Why underwriting isn't dead
There have been murmurs about a shift away from the underwriter, with technology driving the change. But underwriters continue to be the backbone of insurance.
Underwriters are charged with the essential job of analyzing and assessing risk so that insurance policies are priced appropriately.
Ironically though, there’s been some recent discussion about a shift away from the underwriter, with technology driving this shift. Certainly, technology has taken over formerly human tasks in underwriting, as it has in many roles across industries. In areas where the underwriting process is straightforward — for example, in personal lines where key data points include the insured’s age or whether he is a smoker— a lot can be automated. Automation technology can even go so far as to rate and price the policy and send back a quote, all without a human ever having to touch it.
However, there are a significant number of instances in which the underwriter’s job is far too complex for simple automation to take over. In commercial lines, technology and humans work together in the most efficient configuration to ensure that carriers write an optimal combination of both volume and quality of business.
The critical commercial underwriter
Arguably, the underwriter is the backbone of insurance. Her memory contains a bank of information and reason gained from years of experience, and it is vital to pricing risk accurately. For the foreseeable future, the world of commercial underwriting will include decisions and considerations that only experienced humans can accurately make.
Take this fictitious example of a clock factory. The underwriter charged with pricing the policy looks at the factory building to make sure everything is up to code and meets spec. She ensures all the clock-making equipment is in good repair, and that all the employees are following safety procedures. She looks at the delivery vehicles coming in and out of the building and makes sure they’re in good working order, and that they’re following a maintenance schedule.
All of this may be managed with technology; however, what technology might not “think” to consider is the biomedical research facility next door. An experienced underwriter will know to add this to the risk when pricing a policy. This is a simplified example, but it illustrates the unknowns that can’t be anticipated and modeled until their effects, or those in similar situations, have been experienced and analyzed.
While this type of nuanced human analysis is not easily replicated by technology, the underwriter’s job can be complemented by technology. That is to say that machine learning, artificial intelligence and data mining, for example, are all technologies that help humans to be more effective, as they bring more data into the underwriting process faster than ever, which helps underwriters to make more informed decisions, and make them faster. Essentially, technology makes humans available to do what humans do best (thinking and reasoning), while technology does the rest.
A rapidly evolving role
With technology taking such an important role in the underwriter’s job, the requirements of the 21st century underwriter are evolving as well. In fact, the underwriter’s job looks very different than it did even five years ago. At one time, underwriters followed a very specific career path, working their way up from recent college grad to underwriting assistant to senior underwriter or underwriting manager, gaining experience along the way. Now, progressive carriers are hiring from outside the industry, looking for candidates from different backgrounds that might approach the underwriting process differently, and with a different set of skills and level of tech savviness.
This is also symptomatic of a change in the economics of the industry: The 21st century carrier is strapped for revenue, trying to do more with less — in many cases, fewer people. So, underwriters are being asked to assume the role of data scientist or salesperson — skillsets that were not a requirement of the role in its previous iterations. In light of this, the pool of underwriter candidates is expanding, and that is a positive indicator for innovation in the insurance industry.
What carriers can do to support the evolving underwriter
Given these forces in insurance and throughout the modern world, carriers are faced with a conundrum: How do they continue to build on the deep experience created in more traditional underwriter role hierarchies while working within the fast-moving, data-centric, technology-driven framework that the entire world is converting to?
One way is by building the senior underwriter’s experience into models — building underwriting rules into a system to turn expertise into a process. That process then can, and will, evolve over time, often with input from ongoing human experience and analysis.
Another approach is to distill that experience into a simple process that a junior underwriter can follow as they build their experience. This feeds a more traditional organizational structure where there is a clear hierarchy of submission assignments and letters of authority within the underwriting team — i.e., the more experienced underwriters work on the most complex and/or the largest risks. For some carriers, modeling enables consistent application of underwriting best practices across large, tiered underwriting teams quickly and with almost no learning curve.
Clearly, underwriting is still alive and well.
In fact, in the case of complex commercial business, everything rests on the underwriter: Risk must be assessed and priced properly in order for carriers to make money. But the role is evolving, mostly in response to changes in the market, as well as fundamental changes in our relationship to technology. Carriers’ future success depends on their understanding of this evolution, and their commitment to supporting their underwriting teams with technology and processes that will keep pace with the industry’s increasing rate of innovation.
Nicole Mongillo is product marketing manager in the Core Products, Underwriting Management division at Guidewire, a provider of software products to the Property & Casualty insurance industry. She can be reached at nmongillo@guidewire.com.
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