At a glance:
- 2019 market conditions may mean that improvements in the underwriting process itself will play a larger role in overall underwriting profitability
- There are some key ways insurers can improve their underwriting operations, speed to quote, and risk assessment
- Data integrated into the underwriting workflow, new hazard and event data sources, and a modern underwriting platform, will all play key roles in underwriting performance
P&C insurers are once again fighting to hold the line on premiums. While insurers fared a bit better in 2018 than in 2017 in terms of catastrophe-related losses, it was still higher than the previous 10-year average according to Swiss Re who reported an estimated $79 billion in global insured losses. Rate increases may not be in the cards for many insurers; which means, now is the time to examine where operational efficiencies can be gained, along with superior precision in risk assessment and pricing capabilities.
Events like the California wildfires and hurricanes Michael and Florence are indicative of an increasingly volatile climate that, for some insurers, may warrant an evaluation of underwriting practices. At SpatialKey, we continue to see a gap between the wealth of data that is now abundant and insurers’ abilities to process all of it—there’s both a deficiency in speed to information and the ability to harness its value. Data is without a doubt key to underwriting profitability, but only to the extent that it can be integrated and exploited. The good news is, there are better ways to get the most from data, whether your own or third-party, for minimal cost and disruption.
Here are three ways to add efficiency and precision to the quote process:
1. Superior data access: Improve speed & efficiency
Data directly integrated into the underwriting workflow is a key ingredient for speeding the decision-making process. In fact, insurance industry technologists maintain “the difference between a modernized insurer and one stuck in the last century is the ability to procure the right data at the right time,” according to PropertyCasualty360. That’s why Application Programming Interface (API) technology is becoming critical for system speed and agility.
At SpatialKey, we’ve found APIs are critical to the framework of our data partner ecosystem, and we’ve built them to accommodate a wide variety of data sources and formats. Likewise, many of our insurers connect to us via API in an effort to integrate expert data into their underwriting workflows. Having a single API affords them the ability to deploy data from multiple experts into production—with little overhead and lower long-term maintenance. Download our full guide for API best practices.
2. Quality External Data: Improve accuracy & confidence
External (or “third-party”) data is quickly becoming a key competitive differentiator in providing underwriters with added precision in risk selection, assessment, and pricing decisions. Expert natural hazard risk and event data providers like IHS Markit, HazardHub, Location, Inc., RedZone, Swiss Re, and others, are leveraging the latest scientific methods to help insurers quantify and assess risk with more precision. This produces data that property underwriters can trust for informed and confident risk selection, leading to significant improvements in loss ratios.
Take flood risk for example. FEMA data has historically provided an essential baseline for carriers who underwrite personal or commercial flood risk. But according to a 2017 report, only 42 percent of FEMA’s maps “adequately identified the level of flood risk.” As a trend, we’re seeing our U.S. insurers supplement FEMA data with other expert flood data, such as KatRisk and JBA. In fact, JBA’s 5m Florida flood maps are the highest resolution available in the market today. To learn more about opportunities in the U.S. private flood market, click here.
3. Modern Underwriting Solution: Bring speed & accuracy together on one platform
While we’ve established new and trusted data sources as a key ingredient for more refined property underwriting, data itself is just the beginning. A modern underwriting solution complements data with robust analytics, enabling insurers to quickly assess risk on a more granular level.
Without a doubt, an up-to-date underwriting solution is critical to accuracy in risk assessment, selection, and pricing—and is going to be the new norm for top-performing insurers. Financial modeling capabilities are also an increasingly important requirement of any underwriting solution, especially in today’s challenging market conditions. At SpatialKey, many of our clients use our financial model to go beyond simplistic insured values to consider site terms, special conditions, policy terms, and now facultative reinsurance as well.