Three ways to break the relationship between premium growth and costs in the mid-market

By Juan de Castro, COO/CCO, Cytora


It’s just a matter of time before we see who wins the productivity race in insurance, according to Cytora’s Chief Commercial and Operating Officer, Juan de Castro

We recently spoke at this year’s virtual ITC Global event, where we shared insight on how commercial insurers can drive growth in a Covid world through underwriting productivity. 

Here, we relay the three interventions that insurers can take immediately to drive productivity and take advantage of the market we’re in today. 

Productivity challenges

Historically, insurers have strived to break the relationship between premium growth and expense base, but it’s been an ongoing struggle.

Some insurers have grown, but their expense growth has increased at the same rate as their premium. Others have struggled to grow, and expenses have remained high. There are three reasons for this that we see today. 

Firstly, underwriters still have to spend time on low-value tasks like manual lookups. They have to go to multiple different websites, gathering information on a risk, purely to build the risk profile. 

This is amplified in the current hardening market where underwriters receive a lot of submissions from brokers that are out-of-appetite – as much as 40% of those they receive every day. This means spending so much time on submissions that they will not quote. 

Finally, there is a big challenge when it comes to prioritisation. Underwriters simply don’t have an intelligent way to prioritise the highest value submissions, meaning their time is not spent in the right place. 

These three areas are points of significant capacity leakage in an underwriting team, which contributes to a material loss of premium over time. Without these impediments to productivity, underwriting teams could quite radically shift the balance between their cost base and their premium.

Covid-19 has undeniably amplified this problem for mid-market commercial teams. Firstly, uncertainty is leading to constraints for underwriting teams. Many teams are under a hiring freeze, and they are under pressure to do more with less.

Secondly, and alongside that, brokers are sending more submissions to underwriters per day. The prioritisation problem they’re faced with has become more acute, given the vast array of submissions they’re now getting through. 

Underwriters now have to do more with the same resources. And, because of an increased competitive intensity, they have to respond to brokers and turn around submissions much faster to convert that business. 

There are three main interventions that insurers can make today to drive productivity-led growth. They’re achievable and can have measurable benefits quickly, post-deployment. 

Reducing low-value work

The first intervention is to ensure underwriters don’t waste time on low-value activities. 

In our experience, underwriters can spend up to 30 minutes per submission doing manual lookups of information. They have to gather information that relates to the property, company, flood, fire, winds or subsidence risk, as well as checking the financial activities of a company. This contributes to a huge amount of time spent on manual activities. 

Today, it is possible to auto-augment and pre-populate this risk information before the underwriter even looks at the submission. This can materially speed up the capacity of the underwriting team. 

The second area of value here is to address the problem of underwriters having to look at many out-of-appetite submissions that don’t match the criteria of the insurance company. 

It’s now possible to automatically filter out submissions that are not in appetite, allowing underwriters to spend time on appetite-aligned submissions that match the value criteria they’re seeking.

Both of these activities in combination can free up around 25% of the capacity of an underwriting team, allowing them to drive more value and more premium per underwriter.

Prioritising high-value submissions

The second major intervention insurance companies can make is to intelligently guide underwriters to the highest value submissions. 

Underwriters receive a multitude of submissions every day. They see a big difference between high-value submissions, which are profitable and have a good retention rate, and low-value submissions, which ultimately don’t make sense for them to spend time on. 

Today, underwriters tend to take a “first in, first out” approach, which means they address submissions in a chronological order. However, using machine learning, it’s now possible to rank submissions in order of value and enable underwriters to focus on the highest value submissions first.

This shortens the turnaround time of those submissions to brokers, giving them a much higher chance of conversion. There’s a well-established correlation between how long it takes to turn around a submission, and its likelihood to convert. 

It’s also possible to intelligently nudge underwriters to follow up on the highest value submissions once they’ve quoted the risk, to drive a further increase in conversion. 

In combination, intelligent prioritisation and nudges can drive a 20% increase of GWP per underwriter. It’s a really exciting, concrete example of an innovation that’s possible today. 

Capturing the market opportunity

The third intervention underwriters can make is ensuring they are focused on the right submissions to capture the market opportunity. 

This closes the gap between macro-underwriting objectives and frontline day-to-day underwriting execution, ensuring the objectives are translated as purely and rapidly as possible through to where underwriters spend their time.

Today we see underwriters either spending time on areas that don’t truly reflect the planned business objectives. Or, the business objectives are known, but they are translated very slowly and inefficiently through to frontline underwriting activities. 

But now, it’s possible for a Chief Underwriting Officer to achieve real-time control over the risks that are bound. They can exert control over the appetite and make dynamic changes that will shape the formation of the portfolio over time. 

At Cytora, we call this real-time control over the book. It really narrows the distance between portfolio objectives and front line portfolio execution.

Taking steps to productivity today

It’s possible to drive sustained productivity-led growth in mid-market commercial insurance today with these three interventions. The value comes in breaking the closely coupled relationship between premium growth and cost, allowing an insurance company to drive additional premium with a decreasing Expense Ratio.

With these three interventions, an insurance company can increase capacity within the underwriting team, allowing them to write more submissions and more policies with the same resource. 

It can enable each underwriter to expand their book of business, to process more submissions, and ultimately bind more policies.

Finally, an insurer can achieve a more synchronised relationship between the high-level portfolio objectives and the front line underwriting execution in real time. This gives the ability to adapt as quickly as possible to emerging market opportunities and capture those ahead of the market. 

It’s a truly exciting time for commercial insurers, particularly those that are prepared to seize the opportunities that are in front of them today. With interventions like this ready to be taken advantage of, it’s just a matter of time before we see who wins the productivity race. 

If you’re an insurer looking to take these steps and drive productivity, get in touch with one of our team for a demo here