Okay, good afternoon again. For our next session, we have Selective CEO John Marchioni and CFO Patrick Brennan here. Really excited to have you join us. I'm gonna kick off with a fairly predictable question. I wanna talk about a little bit of the reserve development in the second quarter in particular. Can you talk about, because we've got, we've had a couple of examples of prior or earlier reserve development. What, what did you see in the second quarter that led to that element of strengthening?
Yeah, first of all, thank you for having us again. We always appreciate coming to this conference. I've had a great day meeting so far and look forward to the conversation. I would say what we saw in the first half of this year was some higher paid emergence in the more recent accident years for Commercial Auto and General Liability. I mean, obviously we took significant action last year on the GL line, and we saw over the last two quarters some higher paid emergence. Now, I think as we've continued to reinforce, these are very immature accident years. So for General Liability, it was primarily driven by the 2022 and 2023 accident years. For commercial auto liability, it was primarily driven by the 2022 through 2024 accident years and $20 and $25 million.
So relatively small compared to the adjustments we took last year, but it was higher paid emergence. And our philosophy has been, because these are newer, immature accident years, we are putting more weight on paid methods. And there's different approaches you could take. You could take an approach to say we have expected loss ratios. There's a small amount of paid information you have. Don't overreact to that too soon. Our view is this has been an ongoing trend that everybody in the industry has been experiencing and talking about. It's better to stay in front of that and make sure that you're reflecting that in your forward view of pricing and your forward view of expected profitability, so that our view of 2024 year and the 2025 year going forward, and therefore our continued guidance around the 2025 combined ratio remains sound.
So that's been our philosophy, and will continue to be our philosophy in terms of how we react.
So, with all the normal caveats of, you know, reserves having an element of uncertainty, can you talk about your confidence that you're broadly done with adjustments for either recent accident years or older accident years?
We always book our best estimate, and I can't stress this enough. There are different ways to go about a situation like this. And again, for us across the industry, this is somewhat unprecedented. You're not talking about older accident years that you have a known set of claims, and you're trying to understand what's the worst-case scenario for those claims. We're trying to understand where our severity trends ultimately gonna settle out. And we had anticipated higher severity trends and incorporated those into our expected loss ratios. And the actual paid emergence in the case that we wanted to adjust our expectation for the ultimates for those two lines of business slightly in the quarter.
I know everybody's looking for conviction that we have this behind us, but again, this is different from a legacy portfolio where you have a known set of open claims, and you could understand what's my worst-case scenario, and you could book an amount that you know will not be surpassed. What we have in this situation is, and I referenced some of this on the second quarter earnings call, is if you were to look at the 2022 and 2023 accident years as an example for commercial auto liability and general liability, your actual paid percentage as a percentage of ultimate for that accident year is gonna be in the 30-something% range for Auto BI and in the 20% range for general liability. So we believe we have these accident years appropriately positioned.
I wanna reinforce last year when we took action much more significantly, we also dramatically increased our expected loss ratio for the 2024 year for GL, which we think put us in a much stronger position. By its nature, everything else being equal, our IBNR ratios will look stronger as a result of the actions we've taken to try to stay out in front of this continued emergence, in social inflation trends that we see across the portfolio, and I think the industry is seeing and continuing to talk about.
Okay, fantastic. Obviously, if there are questions from anyone in the audience here, please don't hesitate to raise your hand because I do wanna make sure that everyone's getting the information they can. One element that puzzled me a little bit in the second quarter was sort of keeping accident year 2025 loss picks where they were. And the thinking was, and I know we're talking about small numbers, but if accident year 2023 losses instead of being here, were here, and then you apply rate and, or loss trend, and changes to premium, then a higher 2023 should translate into a higher 2025, but you didn't actually change the loss pick. Can you show me where I'm thinking about that incorrectly?
Yeah, you're thinking about it correctly on a mechanical basis. I'll go back, 'cause I think looking at what we did in 2024 is instructive in this situation because we've obviously been willing to adjust the current year in the current year when it made sense. In 2024, in Q2, when we took a pretty sizable reserve charge in GL, we added almost seven points, a little more than seven points to the general liability line for the 2024 accident year. Exactly what you're talking about, not because we saw something in 2024 claim counts to suggest that it was gonna be under pressure, but our view was the more recent prior years moved pretty meaningfully.
So let's adjust the 2024 year higher to the tune of about seven and a half points for the general liability line. That did a couple of things. Number one, it responded to the more recent movement in the prior accident years. Number two is it put us in a much better position going forward into 2025. We had a higher starting point now by adjusting the 2024 year based on what we had seen, and we had an updated view of severity trends based on what had happened in the first half of 2024 that got fully incorporated into our 2025 expected loss ratios. So put another way, the magnitude is dramatically different.
Mm-hmm.
Right? $200 million versus $45 million in terms of the prior year adjustment. The response by moving the 2024 year aggressively last year put us in a much better position when we picked our 2025 expected loss ratios. The other important point there is to note that the assumed severity trends that got incorporated into our original 2025 loss picks for both commercial auto and GL are in line with what we are now observing in the most recent accident years. Again, in our efforts to get ahead of this through our 2024 actions, it put us in that position.
Okay. No, that, that helps a lot. Thank you. One, this is my last pressing question, which hopefully is welcome. We haven't seen Workers' Compensation reserve releases for a few quarters at Selective, which is a little bit of an outlier compared to the rest of the industry. I was hoping you could talk us through either what you're not seeing, and, and I know it's a silly question because it superficially means your reserves are right, but the industry seems to still be releasing reserves, which implies that using historical loss trends are, you still gives you redundancies in your reserves, but we're not seeing that at Selective or it could be a, a judgment call, management discretion. What, what's underlying that process?
Yeah, I think, I guess I point to a couple of things, and let's focus specifically on workers' comp as you're asking. Number one, and we talked about this a little bit on the, I believe it was a Q1 earnings call when it was obvious where we were booking the 2025 accident year for workers' comp, but we've essentially adopted what I would describe as a more conservative or more cautious posture around workers' comp for a couple of reasons. Number one, in the 2024 year, we started to observe a flattening frequency trend. So after several years of declining frequencies, we started to see evidence that maybe that was flattening out.
Now, as I disclosed on the Q2 call, we actually saw frequencies improve again in the first half of 2025, but we're not gonna declare that a trend yet. It's two quarters, and it's favorable relative to expected frequencies. So that 2024 flattening might have been more of an anomaly as opposed to a reversal of the trend, but we're not gonna react to it that quickly. The other side of it, and we went through this on the call, you've got a negative rate environment in comp.
Yeah.
Workers' comp for us and for everybody else. For us, pricing last year was about 3% down. We had an assumed flat frequency trend coming into 2025, and we've had an assumed severity trend of about 5%. And that 5% is your kind of core CPI, medical inflation, plus a little bit of pressure up on utilization of workers' comp medical services. And actually, if you look at what NCCI has published in their State of the Line for the most recent report that they've put out, they're seeing that on an industry basis. So I think a 5% severity trend is reasonable. So that's the posture we adopted coming into the year, and we're not gonna react to two quarters of favorable claim frequency in the comp line. And I think that's probably the bigger driver.
But I wanna go back to the overall point around our reserving philosophy. We added three slides to the investor presentation last quarter that sort of depicted the history going back to, I believe, 2016 for the other liability or general liability line, workers' comp and commercial auto line. We did that and compared it side by side to the industry for those same accident years to demonstrate the track record and our philosophy around reacting to movement in recent prior accident years. You could see for the years that are relatively mature at this point, the pre-pandemic years and general liability and commercial auto liability, our movement in those years, which have been a struggle for the industry in total, they've all developed adversely, the 2019 through back to 2016 years.
We've recognized the majority of that in the first three years post-accident year, and if you look at the evaluation of those years since year-end, for year-end 2024, it's relatively close to where we had it at the end of three years. If you look at the industry overall on the same basis, what you'll see is only about half of the adverse development for those years was recognized in the first three years of maturity, and the balance was recognized later than that.
Right.
And I think it just supports the statement that we're tending to react more quickly when we see potential adverse development, and in this case, that's driven by severity in some of these more recent accident years.
Right.
So I think that's an important data point to understand what our philosophy has been. And in the current environment where I think everybody's acknowledging higher severity trends on the longer-tailed casualty lines, we think we're reacting and have a track record showing that we react pretty quickly when we see something like that emerge.
Right. I think that's important. The unfortunate implication is that it will take time to prove that you're ahead of the curve if you're ahead of the curve.
Correct. But we're playing a long game here.
Right.
I think it's important that that's how you manage an insurance company, especially when you're talking about longer-tailed lines of business. We're not managing it to generate a short-term reaction. We're trying to book best estimates. We're trying to plan in the most appropriate way. That allows us to ensure that our pricing indications and therefore our pricing guidance to our underwriters is reflective of where we think loss trends are.
Right.
If you look at the GL line in particular, I don't think anybody's suggesting that severity trends aren't in the high single digits for commercial casualty. But yet, if you look at general liability pricing over the last four years, it's been running in the 4%-6% range.
Right.
That in and of itself is, I think, instructive of what's to come for those, for that line of business in particular. That's why we're trying to react to that. That's why you've seen our pricing on GL respond accordingly to the pressure we've seen on severity over the last few quarters.
Okay. Yeah, that makes perfect sense. And again, looking around, to see if there are questions in the room, I wanna follow up on, on a point that you just made, because the market has been very impatient with any whiff of reserve problems, even if it's appropriately long-term focused and conservative. I was hoping you could talk a little bit about your ability to leverage that, leverage the somewhat depressed valuation for the long-term benefit of shareholders.
Yeah. So I'll talk a little bit about, you know, sort of getting at buyback and capital management.
Pretty much.
How we think about that. You know, our long-term approach to capital management is the same as it's always been. We wanna invest in a growing and profitable business. We expect to return between 20%- 25% of our earnings over time in a dividend policy. And then from time to time, we'll invest in our own stock. And where we, you know, valuation certainly plays into that. In the first quarter of this year, we bought back $19.4 million of stock. Is my microphone okay?
It is.
Okay. $19.4 million. We didn't buy back any in the second quarter. We came into the quarter with $56 million remaining on our $100 million authorization. We've been active in our stock in the quarter, and so it's fair to say that, you know, so far we've been in more than we were in the first quarter, to give you some sense of, we understand where our stock is trading and from a valuation standpoint and our, you know, capital abilities, we feel like that's a good trade for us.
Okay. No, that's helpful. I'm trying to think of the right way to phrase this question. You alluded to the answer, but I'm gonna ask it anyway. If your sense is that reserves are fine, but there's still investor concern, would it make sense to do something economically inefficient, to buy an LPT that you don't need to put finality on the question?
I guess we would view that as managing the company to generate some short-term external reaction as opposed to doing what's right for the business long-term.
Right.
Again, it's very different. When you look at the use of adverse development covers as an example, the economics generally work better for the cedent when you've got a known set of claims that you have high conviction around what the worst-case scenario could be and what a reasonable outcome might be. We're talking about immature recent years. Listen, I just to call it as it is, when you have a situation like where the industry's dealing with right now, you will reach a point where you're overreacting, right? 'Cause we're assuming the severity trends we've been seeing.
Mm-hmm.
That we continue to believe are driven by broad-based social inflation. We're assuming they're gonna continue. And that's incorporated into our forward loss trend assumption. Therefore, it's incorporated into our current year expected loss ratios. That dynamic is such where you won't see the inflection point until it's behind you.
Right.
Because you will reach a point where social inflation normalizes at a certain level and pricing is in excess of that for some period of time. You'll notice it now, depending on what your philosophy is, if you're willing to react very quickly to lower paid severity on an immature year and take that year down, you might have that inflection point less behind you. If you're more likely to let these longer-tailed lines mature a little bit for an accident year, the inflection point will be behind you. You don't wanna overshoot 'cause the risk of overshooting at this point, in other words, assuming too much, too high loss ratios is equally bad because it puts you in a more challenged position from a business acquisition perspective.
So it's not just that you wanna take an overly conservative position to send a message of confidence to investors and run the risk in the process of being overly conservative, meaningfully overly conservative, because it all ties together with how you're pricing business.
Right. No, I appreciate that. And I certainly, I wanna highlight just the agreement that I have with the idea that one, at some point in time with certain catalysts, I don't know if you can extrapolate from Florida and Georgia and Louisiana, maybe there is an underlying trend. So both I agree with that premise and with the idea of not responding to it because this is a risky world. So, that makes a tremendous amount of sense to me.
Man, I'm sorry, just one more point.
Yeah.
Cause I think sometimes we get so focused on this one aspect of our business that we lose sort of the broader picture. We wanna perform better, and we have every intention and plan to perform better, not just through pricing changes, but through underwriting and claims initiatives to drive improved performance. Our underlying accident year performance, if you look at our current year guidance, is somewhere between 90 and 91. Ex-cat is 91-92. That's got that point of full year impact of adverse development. The year-to-date ROE with the charge in the second quarter is 12.3%. On a relative basis, we understand that's underperforming the peer group. On an absolute basis, it's not terrible.
Our starting point relative to our target, which would be an Ex-cat combined ratio of 89, we're close to where we wanna be. We have pricing that's coming on the books on a written basis, and written and earned are pretty close at this point. Commercial lines call it 9% on a 7% assumed loss trend when you include property. The foundation is strong. The run- rate profitability is solid and improving. Understood, there's a lot of focus and attention, as there should be on reserves, but there also should be focus on what's the earnings potential on a go-forward basis. That's something that I think we have a high degree of confidence in.
Okay. No, that is tremendously helpful. And I can confirm that ever since I turned 50, the long-term seems to show up a lot faster than it used to.
I agree.
So it's the right thing to focus on. I wanna spend a little time shifting gears, talking about E&S. Selective has an E&S segment. Can you talk about its geographic presence and your ambitions over the next few years, whether that's product or state expansion?
Yeah. So E&S is a business that we've been in now for about a dozen years and have had a great deal of success over the last several years in terms of both growth and profitability. And you see the strong profit margins in that business continue. Our business tends to be a lower- hazard, lower- limits profile mix than the broad E&S market. It's historically been about 70% casualty, 30% property. That's drifted a little bit more as property pricing and property opportunities have been a little bit stronger to closer to 60/40 casualty to property. We write it on a 50-state basis, and that's been our footprint, you know, longer term. It's, and it tends to be your smaller construction, habitation, retail, mercantile-type businesses.
We’ve also seen a little bit more growth in our brokerage segment, which is more middle market than small binding authority business. So it’s still a lot of great opportunity in the business that we write. One of the more recent expansions, expansion opportunities is we’ve started to make our non-admitted product, E&S product, available to our retail distribution partners on a direct access basis. So we’ve built this business with a wholesale distribution, structure. We continue to value that. It’s been a great partnership for us with our wholesale distribution partners. But we also have a strong group of retail partnerships that we are now starting to open up some of that product access to through an internal wholesale facility. We think that’ll give us additional runway for profitable growth going forward.
And then there's some additional product and appetite expansion potential that we see there. But that'll be a little bit more deliberate as we open up this new distribution channel in the coming quarters.
Okay. What has the feedback been from the wholesale, distribution network to opening its retail?
I'm not gonna say they're celebrating the, you know, the perceived channel conflict. But from our perspective, the wholesale channel has been great for us, and they've done a great job in the contract binding authority space. But we see these retail opportunities not coming to us through that channel for different reasons. And we think we can open up the retail channel without really conflicting with the revenue opportunity that the wholesalers continue to have. So we don't necessarily view this channel as cannibalizing the wholesale distribution partnerships we have. We think they can coexist. It's also important to note we don't have a 50-state footprint for admitted retail, and we don't have a retail distribution plant in 50 -states.
Three of the states that are not in our retail footprint for admitted are Florida, California, and Texas, which are three of the biggest E&S states. So we continue to see really great opportunities in both distribution channels.
Okay. You alluded to something that I wanted to ask as a follow-up question, and that is, as you open this up, to more retail distribution, what are the prospects for the commercial segment to expand using retail agents that are currently providing E&S products?
I think, I think what it does, if I'm understanding the question correctly, part of the opportunity here is in our traditional E&S business through wholesalers, we're for the most part writing whole account business, property and casualty, in many cases packaged together. But the opportunity we have here is we do write business through the Selective retail channel where we will write three lines of business. But there may be some reason we're not comfortable writing the property or the general liability, but we'd be comfortable writing it on non-admitted paper with different terms and conditions. That allows us to write some of those accounts that would've gone elsewhere if the agent couldn't place the whole account with us.
Okay.
So that's. There's an opportunity to benefit the admitted side by opening up that capacity to write, you know, companion lines on the same account.
I don't know if I was going too far out on a limb there. Are there retail agents that you only use for E&S?
No. There are retail agency partners that have their own wholesale facility that are appointed wholesalers of our E&S business.
Right. Okay.
But the ability to access our product directly required an internal wholesale facility for us that we now have up and running.
Okay. That's perfect. That helps a lot. I wanna get an update on within the Personal Line segment. There was a strategic focus on the Mass Affluent, and then we had this, you know, we had COVID, and we had after COVID and sustained elevated inflation. So a lot of the successes of that effort, I think, have probably been masked by other issues. Can you give us an update in terms of where you are? And by that, I mean specifically, first and foremost, the mix shift to the Mass Affluent market.
Yeah. The mix shift has been significant. And I would say with our meaningful rate actions over the last four to five quarters, it's actually accelerated that mix shift. If you look at new business, and let's just focus on home values as a good proxy for the Mass Affluent market, for the last few quarters, our average home value for new business has been right around $1 million.
Mm-hmm.
So clearly in the Mass Affluent space, and our in-force portfolio, which obviously takes longer for that to change, has gone from over, I call it two and a half years, just under $500,000 average home value to just under $700,000 average home value. So the migration of the book has been meaningful and much more tilted now towards the Mass Affluent market. And we expect that migration to continue over the next couple of years. And then you've seen the profitability improvement as we continue to get the benefits of the earn rate coming through in the first half of this year.
As we work past the, I'm gonna call it the noise of really elevated trends, and I'm saying past that because it does seem like the trends have abated in addition to the earned rate increases. Is the loss experience of the Mass Affluent playing out as you'd anticipated?
It is. It is. And I think you see that in the improvement we've seen in our reported results. So the underlying combined ratio in Personal Lines on a year-to-date basis is 82%. And again, it's two quarters, and we're proud of that improvement. There's a little bit more to be done there, and the all-in combined ratio is just a tick under 95% on a year-to-date basis. So really good improvement, and I think pretty indicative that the performance on a frequency and severity basis is in line with expectations for that market. And we see strong potential now to continue to grow that business and maintain strong margins going forward. And we also see potential opportunities down the road for us to expand that footprint. We're in 15 states out of our commercial lines footprint for Personal Lines.
There's a couple of challenging jurisdictions in those 15, and there's a number of jurisdictions in our commercial lines footprint that we haven't yet opened that present good opportunities from a Mass Affluent market perspective that will start to build a business case around, and ultimately make a decision to invest or not invest in expanding that footprint.
Okay. Fantastic. This is also on the Personal Lines side because that seems to be where tariffs would manifest themselves most prominently. How quickly can you implement rate changes that would reflect higher, I don't know, car parts costs or higher, lumber costs, just to pick two tariff-sensitive expenses, expense items?
Yeah. So I guess a couple things I'd say on that. First thing is, and recognize this is a bit of a moving target as you see, you know, changes happening with not just in terms of the legality of some of the implementation tactics and whether they hold or don't hold, and also some of the negotiated deals that vary by country. But as we talked about on the earnings call, first thing is with regard to the impact, it's more manageable than it might appear on the surface because you do have labor being a big driver, you know, call it 55%-60% of the claim dollar on auto physical damage and on property, both home and commercial property. So we think the impact is manageable.
But the first thing I'll say is we've our 2026 planning assumptions already incorporate our best estimate of what we think the impact will be on those lines of business, auto physical damage and commercial property and home. So that's incorporated into our view and therefore incorporated into our pricing indications going forward. With regard to the speed to which we could capture the offsetting impact on the loss side, it's a little bit different for home versus commercial property versus auto physical damage because on the home and commercial property side, you have two levers. You've got price, which in commercial lines is easily implemented in Personal Lines requires filings, but you also have insured value.
Right.
That can be adjusted and continues to be adjusted in normal course. We would adjust those inflation factors as we start to get more clarity to make sure we're capturing the additional premium there. On the auto physical damage side, rate is the primary measure. And as we see that start to manifest itself in loss costs, we would adjust that accordingly. And that's a lot faster on the commercial auto side than it is on the personal auto side.
Right.
Cause you don't need filings in every case to effectuate it on Commercial Auto.
Right. That makes sense. I did have this thesis a few years ago, probably in the heart of COVID, that we should change the exposure unit basis for cars to reflect replacement costs that has gone, as far as I know, gone nowhere.
Yeah. It's a great idea.
I thought it was a great idea.
It is. Continues to be a great idea.
Right. I have all these great ideas.
You're talking about.
Right.
Maybe we'll get some traction.
That I don't have to do anything to implement. What? I'm gonna ask this numerically. It's not really a numeric question. How much scale do you need to be an effective competitor in Personal Lines? How big do you have to be?
You know, I think that's scale is a relative term and a relative measure. I think the question is really on a state basis, do you have enough scale to have enough credibility in your pricing? Now, we all benefit from the existence of ISO. And I think ISO is in many ways a great equalizer because it allows us to supplement our own data. If there's a state that we don't have enough credible data at a granular enough level, you have the benefit of ISO loss costs available to you to allow you to use that as a complement of your own credibility. And then there are other actuarial techniques to allow for complementary credibility. So let's just say at our size and our state footprint, we don't view scale as a significant impediment.
But obviously, as we continue to get bigger in this targeted segment, we think, you know, the benefits of scale reduce the risk in your pricing plan that you there might be something you're missing that you don't quite see. Now, I think it's also important to understand the market we're competing in is a very different market. And that's not to suggest it's not a price-sensitive market, but it's not price-sensitive at the same level. And you're not competing against scale companies like you are if you're competing in the mass market, personal auto and home.
Right.
And I think that's another dimension to consider when you think about appropriate level of scale in the Mass Affluent or affluent marketplace.
Okay. And if I can jump off on that, one aspect or one potential aspect of servicing the Mass Affluent market is that they're more likely to buy newer cars that have accident avoidance technology. So I guess my two questions for that is, does that thesis manifest itself in the real world? And how do you price for that potential frequency benefit?
The frequency benefit, to the extent that it's real, and I think it is, and I think it, you've seen it on an industry-wide basis because accident avoidance technology and sensor technology isn't just in high-end vehicles. It's become prevalent in the vast, vast majority of vehicle types. And I think it has actually resulted in frequency improvement. The question is, how much has it offset the severity through the cost of repairing these same vehicles? But that ultimately makes its way through the experience on the frequency side. And then with regard to symbol, the individual symbols of these vehicles should capture that experience of the increased cost of repair.
Yeah. I agree.
Okay. And I think you're right. Like one of the frequency benefits, if you will, is if I have a car that, you know, can drive itself, then it may be more likely to avoid an accident with somebody that's a, just a terrible driver. So you get the frequency benefit even for that.
Yeah. I was focused more on the crash avoidance technology as opposed to the autonomous driving.
Right. Okay.
Which I do think is a lot further off in terms of widespread adoption across the country.
Yeah.
Maybe in large metropolitan areas it's sooner, but less so in more remote areas across the country.
Yeah. I think it's still expensive and you have regulatory hurdles. So we're not there yet. If I go back to the commercial segment, one of the changes you talked about in the second quarter mid-year renewal was increasing the per- risk attachment point on your casualty reinsurance side. And something you just like walk us through that decision. I don't know if it was significant, but it came up.
Yeah. I can take that. So, we did 7/1 at our 7/1 renewal increase our attachment point from $2 million, which is where it's been since 2008.
Mm-hmm.
We're there about. So it's, and we were a much different company then, obviously. Moved it up to $3 million. We had a co-participation, last year was 17.5%. It's now 20%. A lot of that's sort of market dynamics, social inflation, market participants, what they're experiencing in their own books, and obviously what we've experienced as well. All of those sort of factor into where we landed with the program. That said, as we look at our, you know, our retained premiums that we'll now have versus our expected losses in that layer.
Mm-hmm.
It's still a net positive. You know.
Sure.
Not massively so, but certainly something that gives us comfort with where we landed as well.
Okay. No, that's helpful. That makes a lot of sense. More broadly, I guess there's always interest in technology, analytics, and the competitive advantages stemming from those. Can you talk about what you're focused on now? I don't know if this is a John question or a Patrick question because there's the investment expense, but.
Yeah. I mean, I'll give you a little bit of perspective. You know, as you know, being relatively new to the company, although I'm not allowed to say that anymore, I think.
What's your past first year?
I haven't quite lapped the sun yet, but we're getting there. You know, one of the things that was impressive to me, I would say we punch above our weight as it relates to the amount of data we have.
Mm-hmm.
You know, I maybe thought we'd be a little bit in a different place. It's a pleasant surprise. I think the granular ability to understand what's happening in different segments of our business and how we can slice the data is great. I think for us and for any company that has that as a starting point, the opportunity is always how do you use that just a little bit better? How do you, you know, pivot just a little bit and see what the data is telling you in a different way, maybe by asking different questions?
I think for us, that's where our real opportunity is to leverage our ability to harness the knowledge that we have and position it in a way to continually help us learn more about our business, which isn't to say we don't have good visibility, but anytime you kind of pivot a little bit, you're always gonna see something different. That's something that's pretty exciting for me, you know, coming in as I am at the point that we are in the company.
Yeah. And just a couple of other comments, and I agree with everything Patrick said. I think we benefit in a couple of ways. Number one is we have a very clean data and technology structure and stack. We haven't grown through acquisition. So we have single transactional systems for underwriting and claims and billing, all of which feed data warehousing that we built 25 years ago. And I think what Patrick is referring to is the ability to mine that very clean data that we have. We think it gives us a distinct advantage over some companies that might have a lot more complexity in their technology structure. As a percentage of premium, our investment in technology is going to be very similar to what you would see in a benchmark for commercial lines companies. Think roughly in the 3% kind of range.
The focus is really on two areas. Within that spend, you've got a, I'll call it a non-discretionary spend. What is your cost of keeping the business running?
Right.
That everybody has in hardware and software and ongoing maintenance and investments. And how efficient are you in that allocation? And then of your strategic investment dollars that are available to you, where are you investing those? And I would say we would broadly, the investments we've been making in on the discretionary side, investing in the business are gonna broadly be in three categories. Number one is how are you improving and enhancing the agent experience and the customer experience? All right. That drives growth, profitable growth. It drives higher retention, drives customer satisfaction, lower Customer Effort Score. So that's basket number one of investment. Basket number two is how do we drive higher operational efficiency to improve capacity in the organization by taking what would've historically been a manual process and automating it to the greatest extent possible?
And obviously the acceleration on that front with the rapid advances in AI, I think allow for much greater opportunity there. And then the third is employing the same investments in technology to improve outcomes. So you've got operational efficiency on one side with regard to how do you employ AI. The other side of it is how do you employ AI to improve outcomes and more specifically improve decisions?
Cause on the commercial line side, you're making a series of individual transactional decisions that roll up to the performance of a portfolio: risk selection, individual risk pro, pricing, claims outcomes, claims adjudication, and your ability to leverage these investments to deliver better information to your knowledge workers at the point they're making a decision and exercising the judgment they have to settle a claim at a certain value or to bind an account at a certain price or not bind that account is really where the power is in terms of improving outcomes. So I would say that's sort of the how we think about the investments we continue to make.
Is there, this is a terrible question, is there a timeline for the implementation of AI in those various realms?
I would say it's ongoing. We have, I mean, we have dozens of active use cases in place, some of which were developed internally, others which were developed in partnership with a third party. We have dozens more that are in various stages of pilot or development, and the benefits are being realized. And I realize everybody makes grand statements about what this means. I think we have, because of the long-term investments we've had and the cleanliness of the information we have internally, our ability to introduce external data sources and introduce new tools, Gen AI being one of them, in a way that allows us to faster speed- to- market, I think puts us in an advantageous position. I think we continue to learn.
I think everybody, listen, the best companies we're competing against are all doing the same thing. And I think we, you know, we're in a very good position to continue to capitalize on that.
Yeah, and I think about it in three buckets. So you have sort of preparation. So we're training folks. We've got tools that we're bringing on board to enable our experimentation, if you will. We have experimentation, which, you know, some of these pilots that we've talked about as well. And then there's implementation. And, you know, we do have some use cases where we're leveraging AI, whether it's with creative, creating content and doing that in a very efficient way, in a way that we can tweak and adjust and test, whether it's in our code writing, in the IT space, in our information technology organization.
And then, you know, we're also leveraging smart automation in our claims organization where we're ingesting information in a way that's, you know, reduces the need to have people doing less value-added work and having them focus on the outcomes that John's talking about.
All right. And I think, you know, if I can play off one point that John made, yes, the best companies you're competing with are doing this. You compete with a lot of not best companies. So there are very real competitive advantages to be had from that in your marketplace. With that, I think we've come to the end of our time. So please join me in thanking John and Patrick for a very informative session.
Thank you.