Canadian Underwriter

What the commercial underwriter of the future might look like

February 22, 2019   by Jason Contant

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Commercial underwriting in the future may expand to encourage more cross-functional and hybrid responsibilities, potentially with engineering, claims, finance or operations, according to a new report from McKinsey & Company’s insurance practice.

“To attract younger talent, companies need to recognize that Millennial and Generation Z workers are looking for roles that expose them to a wider array of challenges and opportunities,” McKinsey & Company said in the report, From art to science: The future of underwriting in commercial P&C insurance, released Tuesday. “We may see underwriters who build skills across both short- and long-tail lines, rather than the typical monoline focus.”

Another innovation could be more team-based structures, where small groups of underwriters are collectively responsible for portfolios or sub-segments of a portfolio. “Many of these efforts are already happening in a de facto way throughout the industry – but there is potential to do them more systematically,” the report said.

Data science and digital disruption will also reshape the underwriting role, McKinsey & Company predicted. “There will be visualized views on frequency and severity across portfolios, supported by real-time, dynamic ‘what-if’ analytics executed by drop-down menus. The impact from new perils can instantly be simulated. Re-underwriting a portfolio could happen within minutes.”

While “digital direct” has had slow adoption in many markets, “we know there is customer interest in transacting online and that up to 70% of customer journeys start in direct channels,” the report said. McKinsey & Company also thinks commercial underwriting may experience disruption similar to the airline industry, in which artificial intelligence is responsible for most of the navigation outside of takeoff and landing.

“In the future, underwriters will become more like pilots, with mundane activities increasingly automated. Additionally, technology, operations and underwriting functions will sit side by side, with the underwriter serving as agile coach and translator to actively guide ongoing platform development.”

The future of underwriting only made up a portion of the report. It also identified the “five essential building blocks of underwriting excellence for all commercial insurers”:

  • Portfolio steering – blending quantitative analysis with qualitative, forward-looking judgement about how exposures are likely to change
  • Pricing adequacy – using technical price as a benchmark for directional movement of pricing within a portfolio of common exposures over time
  • Risk selection – creating a culture that systematically encourages qualitative debate around underwriting outlook
  • Capacity optimization – deploying quantitative, dynamic tools to track performance and provide “what if” guidance to inform how capacity should change
  • Coverage design – implementing careful controls and promoting thoughtful debate around the breadth of coverage offered.