Is it really possible to achieve both top and bottom line targets in underwriting?
By Juan de Castro, COO/CCO, Cytora
How productivity-led growth can drive both top-line growth and bottom-line underwriting profitability, according to Cytora’s Juan de Castro
In insurance, underwriters are typically measured on both top-line growth and bottom-line underwriting profitability. However, there is a clear tension between both objectives, as it is easy to drive progress on one side, but historically has been difficult to solve for both.
Underwriters can meet their growth objective by spending less time on each given risk and quoting more of them. But this is at the obvious expense of writing bad risks, that will hurt the bottom line.
On the other side, underwriters can meet their bottom-line underwriting profitability objective by spending more time assessing each risk, But this is at the obvious expense of lower throughput, longer turnaround times, lower broker satisfaction and lower conversion rates.
This is the underwriter paradox. To protect the bottom line, underwriters need to spend time analysing risks, which hinders their ability to drive top-line growth.
Understanding the value of a submission
The reason it is hard to solve for both growth and profitability at the same time is that underwriting processes still rely on underwriters manually processing all submissions that they receive.
Think of a factory, where line workers need to spend time on each item that goes in front of them, in order. With that model, the throughput is limited by the capacity of a human to process individual items, and they invest the same amount of time in each item of work.
Something similar happens in insurance, where underwriters are expected to go through each and every submission to understand the risk and assess its value, even before the actual underwriting activity starts.
This feels very much like a factory setting today. But the fundamental difference is that in insurance, not all items of work are created equal. Some risks will be tiny, some of them will be large. Some of them will make an underwriting loss, some of them will make an underwriting profit. And this is hard to assess purely with a quick glance.
If we know this is the case, why do we still force underwriters to work in this factory-like style?
It’s because so far, underwriters have not been able to assess the value of each incoming submission before they start working on them. It is like factory workers having the items of work in closed boxes in front of them that do not allow them to know what’s inside, and whether or not they need to act on each one.
If we could automatically assess the value of each incoming submission, we would be able to guide the underwriter to the most valuable submissions. It’s like the factory worker having an X-ray machine that allows them to pick which items require their attention, and allocate time to each of them based on their value.
The main blocker to assessing the value of each incoming submission today is the inability to automatically profile the risk before an underwriter spends time on it. To overcome this blocker, many insurers have focused on trying to extract all the data from the submission itself. For years they have been testing Natural Language Processing (NLP) technology for this purpose – with overwhelmingly disappointing results.
At Cytora, we believe this is the wrong approach. Submissions come in so many different formats, many of them even handwritten, that trying to accurately extract all submission data is just unfeasible.
Allocating time based on submission value
Today there is a way to assess the value of a submission without heavy manual data extraction efforts. It relies on extracting a few simple-to-extract risk data points (such as company name and postcode), and using the richness of externally available data to build the risk profile.
Once you have characterised the risk profile you can assess its fit with the underwriting strategy, assess its value, and assign it to the most effective underwriter to win that case.
This allows underwriters not only to work on valuable in-appetite submissions, but more importantly make sure they are allocating their time based on the value of each submission. This ultimately reduces the quote turn-around time for the most valuable submissions, which as we know is a significant driver of conversion rate.
Driving productivity-led growth
Driving productivity is the only way for insurers to write more profitable risks with the same number of resources, achieving both top line growth and bottom line profitability. This is what we mean by productivity-led growth at Cytora.
Let’s stop asking underwriters to work in a factory-like way. They deserve better, and our industry simply cannot afford it.
Find out more on how productivity can provide a competitive advantage in insurance in our previous blog here.