The commercial insurance sector has seen significant hardening in recent years. Skyrocketing premiums and shrinking capacity pools are indicative of a market in flux. At the same time, rapidly growing exposures – be it in natcat or (US) casualty lines – are causing widespread concern.
The jury is out on whether the market has yet found a new equilibrium, and if plateauing prices are actually a shift towards a soft market phase, which all too often has caught insurers off guard. Add the rise of new threats, notably macro-level cyber-attacks, which can cause multi-billion-dollar damages, especially where wordings have not been crafted carefully.
The tension is heightened by a slow adoption of underwriting workbenches – both technically and by their full potential – resulting in material opportunities missed. Too many commercial insurers still struggle with an incomplete understanding of risks, leading them to select risk and set rates inaccurately, underestimating emerging exposures and overvaluing the pricing quality of their portfolios.
The urgency is clear. Insurers need to aggregate data efficiently and effectively, and gain insights into even the most elusive risks, if they are to embrace the challenges of a rapidly expanding risk landscape, both to their own and their customer's benefit. This is not just about adapting to market changes. It is about addressing the consequences of falling behind in technology adoption too.
Embracing underwriting workbenches: A leap toward digital transformation
Most insurers have recognized the need to modernize their underwriting processes yet, as is often the case, execution is trailing insight. For commercial insurers, the stakes are high, and the time for action is now. Underwriting workbenches, with their adaptability and comprehensiveness, offer a critical solution for insurers to master market dynamics.
Underwriting workbenches are not a passing fad; they are essential for making future underwriting effective. They provide a centralized platform where insurers can access a full array of tools, data, and information crucial to the underwriting process. And as the market prepares for the transition to a softer market phase while embracing a rapidly changing risk landscape, they become indispensable for informed decision-making and precise risk assessment.
Implementation: Navigating complexity for optimal outcomes
While the need for underwriting workbenches is increasingly recognized, the path to effective implementation and use is by no means straightforward. The vendor landscape for these solutions is very intricate and fragmented, offering various tools that cater to different facets of underwriting.
From commercial off-the-shelf packages to AI and analytics-based solutions, insurers must navigate the market offer and focus on the capability they need, while also considering the transformation journey and likelihood of success. This selection process extends beyond basic business requirements. It needs a comprehensive approach, one that aligns the chosen solution with the insurer's strategic objectives. And it requires changing the underwriter's mindset on the fly – rebalancing deep case assessment with wider insights in portfolio dynamics and emerging loss trends.
Gaining clarity is critical. Insurers should also challenge themselves. They should think carefully about their internal business and tech teams' ability to deliver change and embrace new technology (such as embedding AI development into their underwriting capability). And – on the underwriting side – they need to be clear on their future approach to portfolio management as well as their overall operating model that such a transformation will deliver.
Choosing the right solution will determine the future success of an insurer's underwriting capabilities and, ultimately, their commercial success.
Getting it right: Key factors to consider
To harness the full potential of underwriting workbenches, all insurers must consider the impact of the change in capability across technology and business:
- Advanced analytics: Building statistical models based on clean data is a tough ask for many insurers. However, predictive modeling and advanced analytics are crucial for precise risk assessment and rate setting. Leading Insurtech companies are leveraging AI to offer personalized insurance policies in seconds, demonstrating the power of advanced analytics, and offering a promising way forward for established players.
- Skill development: Addressing the scarcity of skilled underwriters must be a priority. This can be done through training and upskilling initiatives. A balance needs to be found: the underwriting department must be able to use state-of-the-art technology and effectively leverage wider and richer portfolio insights as a foundation of decision-making, without replacing the human judgement so critical to the underwriting process. Beware of the trap that compelling statistics grounded in flawed data present. Successful market leaders take a holistic approach and always consider underwriters' skill development when embracing new technologies and analytical tools, highlighting the importance of a comprehensive digital and analytical enablement of its workforce.
- Reliable statistical models: Quality statistical models are vital for reliable underwriting decisions, especially for commercial insurers grappling with incomplete risk understanding. Underwriting workbenches allow them to move away from a pure case perspective of risks, towards robust and holistic risk portfolio management. Successful examples use such advanced portfolio-focused modeling, e.g. for enhanced predictions of natural disaster risks, showcasing the importance of strong statistical models.
- IT infrastructure: Seamless integration of the underwriting workbench with the existing IT infrastructure is essential. The market leaders have already adopted cloud-based solutions to streamline their processes. Leading technology companies offer specific insurance suites to cater for the changing demands in the market. In addition, successful insurers have leveraged a best-in-class approach and established their workbenches as an integration layer, being independent from legacy technology, while enabling the provision of information in real-time. Selecting the appropriate solution is key to establishing a solid fundament of digital transformation.
- Cultural shift: Moving away from traditional, manual underwriting practices to embrace digital transformation is crucial. This requires a cultural shift – ably demonstrated by some large insurance companies that have already embraced initiatives to digitize their entire offering and corresponding underwriting processes. That said, the right implementation is key.
The urgency to act
The urgency cannot be overstated. Commercial insurers must invest in underwriting workbenches to adapt to the evolving risk landscape and successfully navigate the rapidly evolving market environment. Failure to do so will mean they risk being unprepared for the impending soft market phase. Success is a story of transformation, efficiency, and adaptability. Those who act now will secure their future in the evolving insurance realm.
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