The Underwriting Evolution and the Importance of the Underwriter in the Modern World

October 11, 2022

Originally published in Insurance Post

As the complexity of risks and the frequency with which they arise increases, Nour Alnuaimi, founder and CEO of Upsurance, considers how the role of the underwriter will evolve in the future.

The search for profit in recent years has seen the insurance industry refocus on its technical underwriting methods. This is driven by the changing risk landscape and witnessed by the huge strides taken by managing general agents and insurers.

The complexity of risks, as well as the frequency with which they arise, have increased over time. Over the past 24 months, general insurance companies haven’t fared particularly well. Covid-19 has adversely affected insurer loss ratios and damaged their reputations with the likes of SMEs for being slow to determine policy coverage and settle non-damage business interruption claims. Social inflation is rampant and insurers are not only having to find new capital to bolster historic reserves but are having to consider ways in which they can support new customer acquisition demand from their distribution partners.

In a world of increasing complexity, some insurers and MGAs are more equipped than others to surmount the ever-lofty bar of underwriting excellence. This is demonstrated by the internal strategic and operational agendas that these companies have delivered on. These agendas are driven by four core pillars: people, strategy, technology and distribution.

Talent is scarce, particularly in underwriting, with the best underwriters being highly sought-after. People and talent are what determines the evolution of strategy and, therefore, how the use of technology and distribution execution is managed. From a technological perspective, there are four key stages in which insurers and MGAs can find themselves. It’s worth highlighting that some companies straddle a few of the stages as their agendas mature across different lines of business.

1. The Paper Stage: For the most part, this stage is now defunct. The Covid-19 pandemic has accelerated the extinction of this chapter in the insurance industry’s life.

2. The Spreadsheet Stage: What denotes this stage is the standardisation of underwriting guides internally within companies across various product lines. Knowledge is distilled by senior underwriters into comprehensive guides across rates, endorsements and other metrics and rules.

3. The Portal Stage: This applies to personal and small commercial lines that require limited involvement from customers or brokers to input information. This is linked to back-office systems for policy administration and the automated issuance of policy documentation and risk bordereaux.

4. The Platform Stage: This stage exists due to the goals already accomplished in stages 1 and 2. With standardisation already accomplished internally and many back-office systems becoming API-ready, the adoption of platforms are evolving. Platforms’ use can be modular with multiple functionalities depending on insurers’ and MGAs’ needs across dynamic underwriting, risk matching and data-enrichment and can also take into account how best to integrate with their legacy technology stack.

So, what does the future hold for insurers and MGAs?

According to McKinsey and Company, “commercial midmarket, large, and specialty underwriters should become more like hedge-fund portfolio managers. Like hedge-fund managers, underwriters are required to be responsive to fast-moving changes, to combine technology and sharp judgment to distil diverse trends into individual risks, and to oversee often expansive portfolios”.

Quantitative and qualitative judgements can be applied based on changes in the macro environment alongside risk specific changes such as increased claims. Those judgements can be applied not only in premium rates but also in the endorsements that are attached the ultimate level of limits that are bound. This method of underwriting has, historically, been the purview of the reinsurance market where single underwriting transactions have much larger financial consequences but perhaps, with the advent of technology, this once time and resource hungry approach will now filter down to insurers and MGAs.

This being the case, the underwriter’s role will evolve into one more akin to a data scientist where a risk will be taken into account based on a portfolio and predictive approach, utilising the myriad of real-time data sources now readily available due to technological advances and the building blocks that have already been put in place over the past decade.


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