Adapt or Perish: Embracing Technology in Underwriting

William T. Budde is vice president, sales and marketing, for Instec.

One of Mark Twain's most recognized quotes is, "The reports of my death have been greatly exaggerated." Underwriters and Mark Twain have rarely, if ever, been mentioned in the same sentence, but underwriters may have more in common with the author than would initially appear.

It is true that underwriting job growth is in decline. Employment of underwriters is expected to drop by four percent by 2018, with the steepest drop felt in the most highly commoditized lines of business that lend themselves best to automation.

However, underwriting as a discipline is an entirely different story. The need for underwriting acumen and decision-making skills will continue despite automation—and for as long as there is insurance.

As with Mr. Twain, reports of the death of underwriting have indeed been greatly exaggerated. The key to career longevity and success for underwriters is to recognize and adapt to technology changes, leverage new information and systems that are available, and position themselves for the future of the profession.  

Pardon the Disruption

Underwriting has always been part art, part science. Increasingly, technology has sought to automate the science part of underwriting with rules-driven workflows that handle administrative, information-gathering, and basic yes/no aspects of the job. Underwriters should embrace that change, not resist it, because by eliminating the mundane, they can focus on the exceptional.

Technology may never replace the art of underwriting, but it will help refine it. Providing decision-making guidance, delivering information and analytics, and introducing collaborative technologies and other tools will allow underwriters to make increasingly well-informed decisions and assess challenging risks more quickly and effectively.

This is not the first time that technology has caused disruptive change to the underwriting profession, and it won't be the last. In the late 1800s, steam boiler technology spurred the development of insurance to protect against risk of explosion, standards to prevent loss, and underwriting guidelines for risk selection.

By the turn of this century, imaging and document management were already well underway in transforming traditionally paper-based underwriting documents to electronic files. And within the last few years, telematics has begun to change the way insurers look at the underwriting and pricing of personal auto policies and to provide feedback that can be used by customers to become better risks.

The pace of technological innovation has continued to increase. However, rather than fear it, underwriters should be clamoring to use new technology to help them do what they cannot today and to gain access to the information that would enable them to make the best decisions around risk selection and pricing. They should be looking for new and innovative ways that they can leverage the "SMAC" stack—Social, Mobility, Analytics, and Cloud.

Social – Underwriters must realize that they are part of a larger ecosystem of experience that not only exists within the walls of their company but extends beyond it. They need to use social networking to access expertise, get feedback, and build knowledge far beyond what they could develop by operating in isolation.

Mobility – There is no excuse for underwriters to be stuck at their desks any longer. Mobile devices and networking capabilities allow underwriters to sit down with brokers and customers both at the point of sale and throughout the policy lifecycle. Having discussions around reducing losses and improving profitability adds value far beyond simply offering coverage and delivering a competitive price.

Analytics – Traditionally, underwriters have looked inward when analyzing data. Today's environment presents a wealth of third-party data that can be used to assess individual risks, construct models to improve selection and pricing, create market segmentation, and more. With the powerful, user-friendly analytic tools available today, there's no excuse not to "slice and dice" data in ways that promote both premium growth and profitable results.  

Cloud – Cloud enables the rest of the SMAC stack by allowing insurers to deploy new technological capability without the traditional investment in on-premise infrastructure. Using cloud, underwriters have access to well-managed, cost-effective, and scalable infrastructure that can support applications and services and allow data to be securely and remotely stored and shared.

Getting Started

Insurers should look continually for ways to ensure technology, automation, and underwriting work together to secure the best business, at the best price, with the greatest profit. One logical place to start in the deployment of any new technology is with program business. To successfully write program business, underwriters must understand the market better than other companies—a perfect application for SMAC-stack technology. Also, beginning with program business allows carriers to start small with investments.

A second place to consider is renewal business. On average, it takes seven years to recoup the acquisition costs of a new policy.  Today's hardening market presents an opportunity for underwriters to focus their efforts on working accounts they already have, leveraging the SMAC stack to target known risks, reduce claims, and improve insureds' operations.

That change in focus from new to renewal accounts can be difficult for insurers. Although smart underwriters have always known that "premium is vanity, profit is sanity," they have often been forced to operate with significant top-line pressure, going on business-writing binges in a shortsighted attempt to offset rising expense ratios. Additionally, many IT investments involve portals and other front-office technology targeted at acquisition. Focusing technology investments on renewal business can pay significant dividends, but it requires top-level commitment to a vision of book improvement.

Embracing Change

Underwriters should embrace the changes to their role and view technology as an enabler of both personal development and business goals. With easier access to more data and the automation of routine tasks becoming the norm, underwriters can make quicker and better risk decisions, and companies can refocus the saved time and talent.

While the underwriter's role may be changing, there will always be a place in insurance for skilled decision-makers. Arming underwriters with the best processes, tools, data, and technology is an investment in a company's future profitability—and the lifespan of the underwriting profession.