- Where Insurance & Technology Meet

A Delicate Balance In Commercial Underwriting Technology

Is effective commercial lines underwriting technology an oxymoron?  There are enough graveyards filled with projects that have arrived DOA to make this seem true.  But hasn’t modern technology had an impact?

Perhaps, but not on its own.  There is increasing evidence that technology solutions need to be blended carefully with business wisdom to balance efficiency with effectiveness.

I’d like to know what  you think.  Is there an issue with commercial underwriting technology projects?  If so, what needs to be done?  We have an opportunity to pose some questions to an expert at next month’s Executive Forum.

What do underwriters say?

In mid 2013, Accenture conducted a survey of over 550 North American underwriters on the expectations and challenges of their work and the impact of the introduction of new data sources, modern analytics, and automated systems.  The report, North American Commercial Insurance Underwriting Survey, contained some sobering findings.

The top three challenges to achieving results were:

  1. Maintaining underwriting pricing and discipline (72% of respondents)
  2. High operating costs/expenses (55%)
  3. Lack of quality UW information (47%)

The underwriters see their companies addressing some of the issues with the introduction of:

  • Process automation (57% of respondents)
  • Predictive models for risk evaluation and pricing (51%)
  • External data for risk evaluation (51%)
  • Collaboration tools (49%)

Sounds like IT is aligned with UW needs, yes?

Efficiency gains only fill half the glass …

The problem the underwriters see is that effectiveness of the solution is lacking.  Only half of respondents felt the technology currently in use is very effective.

Worse, as the report says, “This lack of effectiveness rating is even greater among frontline underwriters.”  Over half of the respondents said that their workload  increased with the introduction of new technologies.

Consulting firm, Cognizant, came to similar conclusions in an analysis of performance impediments for commercial lines underwriters, writing:

Commercial underwriting is unlike other processes in the insurance industry in that it has an extremely complex and non-standard process, requires different types of skills, uses mostly unstructured data and is highly dependent on human judgment.

According to Cognizant, this underscores the historical common wisdom that the commercial insurance process is “not conducive to technological intervention.”

So, have the luddites won?

No. In fact, the opportunities are large.  Cognizant notes, “Compared to other core insurance processes, small improvements in underwriting can lead to tremendous benefits both on the top line and bottom line of the insurer.”

But technology improvements must carefully balance effectiveness and efficiency.  And be respectful of the knowledge workers’ changing requirements.   According to the Cognizant authors:

The work profile of underwriters is changing as market volatility has become the new normal and is something that they have to deal with on a daily basis. This change will cause underwriters to spend less time on their traditional submission management tasks and more time on relationship management and fulfilling the role of a risk consultant to their key clients. Systems need to quickly catch up to enable underwriters to shift gears.

Speaking of Change …

Both consultants’ reports stress the importance of delivering data and analytics to commercial underwriters in an effective manner.  Micheal Costonis, executive director of Accenture’s Insurance practice for North America, has developed best practice steps for analytic success, several of which seem to be specifically targeted at commercial lines initiatives:

  • Integrate analytics into the business processes. Data, technology and business must work as one team, and from the beginning of any effort.
  • Build a solid business case. Analytics should be used to solve defined business problems and answer specific questions.
  • Face up to the technology challenge. Insurers need to keep up the pressure, focusing on upgrading systems, digitizing processes and capturing data.
  • Leverage big data. Insurers deal with large amounts of unstructured data, but tools are getting better at dealing with this. And don’t forget about external data that is now available, including social media, telematics and data from external providers.
  • Initiate pilot projects to test concepts. Data and analytics lends itself to a test-and-learn environment, which can minimize sunk costs and enable faster innovation.

Michael will be presenting at the Executive Forum, focusing on how insurers can effectively respond to the changing environment. I’ll be interested in hearing comments on commercial lines.

What do you think?

If you’re an underwriter, what have you seen that has worked for you?  What hasn’t worked.  If you are a technology supplier, do the challenges above ring true?  What approaches do you take?  If you are an executive, how do you create an environment that balances effectiveness and efficiency?