my properties in a different way, whether it's telematics.
So yeah, clearly, I really do think that's the new bar for carriers with customers, is they have to bring the entirety of the franchise--service, and terms, and price, and conditions to the equation. So now that turned into a long answer. But the answer is yes. They absolutely are more engaged. And we're ready for it. It's exciting.
JOAN WOODWARD: OK. Another question coming in from Lovitt and Touché, my friend, Sue Espinoza. Hi, Sue, out in Arizona there. Will there come a time when AI and other technology is used to underwrite and price commercial lines? Or is this really always going to be the judgment of a human underwriter?
SCOTT HIGGINS: Well, hello, Sue. It's nice to hear from you as well. The short answer there is I think this is still going to be an underwriter rendering a judgment on an account and working with the distributor. I think that's the case. What will happen, I think, in the form of AI, is we will always put ourselves in a position, if there is a way to get a piece of information into an underwriter's hands that helps him or her make a faster judgment, a more informed judgment, we will certainly do that.
And we're seeing that now. I mean, if there's any--we have trading partners that help us with data sets and variables that we had never considered before that we think can give us lift in terms of it being a better risk, or a worse risk, or whatever it is. But at the end of the day, I truly believe it's one underwriter, one customer, one distributor, working together to figure out what the best solution is.
So, I think there will always be underwriting judgment in the middle market business and small middle market business. But we will aid underwriters in trying to make it faster and easier and give them some additions. But I do think it's a judgment business.
JOAN WOODWARD: All right. Last question for you, Scott. I think this is a good one too. How do you think Travelers is doing on ease of doing business, especially when middle market customers are so much more complex now?
SCOTT HIGGINS: How do I think we're doing? I think we're at a really significant advantage, because we have so much industry appetite and so much product. And with a lot of product comes a high degree of specialization. Four, five, six years ago, we used to approach the customer from our orientation. What is it we were trying to sell them?
Now, we've made a lot of changes, not at the expense of specialization, but now we think about the customer first. What does the customer need? And if the customer is a manufacturer that needs 8, 9, 10 lines of insurance, we have all of those products under common leadership now. And so that in and of itself makes it a little bit easier to say, we're not going to operate as an independent product line. We're going to operate as the Travelers in fulfilling a customer need.
And so, we've gotten better at that. I think, ultimately, we will marry up really strong coverage across multiple lines and take advantage of that premium dispersion to make sure that we have the best possible price. And so, in many ways, that question is our North Star. We think we are uniquely equipped to serve a vast majority of the middle market industries by making it easier to sell a lot of products to a lot of customers. And so that's what we're focused on. So, we're getting there. That's the journey. It's important for us.
JOAN WOODWARD: Good. Good. I think that was a great question.
SCOTT HIGGINS: It was.
JOAN WOODWARD: And I think the company is hugely optimistic about this. And I think you're right to say it's the North Star. And we are definitely making some significant progress there. Scott, I can't thank you enough. There was a couple of comments that came in, I think from people who may know you, as saying, you don't like to deal with these a lot. So, we are so grateful to have your time, your thoughts, your expertise, and really, your insight. I mean, you are an industry leader, no doubt, among your peers. And we're just appreciative. So, thank you.
SCOTT HIGGINS: Thank you for doing this. Thank you to the rest of your team. You made it really, really easy.
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Upcoming Webinars. February 23 - "Who Gets What" - Setting Compensation After Tragedy With Preeminent Mediation Expert Kenneth R. Feinberg. March 2 - Power Up: Growth Opportunities in Renewable Energy With Travelers' Eileen Kauffman, Arevon's Justin Johnson and Rosendin Renewable Energy Group's Duncan Frederick. March 16 - Global Hot Spots and Geopolitical Risks With Former U.S. Secretary of Defense Chuck Hagel. Visit us, travelersinstitute.org.
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JOAN WOODWARD: Great. And let me also--let me just tell our audience what's coming up, because we do have some amazing programs coming up, just like today's program. Next week, next Wednesday, I'm going to interview, in a rare interview, Ken Feinberg, who was of course the special master for compensating victims after 9/11, after the Boston bombing, the marathon bombing, after the BP oil spill, and other mass settlements, so Ken Feinberg.
You can also request a copy, a complimentary copy, of your book if you register with us today--Who Gets What? Setting Compensation After Tragedy. He also has a Netflix, registered trademark of Netflix, Inc.,movie, a documentary, out. And Michael Keaton plays Ken Feinberg. So, if you haven't seen that try to watch that before our webinar next Wednesday. It's called Worth. So that's Ken Feinberg next Wednesday.
And March 2, we do have that alternative energy, renewable webinar with Eileen Kauffman of Travelers. We also have a couple of our customers in the solar, wind, and renewable space. So Arevon's Justin Johnson is going to join us, and Rosendin's Duncan Frederick. So, don't miss that on renewables.
And then I have to say, probably one of my favorite people in the world, the former Secretary of Defense and former Senator from Nebraska, former Secretary of Defense Chuck Hagel. He was Defense Secretary for President Obama several years ago. He's going to take us around the world and talk about global hotspots and geopolitical risk. And obviously, I can't tell everyone on this call how important that is for the global economy and understanding what it might mean for your business.
So, register for any of these programs, travelersinstitute.org. Connect with me with LinkedIn. I'm very active there, as is Scott. Connect with Scott on LinkedIn. And if you haven't filled out a survey about today's program, please do so. And again, Scott, thank you so very much. We really appreciate your time.
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Slide, Watch Replays, travelersinstitute.org, Connect on LinkedIn, Joan Kois Woodward, Take our survey, link in chat. #WednesdayswithWoodward.
SCOTT HIGGINS: Thank you. A lot of fun.
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Waves.
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JOAN WOODWARD: We'll see you next Wednesday, everyone. Stay safe, my friends.
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Logo, Travelers Institute, Travelers. travelersinstitute.org.
Summary
What did we learn? Here are the top takeaways from 60 Minutes in the Middle Market: Opportunities in a Changing Marketplace.
The acceleration of digital capabilities makes investments in the digital ecosystem essential. Higgins described how critical it is to invest in technology that helps create a digital ecosystem to exchange data safely and efficiently. He shared that teams at Travelers are working alongside InsurTechs to innovate faster and easier, discovering better ways to transact business. “Our vision really anchors on wanting to be the most efficient trading partner, while offering a broad array of customer solutions,” he said.
Ease of doing business drives distribution consolidation. “Companies acquire and merge to gain scale. And when they gain scale, I think they're looking for operational effectiveness,” said Higgins. He noted amid broker consolidations, it is critical for carriers to offer streamlined interactions.
Supply chain risks impact people and not just physical goods. Supply chain risks are impacting Middle Market customers on many fronts, including labor. Higgins noted Travelers is hearing from business owners who lost employees during the pandemic and are now hiring new employees. He said, “there's a very strong relationship between a new employee and a worker's comp accident.” Newer employees may be particularly vulnerable to job-related injuries. Formal, job-related safety programs are an effective means to minimize the number of workplace injuries and their corresponding costs.
The great resignation and the war for talent create risk and uncertainty. Higgins explained that Travelers puts education and training front and center as one way to enhance employee engagement. “Every one of our managers takes on the role of developing people. There's an abundance of opportunities at our company,” He said. Higgins emphasized the importance of inclusion, collaboration, and development for improving employee engagement and retention.
The marketplace is changing. Higgins outlined how the unpredictability of weather, social inflation, supply chain issues and labor shortages could impact loss severity trends in the future. He noted that weather catastrophes, in particular, are happening with increasing frequency across the country. There have been 18 weather and climate events with losses in excess of $1 billion each in the United States in 2021 compared to an annual average of seven weather events each year from 1980 to 2020, in excess of $1 billion each.
Presented by the Travelers Institute, the Connecticut Business & Industry Association, the American Property Casualty Insurance Association, the MetroHartford Alliance and the Master's in Financial Technology (FinTech) Program at the University of Connecticut School of Business.
Speaker
Scott Higgins
EVP, Travelers, President Middle Market, National Property & Business insurance Field
Host
Joan Woodward
President, Travelers Institute; Executive Vice President, Public Policy, Travelers