Dramatic Shift in Underwriting Ahead

With the world changing, commercial underwriting is going to be called on to minimize the impact of complex risk on an ever-riskier world.

It’s about time, volume and volatility. Any one of the three by itself could push commercial companies to improve underwriting automation, but all three working together are pulling insurance executives out of their comfort zones and into action. At one time, underwriting automation was simply about growth, competition and consistency. Can we beat the competitor next door with our time to quote? Can we capture more business through better underwriter/agent/broker relationships? Can we help the underwriter in the next office to perform like the one in this office so that our appetite for risk looks almost the same across the book of business? But the world is changing, and commercial underwriting, if you picture it properly, is about whole-world management. Commercial underwriting is going to be called upon to minimize the impact of complex risk upon an ever-riskier world. We are entering new realms, where underwriting must have better technology, or else… 

For worse and for better — a connected world

We are living in a world interrupted. Southwest Airlines canceled 2,000 flights recently, a record number, for reasons that it can’t even figure out. In June, Home Depot responded to COVID-related supply chain issues by renting its own ocean-going cargo ship. Costco followed suit in September, chartering three ships. Labor shortages are shutting down businesses, cutting services and driving higher prices. Weather volatility seems to be growing, affecting claims of all kinds, from storm damage to crop loss. Increasingly, it seems like any event can trigger any reaction.

The business takeaway for insurers is the concept of dominoes. If one event can trigger chain reactions across hundreds of industries, channels, products and people, how do insurers understand and underwrite for those kinds of risks?

The answer: Change underwriting to meet the shifting world

The connectedness that is driving new risk is the same connectedness that can improve P&C underwriting. Commercial companies must know more and more frequently and predict better. Fortunately, they can. They can use data collection tools to gain better information. They can use artificial intelligence to gain deeper insights, make decisions and warn about risk, preventing or at least minimizing it. They can hand underwriters better tools for communications and visibility, pushing out their manual tasks and time-consuming steps into digital realms where workflow and process management might be handled by next-gen underwriting solutions. The P&C industry needs connected, intelligent underwriting more than ever before. Underwriters need total clarity into risk ratios, portfolio views, geographic risk and rating tools that don’t test a human’s attention span. It is time for a new era in commercial underwriting.

On Sept. 1, Strategy Meets Action released a Majesco-commissioned report, describing the future of P&C underwriting titled, Digital Underwriting in P&C: Leveraging Digital Thinking and a Digital Platform for Transformation. The report describes current and future pain points and opportunities for underwriting transformation. It is an excellent overview of a process and an industry that must change to meet the changing environment. I’ll discuss just a few of the findings here.

Underwriting’s pain points

At some point, as most of us grow in our occupations, we realize that we should be handing some of our simpler tasks off to someone with less experience, so we can focus our efforts on the talents we have honed. In no occupation is this more pronounced than with underwriters. Underwriters learn and grow. They become wiser and better at what they do. Yet many of them are still saddled with items that they absolutely should not be handling. It isn’t about a feeling of superiority; it’s about wasted time and talented resources that can support more business. SMA, in the report, points out that:

“Most underwriters, especially those handling more complex risks, are frustrated by tedious tasks and lower-level activities that are time-consuming. Inefficient collaboration and communication (internally as well as with external partners, agents/brokers and customers) take away time that could be spent on more value-added tasks. Ideally, underwriters prefer to apply their expertise and experience to decision-making. They would also prefer to spend their time establishing and building relationships with distribution partners.”

See also: Tech Pulse Quickens for Commercial Lines

The issue isn’t that underwriters feel under-used. When talent comes at a premium, and technology is able to accomplish some work faster and easier, wasted expertise is an operations issue. Everyone, including the underwriters, feel the magnetic pull of the better way.

Underuse and mis-use of data is also a concern. According to SMA,

“Underwriters need and expect a rich set of data to aid in their risk analysis. Acquiring that data efficiently from both internal and external sources is key.... Analyzing the data to gain insights is difficult. Gaining access to holistic data about policies and claims is vital yet often difficult to achieve with many of the legacy systems in place today.”

What makes it so difficult for organizations to prioritize their systems for gathering, analyzing and using data? Most of us know the answer: core systems that weren’t built to be data-savvy, and the constraints of data silos that were only constructed for certain types of data. Insurers are in desperate need of modern data management and warehousing tools that will expand to accept new data streams and easily plug in to machine learning systems that will filter, cultivate, present and use AI to decide. Using underwriters to their full capability will involve versatile next-gen data systems that are easily used with intuitive, transparent interfaces. Insurers don’t just need this for individual policy quoting and review — it is today’s “must have” feature to reduce risk across full portfolios of business. 

Why not add underwriting capabilities to existing systems?

As on-premise core systems were modernized over the past decade, many carriers used the on-premise policy underwriting capabilities to handle most functions with point-to-point integration of data and communication features. When a new capability was needed, it was added as a feature. Some built their own underwriting workbench, but often with limitations. The result, over time, has been a patchwork of layered features and tools that tie anything new to legacy constraints. SMA has identified multiple issues with this approach:

“Historically, larger, complex commercial lines risks have seen more layering of tactical tools but have not had the same attention, priority or technology investment as small commercial or personal lines. Unfortunately, with only 10% of implementations considered highly successful, the layering of incremental change may create significant change fatigue, especially when the current state is viewed as only semi-automated. The layering of more (but necessary) incremental changes will create personnel and execution risk.”

Creating an entirely new underwriting model

An overhaul of the model is needed if carriers are going to address underwriting’s pain points and grow their businesses with a better use of resources and improved information.

SMA has identified four key opportunities for improvement in commercial underwriting.

  • Workflow management and automation
  • Better use of data sources
  • Increased collaboration
  • Portfolio analysis capabilities

Their suggestion is an entirely new framework, where all of the related components are designed to work together. This holistic framework will make the best use of the technologies and data available and at the same time return far more timely, relevant and viewable data into the business. 

“The framework must support the workflow of relationship management, transaction processing and the portfolio management of their book. In addition, it must support and enable the processes to be automated, and the decision-making must be infused with new data, new models and new analytics.”

The communication component is also key. If workflow, information and communication are all improved at the same time, the results will be exponential. While the underwriting process will be dramatically improved, the value of having a fully digital, flexible plug-and-play underwriting system will grow with use. Today’s underwriting technologies will be learning and teaching as they grow.

What is required within a digital underwriting platform?

Now that we know what is needed in commercial underwriting, is there a right way to approach bringing it all together? SMA has a short list of requirements:

“This new evolution of underwriting will be powered by next-generation underwriting solutions that leverage a digital no-code/low-code platform, AI and advanced predictive analytics and new communication and collaboration tools. This can be a set of microservices that runs standalone and integrates seamlessly with other systems and data or a set of microservices for new capabilities that are plug-ins into the policy-admin and other key systems and data. Combined, the no/low-code and microservices approaches enable more rapid implementation and more flexibility for enhancements and upgrades.”

See also: How to Improve the Customer Experience

Something will change today. Is your underwriting ready?

As the world has grown more unpredictable, insurers know that they need to prepare. SMA’s research with insurance executives shows that they are well aware that change is going to affect underwriting: 13% of insurance executives expect big change, just this year; 80% expect big change in the next five years; and 94% expect big change in the next 10 years.

Is it about time for your organization to shift underwriting gears? Are you prepared for the future, with underwriting that will anticipate, learn, communicate and keep your organization protected from the risk of increased volatility? Changes keep happening. Commercial insurers can take any day’s news as a mandate for change.

For a better picture of the future of digital underwriting, download the SMA report, Digital Underwriting in P&C: Leveraging Digital Thinking and a Digital Platform for Transformation, or view the webinar profiling the report and Digital Underwriter360 for P&C.

Denise Garth

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Denise Garth

Denise Garth is senior vice president, strategic marketing, responsible for leading marketing, industry relations and innovation in support of Majesco's client-centric strategy.


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