6 minute read 7 Aug 2020
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Three myths that challenge commercial underwriting success

By Preetham Peddanagari

EY EMEIA Digital Insurance Leader; UK Financial Services Technology Consulting Leader

Digital leader in insurance. Passionate believer in leveraging technology to improve businesses. Sports lover. Dad.

6 minute read 7 Aug 2020

Strong forces are driving commercial insurers to modernize their underwriting functions, but false assumptions are holding them back.

In brief
  • Forces from outside and inside the insurance industry are driving disruption and forcing leaders to accelerate their transformation journeys.
  • A smart underwriting function with the right technology is essential for insurers to adapt to the “new normal.”

In the COVID-19 pandemic era, insurers are being disrupted by forces from inside and outside the industry. In many cases, trends that were underway before the pandemic struck are being accelerated.

In underwriting, for example, insurers recognize the need to make bigger investments in modernized platforms. Why? Because the function is seen as essential for engaging with customers, driving profitable growth, and meeting changing customer and intermediary expectations. In other words, after years of underinvestment, insurers now view underwriting as critical to their near-term survival and long-term success.

Insurers’ initial investments in modernized underwriting platforms have been focused on workflow, automation and improved risk analysis. However, in contrast to claims and policy functions, there is no “one-size-fits-all” technology solution and success has been limited.

We see the need for further investment in smart underwriting platforms that combine and orchestrate a range of capabilities, provided by both new and maturing technology. These platforms can orchestrate and coordinate a range of capabilities within an ecosystem model, with the end goal of delivering genuine competitive advantage.

However, to generate strong returns on their investments in underwriting technology, insurers must address – and avoid – a number of market myths that can pose significant barriers to success. Before we delve into those myths, however, it’s useful to break down the forces that are driving change in the industry.

Market forces driving change within commercial insurance

In the age of digital disruptions, boundaries between industries have become blurred. Within underwriting functions, for example, forces from outside and inside the insurance industry are driving disruption and forcing leaders to accelerate their transformation journeys. Future success depends on it.

The internal and external factors reshaping the industry function include:

  • Lack of end-to-end process integration: Integrated end-to-end process from submission to binding are generally lacking. Manual or offline steps and process gaps in the underwriting workflow and PAS tools limit integration and orchestration efforts. Organizational silos result in inefficient data flows, which in turn limit the returns on investments in analytics.
  • Focus on low-value and non-priority tasks: Underwriters spend between 20%-30% of their time on low-value administrative activities, some of which have little, if anything, to do with underwriting. Firms could make better use of assistant underwriters so that senior underwriters can prioritize higher-value and customer-facing activities. Better technology and improved data flows could also simplify and streamline time-intensive data-gathering tasks.
  • Changing customer and broker expectations: Customers are demanding more personalized risk assessments and coverages tailored to their needs. They also expect immediate access to information, progress updates and process transparency. Because these have become the norm in many consumer-driven industries, insurers face pressure to deliver similarly rich, intuitive and personalized experiences.
  • Technology advancements: The industry faces something of an “arms race” relative to the adoption of disruptive technologies, which equates to greater competitive pressures. Some leaders are harnessing improvements in data and analytics to enhance their pricing, risk assessment, aggregation and customer retention policies. Emerging technology is also enabling new capabilities and fostering innovation in the form of smart contracts and automated endorsements, mid-term adjustments and renewals.

Managing through the myths

Because nearly all underwriting functions need to upgrade their technology, the critical question becomes how to choose the right toolsets and deploy them in the right way. A first step is to understand where the industry is on its overall transformation journey and avoid common myths that might lead to missteps along the way.

Myth 1: All placement will soon be digital

As much as insurers talk about digitization and going “paperless,” the reality is that a significant percentage of submissions are made via unstructured formats. Email and paper are likely to be a common source for submissions for a long time to come. Although electronic placement platforms are maturing, they are still below the 40% goal set by industry leaders, with little chance of hitting the target anytime soon. Additionally, broker adoption of insurer portals remains low.

In the meantime, underwriters should focus on digitizing the manual submission process (e.g., slip ingestion via email or paper), while continuing to prepare for digital placement platforms such as Placing Platform Limited (PPL). Ensuring their people and teams are ready to embrace them is a critical job for underwriting leaders.

Myth 2: Effective workflows by themselves deliver competitive advantage

The several large insurers that have invested in underwriting workflow capabilities have realized small incremental benefits. However, they have not yet gained competitive advantage. The truth is that workflow is only one of many core capabilities that must be stitched together for underwriting teams to produce tangible business benefits and insurers to gain a strong edge in the marketplace. Underwriters first need to solve priority hotspots.

A smart underwriting platform orchestrates key capabilities – not just workflow. For instance, all pre-bind activities can be integrated into portfolio planning and appetite management, automating clearance and compliance checks, orchestrating data enrichments, and facilitating the use of machine learning and AI to enhance risk assessment and pricing. Combining a smart workflow with these other external capabilities through modern architectures provides the flexibility to achieve digital aspirations and, ultimately, deliver better outcomes for insurers.

Myth 3: All underwriting functions can be automated

It’s clear that the assessment for some risks (e.g., the small to mid-sized enterprise market) can – and should – be fully digitized and automated. However, large commercial, complex and speciality risks will always need human involvement. The judgment of skilled and experienced underwriters is simply too valuable to attempt full automation of the assessment of these risks.

New product development is another area that can’t be fully automated. Underwriting expertise is critically important in the design of new offerings that better reflect the needs of different types of businesses.

Of course, with the right technology, those human underwriters can benefit from real-time decision support and insights as they review complex risks. Technology can also make the data gathering process more efficient and effective and therefore, underwriters more productive. The bottom line is that automation efforts should be focused on areas truly suited to “one-touch underwriting.”

Additional EY contributors include Mitch Robinson, Director, Consulting, Ernst & Young LLP; Andy Roberts, Senior Manager, Consulting, Ernst & Young LLP and Ronni Gallo, Senior Consultant, Consulting, Ernst & Young LLP.

Summary

There’s no doubting the powerful forces driving profound change in commercial insurers’ underwriting functions. And the upside benefits that will accrue to the firms that navigate the changes most effectively should not be underestimated. However, a few widespread myths present real risks that could impede progress.

About this article

By Preetham Peddanagari

EY EMEIA Digital Insurance Leader; UK Financial Services Technology Consulting Leader

Digital leader in insurance. Passionate believer in leveraging technology to improve businesses. Sports lover. Dad.