Bridging the Underwriting Tech Gap in P&C Insurance
The property and casualty (P&C) sector is facing challenges adapting to the nebulous, ever-changing risks posed by natural disaster and technological advancement. A recent article from the publication Carrier Management did a great job at summarizing this year’s World Property and Casualty Insurance Report (courtesy of Capgemini Research Institute), in which a critical divide is noted between insurance executives and underwriters regarding the adoption of advanced technologies like artificial intelligence (AI) and machine learning (ML). While many insurance executives are warming to the idea of implementing new tech, underwriters are a bit more hesitant, with 67% explicitly concerned about complexity and 59% worried about data integrity. Below, I’ve summarized some of the key findings of the study.
Challenges in Traditional Underwriting
Traditional underwriting methods are increasingly seen as insufficient for accurately pricing modern risks. The industry is grappling with rising premiums, reduced provider options, and insurers halting new policies or dropping existing ones. Additionally, organizational hurdles such as outdated systems, limited (or poorly structured) data, and a shortage of skilled professionals are impeding progress.
Strategies for Overcoming Reluctance
To address the aforementioned concerns regarding tech adoption, the report recommends involving underwriters early in the AI/ML adoption process to ensure buy-in as well as maintaining expert oversight throughout the process to validate the models' transparency, fairness, and accuracy. This approach aims to build trust and demonstrate the practical (and increasingly necessary) benefits of advanced technologies in underwriting. Like any other tool, the predictive analytics of tomorrow may take awhile to feel natural in an underwriter’s typical workflow, but the fruits of this effort will be well worth the time.
Need for Modernization
The report stresses the urgent need for the industry to modernize its core systems and adopt advanced predictive modeling capabilities. Currently, a small fraction of insurers use advanced technologies effectively, which allows them to outperform their peers by making better-informed decisions and improving customer satisfaction. These "trailblazers" demonstrate that leveraging AI and ML can lead to higher efficiency, more accurate risk assessments, and enhanced customer experiences.
Customer Expectations and Concerns
From a customer perspective, the underwriting process is often perceived as cumbersome and time-consuming. Many policyholders are switching providers in search of better rates and coverage, and consumers today value quickness greatly. Although there is a general concern about the amount of personal data collected by insurers, a significant number of customers are willing to share more information if it leads to greater transparency, discounts, and assurances of privacy.
Data, Data, and even more Data
Executive and Underwriting teams can view the implementation of new technology as a two-part project. In order to leverage any sort of advanced analytic capabilities, an organization needs to have their data organized, cleaned, and structured correctly. Thus, step 1 would be for an organization to perform an internal “data audit” to determine what data they collect, where it goes, how historical data is kept, and whether or not the current facilities are adequate. It’s hard to argue with this portion of the process: even if you don’t go on to leverage machine learning / AI capability, an effective data management strategy is essential for every company in today’s landscape. Thus, underwriters can choose to take this change on bit-by-bit. The advanced models may not yet be up to par, but investing in good data can do nothing but help an organization moving forward.
Future Outlook
For the P&C insurance industry to thrive in this environment, it must embrace technology and modernize its approach to underwriting. By addressing the concerns of underwriters and demonstrating the tangible benefits of AI and ML, insurers can improve their risk assessment capabilities, streamline operations, and meet the evolving needs of their customers. The report concludes that those who successfully integrate these technologies will be better positioned to navigate the complexities of the future insurance landscape.
Capgemini’s World Property and Casualty Insurance Report 2024 draws on extensive data from global surveys, providing valuable insights from 18 key markets around the world. To learn more, click the linked text above.
If you’re interested in learning how your organization can better leverage data, please head over to RiskMD to chat with their data experts!
Author: PJ Hughes
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