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How will technology automation and AI affect the future of underwriting?

24 Apr 2019

The underwriting market has recently been characterised by insurers struggling to make a profit, meaning their main focus is to reduce their Combined Operating Ratio – a key profitability measure that can be reduced through underwriting improvements that impact the loss ratio. While sophistication has emerged in underwriting techniques, profits haven’t always increased accordingly due to competition in the UK market and continued soft market conditions, as well as the rise in claim trends and fraud. This has led to margins being squeezed heavily and service levels to brokers in particularly dropping as a result.

In the wake of these tough market conditions, general insurance companies have increasingly sought alternative methods to increase productivity and efficiency to improve profit margins and service levels. While in the past this may have involved offshoring administration tasks, the modern market means insurers are now looking to bring in tech partners and inhouse tech solutions to help. Here’s what this means for the market:

A new role for technology in general insurance

InsurTech is playing a significant role in shaping the wider general insurance market, with repetitive process automation and artificial intelligence freeing up human labour to focus on more high-impact tasks.

Technology continues to have a significant impact on underwriting in both personal and commercial insurance. It must be stressed, however, that while elements of the underwriting process can be automated or made more efficient with the help of new technologies, the need for human judgement, experience and knowledge in the segment is stronger than ever.

Data science and risk modelling are being used to determine risk profiles and analyse trends, and we’re seeing new software companies emerge to take advantage of this. One example is Cytora, an AI company with dedicated Risk Engine technology that uses AI to learn risk patterns over time, while LexisNexis’ Risk Solutions uses predictive models and analytics that leverage data assets to drive underwriting and pricing decisions.

The ongoing drive for productivity and profitability has seen most major insurers either partner with or acquire tech firms to enhance their customer offerings and efficiency.

Artificial intelligence and automation take hold

Along with artificial intelligence, automation is being used to improve the underwriting and pricing decisions around a range of personal and SME commercial lines. Automation algorithms use data from credit history and insurance telematics to make decisions and determine interest rates.

The more technologically advanced insurers in the industry are making the most the competitive advantage artificial intelligence and automation can give them in a rapidly developing marketplace. Such technologies can improve risk-based pricing by providing more targeted insights that pull from a wider dataset. However, we know that the insurance industry has typically been slow to adapt to change and new technologies, so we’re not seeing wholesale adoption of these developments just yet. Legacy system modernisation is a huge challenge for big, established firms, who may resist new technologies due to the huge expenditure, both financially and in terms of time, it would take to update. It’s always challenging getting the new world of technology blended into what are very old organisations with legacy IT systems, so we will likely see some level of ongoing resistance from some companies that don’t act quickly enough in recognising that technology is a key element to a successful  future in underwriting.

Technology can help and hinder

A natural reaction to the emergence of new technologies in the workplace is to consider the impact on jobs. While technology may threaten some very junior-level underwriting roles, we see a real opportunity for automation and artificial intelligence to enhance the quality of underwriting and therefore improve the day-to-day roles of most within the industry. Technology has the potential to work with humans to create better underwriting solutions, and while some tasks can be automated or performed via machine learning, we still need the human insight and knowledge throughout the industry. For that reason, we advise those in the industry to embrace the opportunity that this technological emergence brings. Underwriters and organisations who consider ongoing education, personal development and courses that position themselves at the forefront of technological change will be in a better position to utilise new programmes and improve efficiencies and productivity. Whether it’s full-scale automation within the transactional insurance space or simply using tech to enhance what is a more complicated insurance programme for larger organisations, there are plenty of opportunities to future-proof skillsets and retain a competitive advantage within underwriting.

Take your underwriting career to the next level with IDEX

At IDEX, we’re always looking for talented underwriters who are prepared to upskill and develop in line with new industry developments. Take a look at our latest underwriting jobs to find your next opportunity, or contact us to start a conversation about our career options.

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