This is a short version of a podcast you can listen here: Making Risk Flow – Episode 2
Kelly Lyles is an insurance industry veteran, having served executive roles at AXA XL, XL Catlin and AIG.
Last episode I talked about the concept of flow in other industries and, and how it’s transformed those industries. I also explained how this was not possible in insurance years ago due to the intangible nature of risk, but how now it’s possible thanks to new breakthroughs such as the use of AI/ML processing large volumes of risk information that is available from 3rd party sources. I believe we now have the opportunity to drive a better insurance industry that drives higher value to customers and brokers.
But we should acknowledge these breakthroughs were not available 5-10 years ago, but it is exciting to have them now.
I think we beat ourselves up in insurance for not progressing as quickly as other industries – but when I look at my career span – we’ve come quite a long way! When I was a D&O underwriter our workups were completely manual and our “financial analysis” was done with a calculator. Now, there are so many external sources that underwriters can utilise.
I’m not suggesting that all business can be system analysed and quoted. But certainly, many of the more administrative and mundane tasks can be taken away from the underwriter.
We’ve seen this in the banking world with small business loans. Something that used to take weeks can now take minutes. In both industries, we are able to weed out accounts that are out of appetite – freeing up the underwriters’ time to spend on the desirable business. Not only does this create a more pleasant experience for the underwriter, but the broker/client get an answer more quickly. And the company should get a positive hit on the expense ratio.
Absolutely. Especially in mid-market you do want underwriters to analyse complex risks and apply their experienced judgement. In my mind the trick is twofold:
If you think of new business underwriting, what are the challenges you see underwriters face today?
The admin and underwriting of out of appetite submissions is a colossal waste of time. To be more efficient, a carrier spends a lot of time informing brokers of their appetite. Now – if carriers have good workflows, the out of appetite submissions are identified early through digital submission ingestion and can be declined before the underwriter spends a minute on them.
But – that “discard pile” is still digitally held if – at a later date the CUO wants to review a previously rejected area. Best of both worlds really.
Totally. Actually, in many of our clients, we see over 60% of submissions being declined because they are out of their underwriting appetite, and it’s a huge issue, which only becomes worse in a hard market like the current one.
So you see both an efficiency but also a growth opportunity here?
Sure, efficiency and data in insurance are the holy grail. So with digitised workflows, carriers can grow and add scale without having to add more underwriters and admin staff.
Regarding your efficiency point, I was looking at some expense ratio analysis across different industries, and while other industries like Telecommunication or Automotive have decreased expense ratios by over 20% in the last 10 years, in the same period in Insurance it has grown by over 40%. But even more shocking are the differences in performance across insurers; the difference in operating costs between the top and bottom quartiles has increased from 24% to 44% in the last 5 years. So this is becoming a clear competitive factor for insurers, and I can only see that spread growing.
But enough about focusing on the challenges. What would you think a digital new business flow should look like for a commercial mid-market insurer?
I think for new business – it’s largely what we discussed early
Absolutely, it’s exciting to think how technology can absolutely power this type of process nowadays. If you think you can use OCR technology to extract data from submissions, then automatically pull externally available 3rd party data to enrich them with all the data points underwriters use to analyse them, then you can start making automated decisions on what submissions best fit the underwriting strategy and appetite, who is the best placed underwriter to analyse each one, or even push them to the rating engine to drive end-to-end straight-through processing.
And something similar applies to the renewals process, right? What would be your version of a digital flow for renewals?
Yes, I was just going to say the same thing and it’s really interesting. An underwriter really only looks to amend terms if there’s been a material change in risk or exposure. So if there is no change, then the renewal process should be relatively straightforward.
And again, eliminating any unnecessary re-underwriting or admin is a huge win. I suspect we’re both in agreement that technology can help us determine which risks have changed and which ones didn’t. All of this can be achieved today, and we can easily overcome all these challenges that have been present in the industry for so many years.
And what do you think will be the benefits for insurers once they deploy these digital workflows?
You can see so much improvement for the front line underwriter – so much less admin. So much more joy in pure underwriting. But the benefits are also elsewhere in the company – the CUO can look at data in real time and better assess the portfolio mix, adherence to, or need to change the underwriting strategy and the management team enjoys better expense ratios and insights into the performance that you only get with real time data.
And finally, let’s not forget another important stakeholder – the broker and client also win with a better informed and expedited process.
That’s a great point and the beauty of digital risk flows, as brokers will get a quicker response to their submissions and an immediate acknowledgement of whether or not the insurer is not willing to quote the business. And the end customers will also get a quicker response and more affordable products.
Listen to this and the previous episode at Making Risk Flow
