Turning Risk into Opportunity

The commercial line insurance underwriting industry is at a pivotal juncture, facing numerous challenges in an ever-evolving market. The pandemic has resulted in a staggering $47 billion¹ loss for the insurance industry, further intensifying the need for prompt action. However, it was just the beginning of a more significant shift in the risk landscape – geopolitical conflicts and more frequent catastrophes have created an urgency for underwriters to be at the top of their game. With these challenges, a pressing question remains: How can insurers manage the cost of risk transfer without imposing premium hikes?

Instead of getting caught up in administrative work, underwriters must invest time in creating groundbreaking solutions that benefit their customers. However, extensive paperwork, non-standardized data sources, fragmented systems, and manual processes have become bottlenecks, affecting efficiency and agility.

Data overload increases processing costs and hinders underwriters’ access to relevant and timely information. As information pours in from various sources and brokers in non-standardized formats, cleaning and extracting meaningful, relevant insights consumes valuable time and effort. The rekeying and duplicating of data across multiple systems further erodes productivity. Take, for instance, the growing concern about cybersecurity risks. To price it effectively, underwriters must tap into data from cybersecurity centres of hyperscalers. However, interpreting this information isn’t simple, as customers often have a hybrid setup—part on-premises and part on-cloud. Besides presenting data effectively, underwriters require statistical evidence to ensure responsible decision-making. Processing such an extensive amount of data inevitably escalates backend costs and time.

While the data deluge is a concern, process inefficiencies also take their toll. For instance, while dealing with submissions, underwriters tend to follow FIFO² as they don’t have a system to prioritize applications. As a result, they waste valuable time on low-priority submissions, leading to a loss of business. In addition, an acute talent shortage creates a need to do more with less. Experienced underwriters are retiring, creating a significant knowledge gap. While efforts must be underway to bridge this gap, a more sustainable long-term solution is to figure out a way to achieve more with fewer people.

So, what can commercial insurers do to stay competitive and relevant?

A leading financial services company providing clearing and settlement services leveraged intelligent document processing (IDP) and achieved a 50% increase³ in underwriting capacity. Their application processing time was reduced by 80%, helping double new business conversions. In another instance, automation reduced the cost⁴ of the claims journey by as much as 30% and delivered an ROI of as much as 200%.

These are just some instances of how intelligent automation can revolutionize commercial insurance. For underwriting alone, there are many use cases, for instance:

Consider a situation where a batch of property-related data, including addresses and information about the surrounding areas, is presented to an underwriter. Typically, the underwriter must manually search multiple websites and platforms to gather details about each location, such as crime rates or neighbourhood characteristics. What if there are 100s of addresses? Excessive data would overwhelm the underwriter, making it difficult to determine what is relevant and what to disregard.

Intelligent automation eliminates unnecessary human intervention, freeing up valuable time for underwriters to innovate new products and engage in value-added tasks that directly benefit customers.

While automation technologies can bring efficiency and scale, it is essential to refrain from creating independent workflows for every line of business, as it would undermine the benefits of automation.

Let’s consider an example. With over 30 categories to assess and variations within each category, implementing separate, independent workflows for each line would be counterproductive. That would undermine the economies of scale that automation can bring. The ultimate focus should remain to elevate the value chain, enabling underwriters to dedicate more time to critical decision-making and excel in underwriting. And so before you embark on an automation journey, it’s essential to assess your existing processes and leverage process discovery to find ideal candidates for optimization and automation.

As underwriting undergoes digital transformation, it’s important to remember the value of an underwriter’s expertise and judgment in risk pricing. Take this case in point. Flood maps often show the whole island as a flood zone, but local underwriters hold vital insights about the actual situation on the ground. They know the precise roads, problem areas, and the preventive measures in place. This unique insight allows them to make informed decisions beyond what data alone could provide. Hence, human underwriters are irreplaceable.

As AI and automation take away the cognitive load of the mundane and the repetitive, commercial underwriters would find themselves focusing on new, complex, unusual cases that call upon their expertise. Collaboration between humans and machines is a win-win for all, leading to an agile, efficient, and prosperous future. Are you ready to embark on this journey?

Disclaimer Any opinions, findings, and conclusions or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the respective institutions or funding agencies

1. https://www.mckinsey.com/industries/financial-services/our-insights/repositioning-commercial-p-and-c-underwriting-for-market-uncertainties
2. https://www.freshbooks.com/hub/accounting/what-is-fifo
3. https://www.edgeverve.com/xtractedge/xtractedge-commercial-insurance/
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