“I don’t want to tell you how much insurance I carry with Prudential, but all I can say is: When I go, they go too,” said Jack Benny, American comedian, radio, TV, and film actor. Funnily enough, during the times of Jack Benny, underwriting was entirely driven by an underwriter’s experience, and was data-driven to some extent (on the life insurance side, but not much on P&C). However, the times have changed now, and the reality is telling us a different story.
Currently, the P&C carriers are witnessing a challenging environment, and there is a threat of customer churn every year (in contrast to life insurance), making the P&C underwriters stay competitive on price. At present, predictive modeling and rules-based straight-through processing objectively address price sensitivity. To the contrary, there is a rise in a different set of emerging risks, which were never seen before.
- Every new technological advancement is adding to a greater misuse of possibilities like AI-enabled cyber theft and exploiting of hardware weakness.
- Climate changes have distorted weather patterns to be frequent & severe in its impact.
- The aging population and the millennial workforce are changing the definition of ‘workplace’ and ‘workforce’.
- The sharing economy has spurred the growth of short term, need & usage-based insurance.
To underwrite these risks, one requires specialized knowledge, understanding of a global view of interconnected threats, and most importantly, way & means to gather/decipher data in a meaningful way.
On being data-driven
Data is a new oil. Global enterprises including insurance entities are implementing the state-of-the-art technologies to harvest meaningful data and generate valuable analytics to transform their business. Mobility 5G, Industry 4.0, Web 3.0, Experience 2.0 & Digital have led to the proliferation of data. A database, which can create a live visual of a person’s behavior, preference, needs, and habits, or Insured article’s (property, vehicle, liability, etc.) risk characterization, cause-effect behavior, risk prevention possibilities, and probable loss potentials; can take underwriting potential on a higher scale. Objective price sensitivity, skills to understand emerging risks and data proliferation, are the key contributing factors transforming the P&C underwriting entirely. Aging workforce and job-hopping millennials at workplace are resulting in a loss of experience – a critical ingredient for an underwriting. This needs to be compensated by data-driven, AI-enabled underwriting. Underwriters are asking for a virtual portal, which can showcase:
- Insured’s behavior, preference, needs, and habits
- Insured article’s (property, vehicle, liability, etc.) risk characterization, cause-effect behavior, risk prevention possibilities, and probable loss potentials
- Correlation between above item to derive right premiums
Therefore, in the wake of emerging risks and shifting demographics at workplace, underwriting is no longer an “art of experience”, it’s shifting to a “science of exploration & engineering”.
Does this transformation change the core principles of insurance?
The answer is No. P&C Underwriting transformation is about finding new means to achieve compliance and adherence to profound principles of insurance. This shift has to do with:
- Transparency and trust between the insured and insurer to improve the experience
- Validation of insurable interest
- Establishing the right value of exposure is covered/ paid in the event of loss
- Providing appropriate cause(s) of loss are identified and for coverage
- Ensuring adequate (to remain solvent & not undercharge or overcharge) premium is charged
What is takes to transform P&C underwriting?
Traditionally, underwriters display a sound judgment based on experience and collated data points. This is followed by extensive underwriting documentation to adhere to UW guidelines, appetite, and reinsurance requirements. Reskilling and digital know-how are the key pillars of transformation. In the future, underwriters will be seen performing multiple roles of risk evaluators, data scientists and CX agents, with the help of different technologies. The future of underwriting lies in automated data collection, democratization, integration, user-friendly analytics, and AI-augmented decision making.
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