In the latest episode of Close Quarter, Schauss said that pricing for small businesses is constantly evolving.

“Small businesses will look very different five or 10 years from now and so will the approach to pricing them,” he said. “Data is going to get more plentiful. We’re going to get better at how we apply this data, hopefully in a very seamless way to make the process more enjoyable.”

He added: “We have software now that allows us to look at things in a multivariate way that just makes it much more price appropriate for the insured. So I’m excited to see a scenario where small businesses are getting and paying for the insurance that most accurately represents all the hard work that they put into their business.”

Schauss identified two competing forces in the small commercial pricing world right now. One is insurers trying to simplify the distribution process. The other is them trying to seek ways to better price to the profile of the risk.

“The more we can know about a certain risk, the more we can get the price down for the preferred risk and price appropriately for the higher exposed risk,” the executive explained. 

“The key is how insurers can get that information they need about a specific insured to make those decisions to put the customer in a position where they’re almost able to somewhat self determine if they’re getting a lower price or a higher price based off of their own risk characteristics without making the whole process a burden.”

He said the issue is how can carriers make insurance buying efficient for small businesses without having to penalise them with a higher rate because of a lack of information.

The executive commented that large corporations generally have a loss experience, which allows insurers to rely on existing data that is specific to that corporation. This is often not the case for small businesses, however. 

“On average only about 1-3 percent of small businesses have an insurance claim in any given year. So a lot of times that loss information or that loss experience is not going to be available. So historically we’ve used the approach of starting with the business’s operations to start to characterise the insured,” Schauss said.

What is relatively new is that today there is an abundance of data, and the ability to access it very quickly. The problem for insurers is working out how best to use it.

Schauss gave the example of being able to see an image of a roof in California in which you can determine how exposed to fire it is by the distance between the structure and the nearest brush. 

The challenge remains for insurers, however, to determine how that should influence pricing or whether the risk should be taken at all.

“These are things that are really difficult for insurers to really start to quantify and be able to put to underwriting action,” he said.