Insurance is a data-driven industry and insurance is its heart.
It is therefore an unpleasant fact that data from the only longitudinal study of North American non-life insurers reveal that many important parts of the issue guarantee appear to be in decline. It is no exaggeration to describe the results of the latest Accenture and the institute’s insurance survey as alarming. Underwriting can be in crisis.
In my previous post, we looked at the survey results from a high level. Today we will zoom in on the results on emission quality specifically.
Underwriters seem to be losing faith in their craft
In 2008, 2013 and no later than 2021, we asked insurers to rate the quality of the processes and tools they use to perform their job. The score for 2021 was the lowest we have seen – although, interestingly, the decline has not been uniform.
For example, 62% of insurers in 2021 told us that they would rate their organization’s insurance strategy as superior – a decrease of 8 percentage points from 2013. Similarly, confidence that their organization used a superior pricing strategy decreased by 11 points, from 61% in 2013 to 50%. 2021
These are significant declines, but they are far from the largest in our recent data. The dubious credit goes to the confidence in the availability and user-friendliness of the tools used to support emissions guarantees, which shrank from 55% in 2013 to 33% in 2021. Perhaps more worryingly, confidence in both technical and non-technical education, both declined along similar lines .
We also asked insurers to assess the importance of different areas with potential improvement for issue guarantees. The four main issues identified were, in order of the part of insurers that highlighted them as important:
- Improve the quality and accuracy of emissions guarantee data (95%)
- Improving education and talent development (91%)
- Improve tools for risk classification and pricing (90%)
- Eliminate non-core data to allow more time for risk analysis (88%)
Change is needed – but where?
My view is that these results are a clear indication that many issue guarantees, in the midst of the industry’s growing focus on expenses, growth and analysis, have taken their eyes off the ball of traditional issue quality.
This has created a huge challenge for the industry, made it more urgent as many markets soften and the risks covered by insurance companies become increasingly complicated. Do today’s insurers have the skills they need to run profitable businesses?
It’s not at all obvious that they do – but it’s not a given that they do not.
In recent years, insurers have been equipped with many powerful new tools to help them measure risks and write policies faster. Our research suggests that these tools have not had the long-awaited effect (and in some cases have actually made the issue guarantee less effective).
But the power of digital tools to take emissions guarantees to new heights is still undeniable. To reverse the downturn suggested by our study, insurers and carriers need to bridge the gap between the potential of these new tools and their actual impact on the insurance guarantee. This will require a change in the operator’s internal structure so that insurers can focus on issue guarantees.
It will also require that these modern issuance tools are truly accessible and intuitive. A good example of this is how emission guidelines are handled in the industry today. In general, these guidelines are more important in containing all the information that may be useful than they are in helping insurers to write down the risk quickly and accurately.
Guidelines should instead be broken down into pieces and made suitable for the purpose so that insurers can quickly and easily find the information they need when writing policies. Ideally, a guideline system should “push” information to the insurer when needed instead of requiring the insurer to “pick” it from a long document or database.
The digital tools to make all of this happen are, of course, widely available in the industry today. This survey indicates that operators who take the initiative and implement changes in these lines will see a significant increase in insurance results.
In my next post, we will look at what the survey revealed about technical investments in underwriting.
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Disclaimer: This content is provided for general information purposes only and is not intended to be used in consultation with our professional advisors.