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Technology is the Future of Underwriting

June 25, 2019 | Rachita Nahata

As highly-skilled risk evaluation professionals, underwriters are the bedrock of the insurance industry. In recent years, the role of underwriters has evolved, in large part due to the growing availability of data assets for risk assessment and increasing availability of technology. As a case in point, predictive modeling can solidify the underwriting decision-making process and improve pricing precision. Many standardized insurance products such as auto and home lines of business can be automatically underwritten without the input of an underwriter, after a consumer fills in an online form.

However, more complex specialty risks such as cyber policies, business interruption cover across international supply chains, or environmental coverage for energy producers contain variable factors and cannot be commoditized. For those risks, underwriters are required to use their knowledge of the market and industry, the loss experience of previous events and sometimes informed gut instincts to determine a suitable price. Often, this is a time-consuming and expensive process. For example, there is widespread recognition in the industry that operating expenditures in specialty insurance markets are too high.

Going forward and considering the ever-expanding complexities of risk evaluation in the global insurance ecosystem, underwriters must transform the highly labor-intensive aspects of their roles, including: working with brokers to calculate premiums based on the possibility of the risk occurring; deciding whether to charge an additional premium if the amount endorsed exceeds a certain level; monitoring and analyzing performance against the syndicate’s business plan; processing renewals — including setting up risk entries and reinsurance agreements, and maintaining physical, digital, and data records.

Many of those time-consuming and relatively low-value tasks can be fulfilled through smart automation. Instead of requiring face-to-face meetings with underwriters, which is such a feature of insurance markets such as Lloyd’s of London, brokers could digitally input data to facilitate paperless trade of policies. With the help of new technologies underwriters can assess risks more easily and quickly; and they can identify submissions most likely to be bound — ensuring quality time is spent on pricing the “right” risks.

Armed with digital tools and no longer needing to spend unjustified amounts of time on manual work, underwriters could be freed up for high-value tasks such as making informed judgment calls on pricing for complicated risks. They would also have more time and flexibility to question or modify risk model results, rather than just accepting them at face value.

In an assessment of the future of underwriting, EY said the underwriter of tomorrow will be a “decision scientist.” In other words, armed with a myriad of labor-saving technologies — which also deliver a more accurate insight into the true nature of risk — underwriters will provide real value to clients by exercising their professional judgments when assessing complex risks. By spending less time on internal processing, underwriters can develop deeper relationships with customers, effectively becoming sales representatives for the insurance organization. Because of improved and personalized nature of policyholder service, client retention can be improved, significantly helping to enhance the efficiency and value of the business.

While there is understandable anxiety that technology will result in fewer jobs, the reality is technology- and digitally-enabled underwriters will be invaluable in driving informed, productive and cost-effective risk assessment and precision pricing for insurers.

Rachita Nahata is associate vice president of underwriting at Xceedance.

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