- 03-10-2023
- Muthu Subramanian
- Insurance
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The commercial insurance market size is projected to reach a substantial value of $279 billion by 2031, exhibiting an impressive growth at 10.6% CAGR*. This momentum provides a unique opportunity for commercial carriers to redefine their trajectory and emerge as leaders in the marketplace. One pivotal and differentiating factor, among others that will separate the leaders from the laggards is underwriting excellence.
While underwriting excellence remains a widely discussed topic, it offers fresh opportunities and innovative approaches to achieving the desired outcomes. Traditionally, underwriting excellence was defined by the accurate assessment and pricing of risk.
Many insurers focused on specialized risk areas achieving commendable underwriting profits over time. However, the question arises: is it sustainable in the ever- evolving business landscape?
In response to this challenge, many insurers have turned to portfolio diversification via organic and inorganic means. Yet, they remain susceptible to the fluctuations of the economic and insurance cycles. Amidst these complexities, one approach that stands out as effective in troubled times is a strong underwriting culture.
The role of the underwriter is transforming rapidly. Underwriter excellence encompasses three critical dimensions:
The insurance industry is currently undergoing a significant transformation in the role of the underwriter, accompanied by a shift in their behavioural aspects. This transformation is closely aligned with the underwriting philosophy of the organization.
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The evolution from being an underwriter to development underwriter is characterized by a deeper understanding of client’s business, risk profile, and financials. It involves identifying potential risks within the client portfolio, emphasizing proactive engagement rather than reactive risk assessment.
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The underwriter is also encouraged to become an advocate for flexible, tailor-made products that depart from traditional risk-based offerings with exclusions They should possess the capabilities to identify, quantify and price the underlying risks fostering niche expertise among the underwriting community.
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Additionally, underwriters are encouraged to shift from being mere consumers of data to becoming data owners. This involves a comprehensive understanding of external data sources and the ability to predict unforeseeable events. It requires industry knowledge regarding the availability and reliability of data sources.
The second intervention focuses on the organization's ability to monitor and manage underwriter performance and reward them appropriately. Evaluation parameters can be classified into six major categories, with KPIs identified at both the portfolio and underwriter levels. This ensures the recognition and remuneration of underwriting excellence while closely monitoring organizational performance. These evaluation categories encompass:
- Expenses measure such as expenses ratio, underwriting margin, pre-tax margin, and premium earnings per employee.
- Loss measures, such as loss ratio, CAT ratio, hit ratio, individual and portfolio-level loss history.
- Operational measures, including task overdue, task distribution, underwriting authority review, average TAT(Turanaround Time), and duplicate submission.
- Compliance / KYC measures such as sanctions clearance status, vessel sanctions clearance status, KYC compliance, AML and OFAC checks.,
- Business agility measures, encompassing Auto triage ratio, flow vs manual underwriting, data ingestion percentage, training time, and referral counts.
- Performance measures, covering quote conversion, Count/GWP/geo-based analysis, retention ratio, claims frequency and severity, claims ommissions, cross-sell and upsell, among others.
The outlined approach offers tangible benefits including Optimising combined ratio and addressing emerging catastrophic risks. Increasing digital adoption, reducing operating costs, achieving consistent growth and profitability, and responding to ESG (Environmental, Social, and Governance) demands and fostering innovation.
In conclusion, past performance cannot guarantee future growth, especially in the face of expected challenges. The role of the underwriter is undergoing a significant transformation, and adapting to change and effective performance management are critical for future survival and growth. The adoption of technology and organizational change management can support this transformation.