Xceedance/Insurtech Insights/Blog Posts/Five Data-Driven Approaches to Boost Underwriting Proficiency in a Rapidly Evolving CAT Environment

Five Data-Driven Approaches to Boost Underwriting Proficiency in a Rapidly Evolving CAT Environment

This post is the second in a series focused on the insurance implications of the evolving CAT landscape. Check out the first installment, ‘An Actuarial Analysis of the Changing CAT Risk Landscape’ here.

by Travis MacMillian

As the global catastrophe landscape changes insurance organizations must similarly evolve their underwriting operations to develop clearer pictures of exposures, leverage new tools and processes to address changing market dynamics, and meet policyholder expectations. This evolution is not a one-time approach; insurers must continuously adjust how they leverage the combination of data, process, and technology across the enterprise to heighten best-in-class underwriting risk analysis, understand the shifting risk landscape, and drive underwriting outcomes.

Throughout my career, I’ve seen several occasions where the same risk was sent to multiple underwriters for assessment and pricing. Each underwriter gave different assessments of the risk, terms, conditions, and pricing, which created a non-uniform approach to risk selection for the insurer. The variables relating to catastrophes potentially compound this effect, with different underwriters relying on different data sets or assumptions, leading to a non-uniform picture of risk exposures. In today’s marketplace, it is critical for carriers to streamline underwriting processes, leading to improved risk selection, more predictable performance, and increased profitability. Five key areas to focus on today are:

  1. Establish a single source of truth
    The insurance industry is built on data, and the information held by most organizations is crucial for growth and success. However, many insurers continue to rely on outdated information and face restrictions on data access and usability — leading to stakeholders making strategic decisions based on variable or incomplete information. Establishing a “single source of truth” across the enterprise, including a new look at the sources of data utilized, can improve data quality, remove barriers, and boost operational efficiency, thereby establishing a foundation for underwriting consistency.
  2. Utilize third-party data sources
    Insurers can no longer rely solely on proprietary data, especially as some of those data sources no longer provide an accurate picture of the modern cat environment. Carriers must explore news databases and sources of information to complement their in-house data. Third-party data sources to explore can include industry/LOB-specific, location-driven, government, and environmental sources. Starting with a more robust data picture enables underwriters to make quick, informed decisions. Additionally, this enhanced data system can be leveraged in an automated underwriting process, freeing underwriters to drill deep into the areas of risk that require individual attention and greater analysis. When better data inputs are combined with intelligent analysis tools, insurers can achieve significantly improved risk selection.
  3. Adopt an open-source approach
    While data standards remain fragmented within the global insurance marketplace, there are efforts to get the industry to adopt an Open Exposure Data (OED) approach. Moving towards accepting OED — and better leveraging technologies including optical character recognition, artificial intelligence, and machine learning — can transform underwriting, allowing for better data transparency and improved exposure modeling and analysis. Not only that, but OED can also help the industry better keep pace with the constantly shifting cat landscape by providing a holistic view across carriers, geographies, and coverages.
  4. Leverage technology to streamline operations and outcomes
    By combining better data with new, system-driven processes, insurers gain operating efficiency. These efficiencies are multiplied when experienced underwriters have access to technology tools that allow them to operate at a higher level. Whether it is a specialized class, line of business, or geography, new digital tools and platforms will optimize business practices around underwriting, empowering insurance organizations to grow while realizing consistent underwriting results and establishing a blueprint for the next generation of underwriters.
  5. Introduce seamless processes and improve access
    Having the ability to interconnect, in real-time, information into all relevant areas of an organization is as important as having improved data.  For example, tying underwriting information directly to data from loss control, including inspection data, helps the insurer avoid unknown risks and control exposures. When correctly done this also ensures that new losses associated with catastrophes are automatically accounted for when underwriting future risk.

Improving ways to leverage data through better utilization of technology is critical as the insurance market adapts to new environmental realities. Given the recent spike in frequency and severity of catastrophic events, insurers must adopt new ways to drive underwriting efficiencies, reduce cost, remove internal and external blind spots, and make better decisions. Finding the right partners to help with data and digital transformation in the underwriting process can also lift performance, leading to sustainable growth.

Travis MacMillian is EVP, chief business officer at Xceedance. He can be reached by email at [email protected].

July 26, 2022