Reimagining the role of insurance underwriters

This article was originally published in the Autumn 2019 issue of The Record. Subscribe for FREE here to get the next issues delivered directly to your inbox.

Digital transformation continues to drive profound change within the insurance industry. Already, we’re seeing drones and telematics collecting data to support better informed risk selection, and automation and artificial intelligence (AI) being used to make claims management more efficient and improve the customer experience. But what about underwriting? How quickly and to what extent might we see technology, and automation in particular, transform the industry’s bastion of subjectivity?

According to a Willis Towers Watson survey of US property and casualty companies, 90% of insurers plan to employ advanced analytics in underwriting/risk selection, including nearly all personal lines carriers, a majority of commercial lines insurers and a significant and rising number of specialty lines carriers. Much of this activity is focused on enhanced data usage and analysis.

The journey toward automation has been much slower, but it’s building momentum. Right now, 30% of companies say they use it, and an additional 37% said they’re planning to within the next two years.

Inevitably, greater automation will affect the underwriter’s role. The easiest way to consider how is to break the job down into specific activities and outcomes, which can then be categorised as repetitive or variable to assess the potential for automation.

For underwriters, repetitive tasks could include reviewing applications to determine the acceptability of a risk, ensuring underwriting guidelines are followed and quoting prices. Not only do insurers have the option of using automation or machine learning technologies to more efficiently complete repetitive tasks, but they might also want to consider taking advantage of the burgeoning talent platforms made up of independent workers offering specialised expertise. Time savings, cost and risk will generally be deciding factors, as well the need to address a widening talent gap as skilled talent starts to retire.

But companies considering automation and the extent to which it may alter the way they approach underwriting should first start by asking a couple of key questions: ‘What mix of efficiency and effectiveness are we aiming for?’ and ‘what’s the right balance of automation and judgment for the portfolio and the market segment we’re competing in?’

Answering these questions will be the first step toward intelligent automation and will help ensure that overriding underwriting goals are met, such as better risk selection, more consistent decision making and improved loss ratios. An insurer’s business model, the complexity and uniqueness of its underwritten risks, the markets it participates in and its geographic divers­ification will all need to be taken into account to determine relative weightings between automated process and judgment.

From those foundations, companies can start to think about how to make intelligent automation work for them in a practical systems sense, factoring in troublesome issues that many may face with legacy IT infrastructure. Intelligent automation needs to couple robotic process automation (RPA) with layers of expert decision algorithms, robust data integration and a real-time decision support platform, keeping in mind that the same environment and technology can also provide invaluable decision support for underwriters in technical pricing, negotiation and portfolio management. 

As to the impact on the future of the underwriting role, the human touch will certainly still be required. According to findings from our recent Global Future of Work Survey, while many insurers are embracing automation, they’re aiming to use it to augment human performance rather than replace it.

So while the role of the underwriter will remain central to insurance, the ways in which underwriters add value will almost certainly continue to evolve, becoming more distinct by line of business and possibly leading to alternative and diverging methods of compensation. Automation and advanced analytics augment human capability, rather than replace it, shifting skill premiums. Working in a data rich environment, the role of the personal lines underwriter is already being transformed with the use of advanced analytics. As the use of automation increases, being free from repetitive tasks could mean that they’re able to further hone their abilities to interpret data insights, adding more value with the increasing speed by which they’re able to detect and respond to market trends. For commercial lines underwriters, being freed from repetitive tasks could mean that they spend more time evaluating complex accounts, and build stronger distributor and customer relationships, but it could also mean that they’re able to become more highly skilled, stronger portfolio and product managers. 

Day Bishop is client relationship director for the insurance sector at Willis Towers Watson