The current global scenario is undergoing the ‘Great Restructuring’ because every aspect of our life and work is going through a massive change. The way we interact, collaborate, learn, deliver, and expect value is changed forever. Insurance industry is no different, and the restructuring is going to have a profound impact on the future of Insurance Products, Services, especially on new ways of working of core functions i.e., Underwriting & Claims.
In Commercial Property & Casualty (P&C) Insurance, we continue to experience growing list of challenges such as climate changes, rise in cyber-attacks, global pandemic, and remote working, in today’s scenario. Hence, underwriting excellence continues to remain paramount to Insurance business performance.
Recent research from McKinsey’s Journey Analysis of performance of leading commercial Insurance P&C companies in US and UK over the past three decades, clearly highlights the necessity to achieve excellence in Underwriting. The analysis confirms that operating results, more than capital leverage or investment returns has the greatest impact on overall financial performance of Insurance companies. And within operating results, loss ratio plays dominant role than expense ratios: when comparing top and bottom performers in both the United States and the United Kingdom, loss ratio varies by up to 28% points, whereas expenses vary by just 2 to 4 points.
Unlike retail underwriting, the risks in commercial underwriting typically are unique and become very complex especially when one moves up from small commercial market to middle, large, specialty and program business. Therefore, it is very essential for commercial underwriter to apply new scientific methods to ‘art (historical underwriting)’ while selecting right risks or deriving right risk pricing. Scientific methods include multiple data sources, historical underwriting performance database, and new technology tools.
To maintain the right balance on key underwriting functions such as Coverages, Capacity, Risk Selections, Pricing and Portfolio Management, there is a need to run data-driven Underwriting function. Being a data- driven carrier is not a privilege anymore, it is a necessity in current insurance market. With rapid innovation on Technology (multiple AI/ML-based tool sets) and digital hyperconnected world of consumers (generating massive data every day), today’s underwriters have perfect playground set to try out their data science and technology trailblazing skills.
To get faster and actionable insights and to run efficient underwriting function, today’s digital underwriter needs a comprehensive solution which integrates alternative data sources and seamlessly extract the Book of Business Data. Such technology platform will certainly elevate the role of underwriter in following manner.
|Technology enabled Capability/Function||Elevated Role|
|Able to integrate internal and external data sources effectively, configure assignments & prioritization of incoming submissions in line with submission history, expertise of specific underwriter and business priorities.||Technology Power User|
|Single View of all portfolios on single canvas, along with ability to optimize current Portfolios with AI/ML based recommendations.||Portfolio Optimizer|
|Work/Converse with AI/ML-based Augmented Analytics Solution. Solve as many questions as possible especially in the areas of predictive and prescriptive analytics to reach to a right decision/conclusion.||Data/Decision Scientist|
|Identify profitable hotspots (by Channel, Geography, SIC Codes, Products) and generate pre-scored leads from relevant Third-Party Data sources. Push them into Enterprise CRM system for Sales Team.||Leads Generator|
|Plot coverages gaps for each Policy/Portfolio and compare them with similar Policies/Portfolios from current/historical book of business & industry standard benchmarks to provide Cross-sell and Up-sell opportunities.||Sales enabler|
In summary, the Great Restructuring is elevating the role of Underwriter from Technology Trailblazer to Sales Strategist. The new underwriter will leverage advanced technology and apply his/her art of Underwriting to focus on new emerging and ever-changing risk landscape. This will make Underwriter’s role more strategic in defining the future of the company to improve business performance and shareholder value.
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