As the insurance industry continues to experience rapid and profound change, the effects are being felt across every major function in the insurance enterprise. Against a backdrop of high-profile and far-reaching acquisitions, insurers of all types have made large-scale investments in modernizing their claims and policy and processing platforms.
Increasingly, however, they are turning their attention to underwriting, where an important evolution – even transformation – is taking place. To a significant extent, these investments are driven by the need to enhance customer experiences and enhance digital strategies.
Underwriters are no longer “just” underwriters
But, underlying those drivers is a more fundamental shift that is expanding the value proposition of underwriting and redirecting its essential role in the insurance enterprise. Whereas risk selection and pricing were once the primary activities, today’s underwriters are more likely to serve as:
• Sales executives
• Decision scientists
• Customer advocates
This is good news, especially for insurers looking to succeed in an era of intensifying competition, higher customer expectations and endless pressure on costs. There is clear upside in the evolution of the underwriting function away from its traditional transactional focus toward a more strategic and customer-focused orientation. The business stands to benefit in many ways, including increased sales, more efficient underwriting processes and stronger customer loyalty. More good news: a large majority of insurers recognizes the opportunity and has interest in growing its skills and technological capacity to take advantage of it.
However, most insurance companies face considerable gaps between current capabilities and the requirements for a broad-based and high-value transformation of the underwriting function. Further, the path forward varies considerably for individual carriers, based on their unique policyholder base, their predominant lines of business and which of the four emerging underwriting roles is most important to their growth strategies.
This paper will highlight the key findings from a recent survey conducted by EY and Chartered Property Casualty Underwriter (CPCU) Society about the future of underwriting and the four key capabilities that have emerged, as well as insurers’ plans for investing in them.
About the survey: In 2015, EY and CPCU surveyed more than 1,000 underwriting professionals – including senior executives and managers – to learn more about the changing role of underwriting and strategic investments at their organizations. More than 60 percent of respondents work in commercial lines, and nearly as many work at large carriers. A full 66 percent have been in underwriting for at least 11 years.
The survey results confirm an overwhelming consensus that the underwriting function is evolving to become more relationship-based and strategy-oriented. The vast majority of respondents believe that underwriters have additional responsibilities apart from risk selection and pricing. These additional activities include:
• Supporting the sales function: growing the book of business, increasing retention rates, building relationships, lead generation and prospecting
• Data science: data-driven decision making at the account and portfolio levels, risk insight, profitability analysis, predictive modeling of pricing and risk evaluation
• Customer advocacy: improving the customer and agent experience, coordinating account services (loss control, claims, education) to strengthen customer loyalty
• Innovation: creative problem solving, new product and service development
The role of the underwriter
There is consistency about the importance of these roles overall, especially the customer-facing and analytical roles, which a vast majority of the respondents cited as “highly important” or “important.” But the exact emphasis varies by different segments of insurers. For instance, at carriers specializing in commercial and specialty lines, underwriters are more likely to serve in the sales function role. For personal lines of business, there is preference for underwriters to spend more time in the roles of decision scientist and customer advocate.
Though there is clear and increasing focus on these roles, they also reflect the greatest gaps between current capabilities and those required to advance the function. In fact, when respondents were quizzed about the current maturity level of the current capabilities, tools and skills required to support these additional functions, the picture was grim. The gaps persist for “decision scientist” and “sales executive” functions more than the others. It is worth noting that commercial/specialty carriers face the most prominent gaps in the sales function role. For personal lines, the largest are related to customer advocacy.
The way forward with technology and data
The survey respondents made clear their interest in and enthusiasm for expanding and enriching their capabilities, skills and tools to support underwriting transformation in the next 12-24 months. For all types of carriers, the main investment priorities are training, technology and data.
Specifically, carriers expect to prioritize training relative to the sales executive role, while technology investments are more critical for the decision scientist, customer advocate and innovator roles.
In our next installment, we'll discuss the underwriter as a sales executive, data scientist and more. In the meantime, check out EY's Underwriter of the Future video.
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