The Empowered Underwriter: Balancing Technology with Craftsmanship

The insurance industry is undergoing rapid change, with emerging risks like ESG, cryptocurrency, and cybersecurity intersecting with systemic challenges such as inflation, climate change, and supply chain issues. All these elements require underwriters to proactively manage risk in new, evolved ways, leveraging technology innovations and doubling down on their craft.

However, simply focusing on technology without improving the craftsmanship side, or paying extra attention to business processes and underwriter skillsets without giving them the right tools, can lead to risks and missed opportunities.

In this article, we will discuss the concept of the Empowered Underwriter — someone who is equipped with a solid technology foundation and is focused on the craftsmanship of underwriting as well as building a strong data foundation to provide both business and technology teams trustworthy insights. Additionally, we will paint a picture of how to accomplish all this: by improving collaboration between IT and business stakeholders and explicitly aligning their objectives.

The Risks of Focusing Solely on Technology or Craftsmanship

Focusing solely on technology can lead to the risk of ignoring the importance of the craftsmanship side of underwriting. While technology can provide significant benefits, such as increased efficiency and accuracy, it is critical to remember that underwriting is an art as well as a science.

Skilled underwriters possess industry experience and nuanced decision-making abilities that cannot be replaced by technology. Additionally, solely focusing on technology without considering the craftsmanship side can lead to mistrust from underwriters who may feel that their role is being diminished or threatened by automation.

On the other hand, focusing solely on craftsmanship without investing in technology can lead to inefficiencies and missed opportunities. Underwriters who rely on manual processes and tools may struggle to keep up with the speed and efficiency of competitors who have invested in technology. This can result in missed opportunities for new business and increased expenses due to higher headcount and longer processing times.

It is essential to strike a balance between technology and craftsmanship to enable underwriters to leverage the benefits of both approaches while avoiding the risks of focusing solely on one or the other. Additionally, leveraging good, solid, timely, and quality data is essential for both the technology and craftsmanship sides of underwriting. In the following sections, we will discuss these concepts in more detail.

The Risks of a Siloed Focus on Exponential Technology

While technology has undoubtedly revolutionized the underwriting process, there are risks to focusing solely on technology without improving craftsmanship. Underwriters may be tempted to rely too heavily on automated tools and algorithms, without considering the nuances and complexities of the risks they are underwriting. This could lead to underwriters writing unprofitable risks at a higher velocity, resulting in increased loss ratios and lower profitability for the company.

Underwriting expertise and experience are critical components of the underwriting process. Underwriters with years of experience can identify risks that automated tools may miss and can make nuanced underwriting decisions that a machine cannot. A deep understanding of the risks being underwritten, coupled with expertise in pricing and risk management, is essential to underwriting profitable risks.

Because underwriting expertise and experience are critical to the underwriting process, technology must augment and enhance these skills rather than run counter to them. For example, predictive analytics and machine learning algorithms can help underwriters identify patterns and trends that may be missed by manual analysis. But they should only be used if they align to support the underwriters’ decision-making criteria. Similarly, data visualization tools can help underwriters quickly and easily identify areas of risk or opportunity in a complex data set, but only if the insights they provide are relevant. 

By considering the underwriting craft when investing in technologies, we can drive better usefulness and adoption, allowing underwriters to use their expertise at much faster speeds. This ensures that technology investments are being leveraged to drive more positive outcomes, rather than just maximizing throughput, which may not translate into true business value, or, worse, are left wholly unadopted.

The Risks of a Siloed Focus on Underwriting Craftsmanship

Alternatively, while underwriting expertise and craftsmanship are essential to the underwriting process, focusing solely on these skills without investing in technology can detrimentally affect underwriters. A siloed view on craftsmanship can leave underwriters working more slowly and without the tools necessary to most effectively manage risk. In today’s fast-paced business environment, underwriters must be able to quickly analyze large amounts of data and identify areas of risk or opportunity. Without the right technology tools, underwriters may struggle to keep pace and may miss critical information that could impact their underwriting decisions.

Technology can enhance the underwriting process in numerous ways. For example, machine learning algorithms can analyze vast amounts of data to identify patterns and trends that may be missed by manual analysis. Data visualization tools can help underwriters quickly and easily identify areas of risk or opportunity in complex data sets, while automation can streamline routine tasks and free up time for more complex decision-making. By leveraging technology, underwriters can work more efficiently and effectively, delivering greater value to the company and its customers.

The Importance of Collaborative Innovation

While it’s important to improve underwriting expertise and invest in technology, focusing only on these areas in isolation can lead to missed opportunities and suboptimal outcomes. Collaboration between IT and business objectives and workstreams is essential to achieving the best results.

Effective collaboration between IT and business objectives and workstreams is essential for achieving the desired results in underwriting innovation. IT professionals can bring valuable insights and expertise in technological advancements – unlocking potential otherwise unconsidered by business professionals. Meanwhile, underwriters can provide essential knowledge and expertise in risk assessment and management to help shape the understanding of which tools and technologies might best enable them to reach peak effectiveness. By working together, these professionals can identify new opportunities, optimize processes, and develop new tools and applications that will enhance the underwriting process.

This collaboration can lead to many benefits, including faster and more accurate risk assessment, better alignment between underwriting and business objectives, and more efficient use of technology. For example, collaboration between IT and underwriting teams can lead to the development of new tools that automate repetitive tasks, freeing up underwriters to focus on higher-value activities. Such collaboration could lead to changing incentive models by using predictive analytics to anticipate outcomes earlier, allowing for new ways of driving more desirable behaviors. By working together, IT and underwriting teams can develop dashboards that provide real-time insights into the underwriting process, helping underwriters make better and more informed decisions.

The Role of Data when Empowering Underwriters

Of course, none of the above ideas on underwriting will work without a dependency on solid, timely, high-quality data. Data is essential to understanding risks and pricing policies accurately, and it can help underwriters identify new opportunities and trends. As such, underwriting organizations need to invest in data quality, governance, security, and management to ensure that they have access to the best possible data.

Underwriters should be able to leverage a variety of data sets, including financial, risk, customer, loss, unstructured/analog, IoT/telematics, and third-party data. By combining these data sets, underwriters can gain a more comprehensive understanding of risks and opportunities, leading to better decision-making and more accurate policy pricing.

Beyond driving source diversity, there are other core elements to a comprehensive data strategy. Data quality, governance, security, and management are essential to ensuring that underwriters have access to timely, high-quality data. Data quality ensures that the data being used is accurate, complete, and up-to-date. Governance establishes policies and guidelines for ethical and responsible data management, while security protects data from unauthorized access, modification, or destruction. These sorts of practices are important to ensure the diverse data sources that underwriters rely on for their decisioning don’t run stale or end up in inappropriate hands, eroding trust and costing the organization significant amounts in compliance suits.

How Empowered are YOUR Underwriters?

The “Empowered Underwriter” is a critical component of underwriting innovation:

• Underwriters need to have access to good data.
• They need to be equipped with the right tools and expertise to make the best possible decisions.
• This has to be done in lockstep between IT and business partners, and organizations must ensure that efforts are evenly balanced across the different facets.

Perhaps your organization is well on its way to empowering your underwriters. Or perhaps your organization has struggled to embrace technology and cultivate good data management. Connect with us to find out how DMI can help you empower your underwriters.