Commercial insurance is going through radical transformation across all segments, from small or medium-size enterprises (SME) to large commercial. With stagnant/diminishing investment returns, it is imperative for insurers to improve underwriting results and increase Gross Written Premium (GWP) and profitability. There are three key factors driving transformation in the underwriting function – technology advancement, distribution models, and regulatory changes. These are enabling insurers to reduce operating costs and drive efficiency and effectiveness.
The SME segment with more portfolio underwriting aligned to personal lines is seeing larger opportunities for automation, straight-through processing (STP), data enrichment, model-based pricing, segmentation, the emergence of broker/insurer platforms and direct sales. Inlarge commercial, the risks are more individual, while the opportunities are around automating information ingestion and manual tasks, risk segmentation, rules-based underwriting decisions, intelligent workflows, and case management.
With the help of technology, underwriters are able to focus on key activities including decision-making based on risk scores, negotiating and winning better business with a quick turnaround, and building relationships with brokers. Efficient underwriting and better pricing will deliver profitability with a reduced combined operating ratio and a higher return on capital.
Role of technology in underwriting
Technology plays a significant role in underwriting transformation across all segments from SME to mid-market to large commercial. The approach taken by the insurers for process and technology depends on the size and complexity of risks.
Underwriting in the small commercial sector is focused around the assessment of various homogenous risk classes based on the law of averages. Here, the focus is on portfolio experience rather than individual risk exposure. For mid-market, large commercial and specialist lines, underwriting involves the assessment of individual cases as the risks are more heterogeneous with the need for bespoke coverages. These need manual underwriting and support through additional risk management services. Technology plays an important role by bringing inefficiency in data capture and analysis, making the underwriting process more effective.
Key levers that have a major impact on the underwriting value chain include automation, data insights and analytics, and underwriting platform-based solutions. These technologies affect the assessment and proactive monitoring of risks and hence help in the prevention of the same. The ability to triangulate significant amount of structured and unstructured data is enabling insurers to provide more customized offerings and dynamic pricing, hence the ability to innovate.
A number of new-age specialized technology solutions have emerged, which are enabling insurers to help improve customer experience and deliver better value. Insurers are increasingly investing in InsurTechs to create differentiation in the market. There is an increasing investment in these companies addressing commercial insurance over the last three years, amounting to over $1 billion1.
Some of the key technology interventions include:
- Predictive analytics for risk assessment and pricing
- AI, robotics and cognitive automation
- Geo-based information for demographic and location data
- Big data capabilities for data integration and mining
- IoT enabling remote data capture and monitoring
- Microservices and API based system integration
- Underwriting workbench and platform for underwriters and brokers
- Omni-channel portal for brokers and customers
- Cloud and on-demand infrastructure
End to end transformation of underwriting processes
Disruptive technologies automate manual processes; integrate various legacy applications including policy admin systems to eliminate duplication of information. Other interventions including agent/ customer portals, intelligent workflow and real-time visibility of the process enable agents and underwriters to work in close collaboration. This drives the reduction in sales cycles, helping issue policy in a few minutes. These efficiencies are primarily driven by the service design and optimization of the entire underwriting process. Technology plays a critical role in transforming key areas in the underwriting process including the inception, segmentation and risk analysis, rating and pricing, and quote and bind (See Table 1).