Circus trivia: What is a tightrope walker?
Five years after its closure, Ringling Brothers announced earlier this year that it would be returning to the circus business — only this time, without the animal controversy.[i] It will rely on a larger selection of human performances and high-flying acts, one of which is sure to walk a tightrope. A funambulist is a reliever.
In some respects, commercial casualty insurers may feel a kinship with palliatives. For years they have attempted unimaginable feats of balance and skill – to try to keep the interests of the company, the interests of the agent and broker, and the interests of the client in focus at the same time. All along, insurers have also been keen to balance their workload and manage their portfolio profitably. Wherever technology could be applied to the process of requirements gathering or decision making, it was helpful.
Requirements collection versus customer experience
The need for insurance information has sometimes been at odds with the customer experience. Requirements are necessary, but they are a fiery arc in the middle of the sales process. Agents and customers spend time trying to gather all the information. Underwriters keep track of where the application and supporting documents are in the process. True balance is rare, and when it is achieved, the satisfaction is still lacking. Commercial underwriters are often not completely satisfied with the information provided. Customers may feel they have to do acrobatics to get the coverage they need. All the time, a clock is ticking for the agents. Everyone feels the pressure to close the deal.
However, great progress has been made. Commercial P&C insurance companies certainly have advanced automation. The underwriting process has evolved from a heavily manual, paper-based environment to digitized, automated processes that leverage business rules engines in next-generation core systems. These advances have paved the way for what comes next ̵1; a wholesale reinvention of the issuance process. These next innovations address growing pain points and they unleash the power of digital tools and digital platforms to bring efficiency and simplicity to the process. Best of all, they put claims collection and the customer and agent experience on the same page, both of which contribute to positive, long-term outcomes for insurers, agents and customers.
Assess the need for digital emission transformation
No matter where you look in the insurance value chain, you will find that any area is critical. However, it could be argued that no area is more critical to profitability than underwriting. Underwriting sets the stage for a book of business. It operates at the “policy” level for risk assessment and at the portfolio level for risk tolerance. It requires great care and thought. Underwriting is the friendly guardian at the gateway — tasked with being both invitingly service-oriented and ruthlessly protective.
Underwriting, due to its position in the value chain, must also be competitive. It is very useful to view underwriting through a competitive lens. What can insurance companies do to help insurers in their quest to keep the business competitive? From this vantage point, insurance companies can understand their underwriting gaps and targets. Where do improvements need to come from? How can technology provide innovations that make a difference?
To answer these questions, we will use research from joint research efforts between Majesco and Strategy Meets Action. The research provides a concise view of today’s underwriting, including:
- Current pain points in commercial insurance underwriting.
- Relevant capacity gaps that will grow over time if not addressed.
- Opportunities for improvement that will reshape the future of underwriting.
We will briefly review some of their points and then consider how P&C insurers can begin to change direction right now.
Underwriting pain points
Underwriting pain points can look like a three-ring circus, but most numbers fit into two high-level categories: Process and workload and data/risk view.
Most underwriters, especially those dealing with more complex risks, are frustrated by tedious tasks and lower-level activities that are time-consuming. Ineffective collaboration and communication (internally as well as with external partners, agents/brokers and customers) takes away time that could be spent on more value-creating tasks. Ideally, insurers prefer to apply their expertise and experience for decision making. They would also prefer to spend their time establishing and building relationships with distribution partners.
Underwriters need and expect a rich set of data to facilitate their risk analysis. Effectively gathering this data from both internal and external sources is a major pain point. Analyzing data to gain insights is difficult. Gaining access to holistic data on policies and claims is critical but often difficult to achieve with many of the legacy systems in place today. Often the underwriter must convert qualitative information into a quantitative credit or debit decision – along with a commercially palatable rationale for the broker. A related problem is an inability to have an integrated and unified view of data for risk assessment.
Identify capacity gaps
In mid- to large-market business insurance, change has been slower to manifest than in small business underwriting. Historically, larger, complex commercial lines risks have seen more layers of tactical tools but have not had the same attention, priority or technology investment as small commercial or personal lines. Even with an increase in tactical tools, non-holistic, incremental layering of capabilities can create significant change fatigue, especially when the current state is seen as only semi-automated. Storing more (but necessary) incremental changes will create personnel and performance risk. This can only be solved through a unified, holistic vision for the future state of underwriting.
New and improved data access
The current potential capabilities of data and analytics in the P&C underwriting space are truly staggering – if they can be successfully integrated and leveraged. New data providers, new data tools and new automation in decision making are creating a rapidly changing competitive advantage for underwriting. Preparing the organization to use these new features, including many of them include additional risk points, should be a high priority.
Artificial intelligence technology becomes mandatory to underwrite all kinds of commercial risks. Using machine learning to automate, triage and power new predictive models for rating, risk assessment and pricing can create a distinct advantage for insurers. However, commercial line operators consider innovation and InsurTechs to be a low-priority driver of their strategies. Insurers are realizing the potential power of AI solutions, but plans and adoption are still slow. According to SMA research, only 39% of insurers see the strategic value in prioritizing transformational technologies.
Opportunities for improvement
Improved workflow management and automation
Manual handoffs slow down processes and tend to create more errors. This does not simply mean one person handing a paper document to another (although that may be the case). This may mean that an underwriting employee must take steps to digitally send the information to the next person in the process. Automating workflows at every step of the process becomes mandatory for competitive purposes, even in more complex risks. Leveraging process mining technologies to target change, along with digital platforms and a modern workflow engine for activities such as triage and allocation, significantly improves the underwriting process and frees up underwriters’ and managers’ time for more critical tasks.
Better use of data sources
Insurers want to refine rules and leverage AI to collect and analyze the best available data to provide a complete picture of the exposures for a given submission. In addition, automating data collection and using data prefilling functions can relieve the insurer of these tasks and streamline the process. But most importantly, rapid access to high-quality data in existing core systems is critical to the efficiency, speed and accuracy of the risk assessment process.
One of the key benefits of a digital underwriting platform is the potential to improve collaboration between underwriters; agents, brokers and other distribution partners; and customers (both potential customers and policyholders). Digital portals for submissions, easy access to current information and digital communication reduce waiting times and optimize the process for everyone involved.
Portfolio analysis features
Over time, insurers have moved from assessing individual risks to managing the overall portfolio. For small commercial lines, there is great potential to achieve high straight-through processing (STP) speeds and enable underwriters to focus more on exposure analysis and assessment of the overall book of business. This is because these techniques have been proven in personal lines and are currently used for less homogeneous risks/data. For more complex risks, there will still be a need for human expertise in the evaluation of many individual risks and interactions between brokers, but automation will help there as well. In addition, there will still be the same need for more portfolio analysis capabilities.
For underwriting, the future will be about blending technology-based automation and insights with the expertise of human specialists.
Commercial insurance companies recognize that significant changes are coming; but they expect a longer runway to increase. Given this, the gaps in today’s strategic focus seem to suggest confusion about where to start. Many conclude that a good place to start is via an underwriting digital platform.
What can a digital underwriting platform offer?
The potential for underwriting is no longer guesswork. Technology and tools exist to make it better. The future of P&C commercial guarantees is:
- Intuitive — The workflow is natural and it enables intelligent decision-making.
- Integrated — Underwriting is at the heart of an interconnected, collaborative data and communications environment.
- Insightful — Access is freely available to all relevant data and analytics sources for transactions, decisions and larger portfolio management.
That’s what Majesco Digital Underwriter360[DG1] makes. It is an intelligent, insight-driven, cloud-based SaaS that improves underwriting efficiency and profitability, drives underwriter productivity and profitability, and creates greater transparency and collaboration with brokers.
What does this environment look like?
In our next digital issue blog, we will look at the design and construction of this environment. How can underwriting become a seamless hub of information, fed by the best data management and analytics methods available today? What progress makes a true competitive differentiator – moving commercial insurers from capable to innovative? To hear the latest from Majesco and SMA on Underwriting and analytics, watch Majesco’s webinar, The Art and Science of Underwriting Powered by Artificial Intelligence and Machine Learning.
[i] Fox, Alison, Ringing Bros. Circus returns after a year-long hiatus — without animals, travel + leisure, May 19, 2022.
[DG1]Link to website