Tech Must Play Critical Role in Berkshire Hathaway Specialty Debut

It's official, Warren Buffett informs us about the launch of Berkshire Hathaway Specialty Insurance: "We are moving into commercial insurance in a substantial way, and we are here to stay." The new Berkshire venture is focused primarily on U.S. excess and surplus lines insurance, due to the growing importance of this market segment in providing tailored solutions to customers, according to a Berkshire Hathaway statement. Creating such solutions will depend on technology, suggests Martina Conlon, author of Novarica's April 2013 report, "Business and Technology Trends, Specialty Lines Insurers."

Martina Conlon, Novarica

The opportunity for green field operations is especially promising, according to Conlon, as new entities have no long-tail, hidden exposures on their books and no legacy systems constraining their technology visions. "It's a great opportunity for a forward-looking management team to really embed analytics and digital communications into their strategy," she comments. "Their key competitors are busy implementing policy administration systems that are flexible enough to deal with very complex tailored policies and the complex underwriting and communication process typical for specialty insurance, but have the burden of legacy conversions and retirements along the way."

Many companies are also focused on the acquisition and analysis of detailed, structured and unstructured, risk data and data to enable better risk selection and pricing, Conlon notes. "A strong technology strategy that leverages flexible core systems and rich external data, is critical to succeed in this competitive, but growing market," she says.

Appreciation of the importance of technology informed Branchville, N.J.-based Selective Insurance Group's recent acquisition of Montpelier U.S. Insurance Company (MUSIC). "This acquisition includes an end-to-end information technology solution and financial reporting infrastructure that helps build the foundation we need to grow our contract binding authority business," commented Chairman, President and Chief Executive Officer Gregory E. Murphy, when Selective's intention to acquire MUSIC was announced in Sept. 2011. "These advanced systems will allow us to integrate our entire E&S business more quickly and efficiently."

Selective's newly appointed CIO Gordon Gaudet commented on the MUSIC deal during a visit we paid to Selective on June 7. "We see an opportunity as a result of the acquisition and we're positioning the technology to take advantage of that," he remarked.

[Related: Selective Appoints New CIO.]

According to Novarica's Conlon, the particular benefit that technology confers to specialty lines carriers is related to the fact that data can significantly improve the quality of their underwriting and pricing based on their understanding of accounts and additional data they can acquire about such risks. "If you're insuring a fleet of cargo ships or oil rigs, there's no automated pricing," she explains. "It's challenging to get data for complex and unique risks, but it's becoming more available and that gives an opportunity for underwriters to better understand a risk being considered and to also be able to price it more accurately."

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio