Reasonably enough, insurance executives in our North American Commercial Insurance Underwriting Survey 2013 expect to see more stringent regulation, intense competitive pricing and increased customer and broker expectations for service over the next three years. These trends will put more pressure on the underwriter’s role, requiring more of their time and attention to get the right price for the right risk.
Not surprisingly, survey respondents cited maintaining underwriting and pricing discipline as their primary underwriting challenge to address (Figure 1). The second biggest challenge noted was high operating costs; a cost squeeze on margins also suggests a sharper focus on underwriting fundamentals to sustain or grow profits. Upping the need for cost reduction are signs of a softening market. Average commercial property and casualty rates rose 3.4 percent in the third quarter of 2013 down from 4.3 percent in the second quarter and 5.2 percent in the first quarter, according to the Council of Insurance Agents & Brokers (CIAB).
FIGURE 1. What are the main challenges within your underwriting function that impact your ability to achieve your business objectives?
How carriers are responding
More than half of the underwriters said improving the effectiveness of their underwriting using process automation is priority one (figure 2). It makes sense. Automating processes to move customer information quickly from the broker to the underwriter’s workstation, for example, enables faster quotes at lower cost. Underwriting systems can link directly to data services to scrub client addresses and confirm account information. Pre-populated application data streamlines the process and speeds turnaround. Although some automation is already in done, there is still much ground to gain in this area. Only 43 percent of responding organizations have automated 70 percent or more of their underwriting processes.
The next top priorities are increased use of predictive models for pricing and risk evaluation, and increased use of external data to evaluate risks. These two areas will become even bigger market differentiators as some carriers invest significantly to take the next leap forward. Larger insurers are more likely to be investing in predictive analytics than smaller: 73 percent of carriers in excess of $1 billion in commercial written premium are investing versus 44 percent of those with less than $100 million in premium. For example, middle market carriers have been ramping up their use of telematics for commercial fleet business; they are seeing accident reductions of 15 to 20 percent through alerts, coaching and behavior modification.
FIGURE 2. Where will your company invest in the next three years, to improve the effectiveness of its underwriting organization?
Check back next time for more findings from the survey and what carriers can learn from the results.