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Principles and trends in general insurance underwriting


Addresses some general principles of underwriting and how, in the last decade, market developments in areas such as technology and distribution have impacted specifically on the underwriting function within general insurance companies.

Last updated by Massimo Vascotto in September 2016.



Improvements in technology, developments in distribution and changes in regulation have all affected the underwriting function in general insurance companies over the past decade.

This has enabled insurers to reduce operational costs and has led to a fundamental shift in the role of the underwriter, with a greater emphasis on portfolio analysis and management.

This shift has become more marked depending on the type of risk presented to the insurer. Small commercial lines such as shops, offices and commercial combined products are showing more features of personal lines business, with less individual risk underwriting and more focus on portfolio underwriting, which is supported by portfolio management techniques and distribution around target trades.  

For larger commercial risks, which are more individual in nature, it is more difficult to identify definitive patterns in the underwriting data and to automate underwriting decisions and pricing. However, technology has helped insurers to streamline workflow, automate routine functions and support underwriting decisions, bringing greater consistency, objectivity and rigour to the process.

Insurers have also used outsourcing and offshoring to lower cost countries (such as India) to take processes such as data entry, risk improvement follow-up or accumulation management away from front-office underwriters. These underwriters are then able to focus on other elements of the underwriting process, such as risk assessment, pricing and negotiation with the broker or client.

In both sectors insurers have also extended their use of techniques. Increasingly sophisticated segmentation techniques have allowed insurers to focus resources and capital on more attractive areas of business and move away from poorer-performing ones. Technology is enabling underwriters to spend more time on key activities such as decision making, negotiating and winning business, and relationship building.

While there has been increasing sophistication in underwriting and pricing techniques, this has not always led to increased profits or lower combined ratios. This has been due primarily to the level of competition in the UK market, the rise in claim trends, fraud and the continuation of soft market conditions, particularly in commercial lines.

In addition, the cost of doing business has increased during recent years. Insurers have invested in improved  IT systems and invested more in customer service.

The rise of delegated authority arrangements and managing general agencies has changed the traditional roles of the insurer and the broker. This in turn has created a need for change in the traditional role of the insurance company underwriter, with increasing focus on portfolio underwriting, financial analysis and auditing.

With the increased use of technology and greater automation of processes, more insurance activities are being outsourced or moved to offshore operations. 


This fact file  It does not focus on reinsurance or alternative risk transfer, and whilst it is international in scope it specifically excludes London market operations.

Underwriting today is still about evaluating a risk, deciding whether the risk is acceptable and determining both premium and terms. However, changes in the distribution landscape, advances in technology and developments in regulation have all led to changes in the traditional role of the insurance underwriter.

The combined operating ratio is a key measure of profitability showing the proportion of costs to premium. The expense line will include reinsurance costs (the amount of premium the primary insurer cedes to a reinsurer for per risk and treaty cover) and will also be made up of fixed costs and variable costs. Commissions will include payments for each policy sold and can also include an amount to cover work transfer or profit sharing on a portfolio basis. For example, and the figures used here are purely indicative, let us say an insurer has a combined operating ratio across its business of 106%, broken down as follows:

  • loss ratio 73%;
  • commission 17%;
  • management expenses 16%.

If this insurer seeks to reduce its combined ratio from 106% to 96% it will need either an increase in premiums of 15.9%, or:

  • a 13.7% fall in claims costs; or
  • a 62.5% reduction in expenses; or
  • a 58.8% reduction in commission.

There is clearly greater potential for reducing the combined ratio through underwriting and pricing improvements that have a direct impact on the loss ratio than by tackling expenses or commission.

In addition to the combined ratio, many insurers are now judging return on capital (ROC) as a metric to evaluate business development and performance assessment.  Each line of business attracts a different level of capital, according to its risk profile and its claims profile. That is, in terms of exposure to large loss, catastrophe loss and whether claims payments are short- or long-tail. The timing of claims payment impacts the amount of investment income that can be attributed to the line of business.

Using a ROC measure is more sophisticated than just a combined ratio, as a combined ratio does not differentiate by type of risk, level of capital or claims payment pattern. ROC measures also allow management to compare different parts of business in a more sophisticated way than the combined ratio metric would do. 

The impact of technology

Technology has had a huge impact on underwriting in both personal and commercial insurance.

Whilst automation of the underwriting process should never fully replace the judgment of an underwriter, it has helped to move underwriting in some part from an art to a science by bringing greater objectivity, discipline and rigour to the process consistency. There has also been an increased focus on the capture of data in both underwriting and claims systems, in order to ensure timely analysis of trends and allow shifts in underwriting guidelines or portfolio mix.

Insurers are rationalising the number of different systems in use and modernise mainframe systems, many of which were developed in the 1970s and 80s. Merger activity has often been the driving force in this, with many newly formed organisations replacing several disparate systems with a new system. In addition, insurers have invested heavily in e-commerce systems to allow greater connectivity with distribution partners and customers and, in some cases, provide connectivity to their own back-office systems, avoiding the need for rekeying data. 

The size and complexity of insurance risks has governed the approach taken to underwriting, process and technology. Underwriting in the field of personal lines and small commercial tends to focus on the class-based assessment of homogenous risks based on the law of large numbers. Individual case experience is less important than portfolio experience and an assessment of the exposure unit. As a result it lends itself to automation. For mid-corporate commercial, large corporate risks and specialist lines, underwriting still involves individual, case-based assessment. Here, risks tend to be more heterogeneous, demanding manual underwriting , bespoke coverage and additional risk management services. Nonetheless, technology has played an important role in systemising data capture and streamlining the underwriting process.

  • Technology has allowed automated rules-based underwriting on personal lines and small commercial business.
  • Technology has improved efficiency in the mid-corporate underwriting area by streamlining workflow, automating routine functions and supporting underwriting decisions.
  • Greater levels of risk segmentation allow insurers to avoid adverse selection and win more profitable business.
  • Geographic information systems help underwriters understand the risks posed by perils such as flood, and help them manage the aggregation of their exposures to avoid potentially catastrophic losses.
  • The traditional roles of insurer and broker have changed with the increasing number of delegated authority arrangements and MGAs.
  • Underwriters increasingly need to focus on portfolio underwriting, financial analysis and audit and control.
  • There has been significant growth in the number and type of insurance activities being outsourced or moved to offshore operations.

Personal lines and small commercial

In the personal lines market the opening up of competition from direct operators, bancassurers, affinity sellers such as supermarkets and more recently aggregators has caused a tightening of profit margins. The rise of new transparency in pricing - for example, aggregators - has also facilitated greater consumer choice and has driven innovation in the way products are presented to the customer.

For instance, insurers have unbundled their products to provide basic cover, then up-selling or cross-selling additional product features and services. Despite the "commoditisation" aspect of this segment there has been greater need and investment in marketing and brand development in order to ensure appropriate consumer recognition. In small commercial too there has been an increase in the number of direct providers. In both sectors e-commerce has become an effective new delivery channel for insurance products, and there has been a move towards the automation of underwriting.

Initially the web was used for the provision of policy and marketing information and for the submission of risk details to the insurer. However, customers had to wait for a response by e-mail. Electronic risk assessment and pricing is now available at the point of sale for many products. This means customers are no longer kept hanging on but get an immediate decision, an improvement in service that increases the likelihood of conversion. In addition to the automation of underwriting decisions and pricing, streamlined end-to-end processing based on web technology has now become increasingly common.

In addition, the rise of selling through the web has led to an increase in application fraud due in part to the volume of enquiries and the depersonalisation of the purchasing process. As insurers web-site now provide quotations in real time, unscrupulous buyers can reverse engineer the information about the risk to obtain a lower premium by providing false information about the risk. The key areas of fraud identified by insurers at application stage have included fronting (older driver fronting for a higher-risk younger driver) and misrepresentation of rating details, such as number of years' no claims discount.

Through analysis of claims patterns, policy details and customer details, insurers have been able to segment personal lines business according to risk attributes and loss indicators, a process aided by the largely homogeneous nature of such risks and the high volume of data involved.

Underwriting acceptance rules and rating algorithms are then developed and automated to reflect the characteristics of particular segments or sub-segments. Once the actuarially based technical price has been derived, the final market price may take into account a number of other factors such as the costs of a particular distribution channel, the desired profit level and market share ambitions.

Insurers have sought to segment small commercial risks by size and complexity, and have increased the number subject to automated, rule-based underwriting. As with personal lines, rules are developed by analysing historical underwriting and claims data, and new risks are assessed, profiled and scored according to predefined criteria. The renewal process will be also largely automated, with review and renew criteria set to govern which cases are diverted for underwriter attention.

The automation and more streamlined underwriting of these risks have allowed resources and skill levels to be more clearly aligned according to risk size and complexity, with experienced underwriters being reallocated to deal with the largest, most complex files.


The term "commoditisation" refers to situations in which products are less differentiated, so buyers care less about who they buy from and tend to focus on price. A number of factors have led to increased commoditisation in the personal lines and small commercial insurance markets:

  • a highly competitive market, with insurers, brokers, direct insurers, banks, supermarkets and affinity groups all offering insurance;
  • fierce price competition, weakening customer loyalty;
  • ease of online, telephone call centre or face-to-face purchasing;
  • price comparison websites making it easy to identify the cheapest quote and promoting switching.

Insurers have focused on various areas to avoid competing on price alone:

  • promotion of their brand;
  • better technology;
  • cross- and up-selling of other covers or add-ons;
  • a flexible range of options, from "value" products to those with more extensive cover.

Insurers have also sought to take control of distribution through affinity deals that exploit other companies' brands, by operating both direct and intermediated operations and even by purchasing price comparison websites themselves. Some insurers have also purchased distribution - for instance, by buying a broker - which allows them to diversify their income stream and get close to the customer while (as they are not the sole underwriter) still offering customer choice.

Commoditisation makes sophisticated pricing, advanced segmentation techniques (both driven by technology) and expense control all the more important to ensure profitability.

Dynamic pricing

Advances in technology have allowed insurers to analyse new data elements and to detect correlations through multi-variate as opposed to single-variable analysis. By using information on the elasticity of demand to estimate policyholder retention, it is possible to determine rate structures that produce the optimal combination of growth in policy numbers and profitability.

Insurers will typically try to estimate the likelihood of customers shopping around for an alternative quote, relating this to the size of premium increase and the likelihood of their switching on a similar basis. The probability of switching may differ according to whether the case is intermediated or direct, or due to a range of risk, customer loyalty or even socioeconomic factors.

The probabilities of both shopping around and switching are the most difficult elements of the dynamic pricing model to apply parameters to. Insurers might look at industry studies of the relationship between customer loyalty and price, surveys of policyholders and their own commercial experiences. Some common factors affecting the likelihood of retention include:

  • holding other policies with the same insurer;
  • the length of time a policy has been held with an insurer;
  • whether a policy is held through a broker or directly with the insurer;
  • the level of rate increase;
  • the insurer's competitive position.

Mid-corporate and large commercial

The sector that comprises mid-corporate commercial, large corporate risks and specialist lines is made up of a broad range of highly individual risks. The lack of sufficient commonality between risks means it is more difficult to identify definitive patterns in the underwriting data and automate underwriting decisions and pricing. However, technology has played an important role in increasing discipline and structure in the underwriting process, in supporting underwriting decisions and even in pricing itself.

In the past the underwriting function in this sector suffered from low levels of statistical validity and transparency in pricing, inconsistency in risk assessment and decision making and an inefficient process. A number of factors contributed to the problem:

  • the lack of commonality and of sufficient volumes of data in some segments;
  • multiple systems and the frequent re-keying of data, leading to inaccurate or inconsistent data capture;
  • a lack of visibility around the individual components making up a rate, such as claims (large and attritional losses) expense and commission costs, so the impact of discounting on profit is also unclear;
  • a high degree of individual underwriter discretion, leading to significant variability in the underwriting criteria used and inconsistent decision making;
  • paper-based files and information being held in various different places;
  • a lack of clarity and consistency between the risk premium or technical price and the actual price charged after commercial or market discounts/loadings.

As well as reducing the number of different systems used and increasing their use of the web, insurers have increased the accuracy and sophistication of pricing through the use of component-based pricing. They have also sought to manage and automate workflow using rules engines.

Web-based and quotation systems incorporating component-based pricing are often integrated with policy processing, claims systems and accumulation management software to avoid rekeying. Technological improvements help insurers to avoid adverse selection, write more profitable business and less unprofitable business, manage and control exposure accumulations and increase profits, as detailed below.

Component-based pricing

The first task when devising a component-based pricing system is to derive start rates that are statistically valid from analysis of the insurer's claims experience by trade codes, often based on the Standard Industrial Classification (SIC). Prices are then built up from individual components, including risk premium, expenses, commission and profit. Risk premium will cover the expected cost of claims for a particular trade or segment. Management expense and commission levels for the segment will be known by the insurer, and are built into the price.

Finally, the insurer's profit expectation will be included. More insurers are looking at return on capital (ROC) analysis to assess portfolio performance. This enables them to take account of the interest rate environment as well as the settlement patterns of claims between short- and long-tail.

By building the price up in this way the impact of discounting is clearly understood by the underwriter and there is a distinction between technical discounts for particular underwriting features and commercial discounts.

As part of the underwriting function, insurers may have a dedicated pricing team comprising pricing actuaries and analysts. Actuaries are moving more and more into underwriting functions, especially at professional reinsurers. They will be responsible for regularly tracking and changing rates, adjusting the components and developing rating algorithms, and also in underwriting the most complex risks in terms of pricing. This should lead to improved risk selection and help avoid adverse selection since the insurer is better able to identify market-pricing discrepancies.

Business rules engines

Business rules engines automate decisions within a process by creating and executing calculations and decision logic. Some rules are developed by analysing historical underwriting and claims data. By separating business logic from system logic, amendments are able to be made without major changes to computer code.

Examples of this might be:

  • a premium discount generated by the system when certain risk features are in place;
  • a rule or formula in the form of an algorithm used to calculate an underwriting score;
  • a rule preventing further progression through the underwriting process without key data being entered.

Business rules are intended to ensure that decisions are made consistently, which means that underwriting errors are reduced. For example, rules might prevent an underwriter incorrectly applying a discount. It is important that changes to underlying base rates are adequately tested and that the IT systems in place are flexible enough to enable regular price changes as portfolio management performance data is returned.

Another benefit is flexibility. Rules are designed to be relatively easy to change by a trained person within the business, perhaps a business analyst working with an underwriter, rather than requiring specialist IT attention.

Automation of workflow

Business rules mean that underwriting and processing tasks can be generated automatically and followed up systematically.

Examples of this include:

  • the generation of a reminder to follow up on risk control survey requirements after 30 days;
  • the need to refer a decision which is outside an individual's own underwriting authority;
  • the allocation of a task to a particular individual based on its size, complexity or nature.

The integration of front- and back-end systems means rekeying is reduced or eliminated. For example, information recorded at the time of quotation will automatically be used to populate identical fields used for policy production. Template letters and other forms are also used and are prepopulated as necessary, creating consistency. Some correspondence such as reminder letters might even be automatically produced according to rules.

Decision support tools

Pricing that was once done on paper or using simple spreadsheets is now frequently web based and seamlessly integrated into the policy processing and claims systems. Underwriting and technical guidance that was traditionally paper based is now available online, integrated with the main underwriting system.

Policy documents such as wordings, endorsement libraries and proposal forms are all available online. Systems often link directly to accumulation management tools and geographic information systems that indicate levels of exposure, degree of risk from perils such as flood, subsidence, terrorism and any necessary underwriting terms or loads. Some systems link directly with risk control survey applications.

Insurers have sought to use technology to ensure consistent execution of routine tasks and increase efficiency and effectiveness in this area. By streamlining workflow, automating routine functions and supporting underwriting decisions, distractions are reduced and greater objectivity and rigour is brought to the process.

This enables underwriters to spend more time on activities such as making decisions, negotiating and winning business and building relationships rather than being tied up with manual files and calculations. In turn this has led to improved risk selection and pricing, and improved profits.

Furthermore, technology has also led to a change in skill set requirements. Insurers are now able to deploy highly skilled underwriters on more complex risks and allocate routine automated tasks and smaller case underwriting to junior underwriters and processors.

Risk segmentation

Increasing the sophistication of underwriting segmentation has been a fundamental driver of underwriting improvement. It allows insurers to focus resources and capital on attractive business areas and away from marginal and poor-performing ones.

Understanding segments and pricing them correctly helps to avoid adverse selection, since with less segmented pricing an insurer may be effectively underpricing less attractive risks. Being able to segment at a more granular level than competitors allows an insurer to win business in more profitable sub-segments at a more competitive price.

Portfolio managers will look at loss ratio performance by segment and trade and match with the overall market dynamics such as distribution patterns or competitive intensity. They will split the loss experience into small (attritional) claims, large claims (over £100,000) and catastrophe claims and look to normalise the experience to get a truer underlying picture.

They must also adjust for the changes in portfolio mix that may cause distortions in experience, as well as for changes in operational processes that may impact timing of booking of premiums or claims. They must assess for IBNR (incurred but not reported) claims patterns to get a true view of the ultimate profitability. 

Managers will also look at general economic trends to determine what is the best business and underwriting strategy for a particular product, segments or proposition. This trend has seen insurers move from broad segmentation to the specific targeting of niches - either by customer or through the design of schemes.

Personal lines insurers were the first to increase the sophistication of their segmentation activity during the risk assessment process, broadening the number and type of questions asked at the application stage. This has allowed some insurers to segment at a very granular level and to be more selective in response to the increased competition and tightening of margins.

In the mid-corporate and large commercial sector, the individual nature of risks, lack of sufficient commonality between risks and lack of sufficient data for a particular trade can make segmentation more difficult. However, the last 10 years have seen improvements in data quality and analysis techniques and some insurers have used external information to supplement their own. Technology has also had an impact, in the form of tools used to evaluate and score potential segments. These take into account such factors as the past profitability of a trade, the size of the market, estimated growth potential, existing underwriting capability and cultural fit in assessing target segments.

Segmentation has allowed insurers to refine their pricing in an effort to win more profitable business. They may choose to withdraw from unprofitable business altogether following segment analysis, or impose certain underwriting terms, or even create new products. Some insurers have organised their underwriting operations according to trade specialisation, or created centres of excellence dedicated to particular segments.

Segment analysis is of course not simply concerned with the insurer's existing book, and companies will also analyse new segments. In the absence of internal policy experience, and given that market sharing of data is prohibited, insurers may seek alternative available data which might act as a proxy. Or they may seek data from their wider global organisation and use reinsurance to protect themselves as they enter a new sector.

Increasing focus on trade-based segmentation has created a demand for strong statistical analysis and technical underwriting skills within the underwriting function to identify and analyse key internal data, review potential sources of external data and undertake multivariant analysis.

Segmentation has allowed insurers to reallocate resource and capital away from marginal and poor-performing business segments towards more attractive segments. Carefully refined pricing has led to improved rates of conversion, retention and profitability.

Management of exposure accumulations

Geographic information systems are used to capture, manage, analyse and display geographically referenced information. These systems also help insurers to manage risk and make better underwriting decisions. Underwriters need to understand the degree of risk presented by insuring properties against perils such as flood and terrorism and also, to avoid potentially catastrophic losses, how to manage the aggregation of exposures.

As perils like flood are geographically related they can be viewed through the use of maps. This adds an extra dimension to the underwriting process and increases knowledge and understanding of the hazard and its effects. Geocoding is used to give a property a longitude and latitude map co-ordinate at either postcode (or zipcode) or full address level. This can then be used to generate such queries as the number of risks within 500m of a particular point.

In the past insurers based underwriting on postcodes and existing claims experience. More recently there have been huge improvements in data quality and granularity. Reliance on postcodes and history can ignore the effect of local changes that may increase the risk of flooding. Some sophisticated flood-modelling tools look beyond river and coastal flood to consider such possibilities as flash flooding, dam break and groundwater.

For example, in the past an insurer might have categorised a particular property as a high flood risk based on its postcode. However, at the more granular level of the full address it becomes clear that the building is at a lower risk of flood. Mapping software on the underwriter's desktop can also assist here because it may be apparent from visualising the risk that a particular address is on top of a hill and not prone to flooding in the same way as the surrounding area. This allows the underwriter to refine pricing and terms based on more detailed information.

Accumulation management systems incorporating geographic information software have enabled risks to be assessed properly and exposures to be controlled and optimised. They allow reports to be produced showing concentrations of risk in particular areas and scenario tests to be run to see how the insurer would withstand chains of accumulated exposure.

The deployment of business rules within underwriting systems ensures that pricing and terms are consistently applied based on the degree of risk, and that capacity is managed according to the degree of accumulated exposure.

Accumulation management systems have allowed accurate matching of premium to and better control of exposure. This in turn has meant improved profitability, better management of capital and optimisation of insurance companies' reinsurance purchases.

Accumulation management systems are also used to enable insurers to quickly understand the potential exposure to a catastrophic event such as a flood or storm. They can also be used to mobilise operational support in such an event for instance ensuring loss adjustors are sent to key areas of loss. This also enables insurers to manage capacity levels at certain locations and to advise customers in terms of the development of their businesses and the managing of their insurance risks.

Training and development

Having noted the impact of technology in moving underwriting in some part from an art to a science, it is important to recognise that people remain the most critical factor in a company's ability to perform at a high level. The need to attract, train, retain and motivate the best underwriters has not changed in recent times.

Insurers have invested heavily in underwriter training, with a number forming underwriting academies to develop the technical underwriting skills of their staff and to grow the future crop of underwriters from within the organisation. Insurers have increased the focus on Personal Development Plans (PDPs) competency frameworks and on the development of technical talent. This has partly been driven by regulatory developments where the FCA will require demonstration of a firm's investment in providing qualified and skilled staff.

Investment in professional qualifications has flourished too, with more insurers viewing CII qualifications as a prerequisite for those wanting to become underwriters.

With the growth in outsourcing and offshoring, and greater opportunities for insurance professionals in areas such as India, the industry is investing aggressively in education and training. There has been significant growth in the outsourcing of higher value functions, such as underwriting and risk management and actuarial services. 

Changes to the role of the underwriting function

Changes in distribution

The insurance broking industry has undergone dramatic consolidation over the last 10 years, with merger and acquisition activity being driven by a number of factors, including:

  • the desire of brokers to control distribution;
  • the desire of brokers to benefit from economies of scale and leverage improved returns;
  • venture capital and insurer investment in the sector;
  • the increased burden and cost of regulation;
  • the fragmented nature of the existing market.

Such consolidation has been accompanied by a blurring of the demarcation lines between the traditional roles of the insurer and the broker. This has been caused by the rise of delegated authority arrangements and managing general agencies (MGAs), particularly in the UK and the US.

A growing trend the UK is for insurers to buy into brokers and underwriting agencies and to write more business on a direct basis, either to protect valuable distribution channels or simply as a business investment.

Broker consolidation and the rise in the number of delegated authority arrangements has allowed insurers in turn to adapt their regional structure, enabling them to manage relationships on a national rather than a regional basis. Some insurers have moved to a mix of sales offices and full processing branches. In some cases these changes have enabled insurers to operate with fewer staff, or with a different mix of staff that reflects the changing nature of the work.

Delegation of underwriting authority to brokers

The delegation of underwriting authority is not a new phenomenon. However, in the past it tended to be restricted to lower complexity, homogeneous risks with rules-based rating, typically personal insurance and small commercial schemes, or to niche areas of business.

There has been a move to delegated underwriting authority on whole commercial portfolios, with underwriters being employed by brokers. As brokers have consolidated and gained a regional presence many have adopted a "'hub and spoke" model, with regional sales offices feeding their central underwriting unit. This unit is staffed by its own underwriters, who operate a delegated authority on behalf of one or more insurers.

Traditionally the driver of delegated authority had been the opportunity to control and improve service levels or a broker's particular expertise in a niche area. More recently brokers have formed MGAs in order to move into the areas traditionally occupied by insurers. MGAs handle processes like:

  • underwriting;
  • policy administration;
  • product development;
  • analysis and reporting of management information;
  • claims handling.

In return for this MGAs receive enhanced levels of commission and/or a share of underwriting profits.

These developments have prompted a change in the traditional role of the insurance company underwriter. There is now increasing focus on portfolio management and underwriting, as opposed to traditional case underwriting (Post Magazine, 3 December 2015, page 12).

Underwriters need financial analysis skills to assess the financial parameters of arrangements, taking into account factors such as the proposed pricing structure, expenses and cost of capital on the expected return. They need to set the terms of the delegated authority framework and they need to manage underwriting authorities and the audit regime.

Underwriting audit

The delegation of underwriting authority has increased the need to focus control via the audit process. This is central to ensuring that underwriting authorities are being adhered to, exposures correctly identified and evaluated and underwriting policy followed.

For business underwritten in the traditional way, file auditing focused on adherence to process and underwriting rules, appetite, rating and discounting. Whilst these are still crucial elements of any file audit, there is now increasing focus on other factors. These include the assessment and quantification of lost opportunities through analysis of submissions not taken up or declined, lapsed policies and the identification of misapplied strategy or incorrect pricing. For example, "decline trades" may be being incorrectly assessed as unattractive, leading to missed opportunities. Once the root cause of the problem has been identified, actions are focused on addressing the issue. To ensure the validity of the results, it is important to ensure that sample sizes are sufficiently large and that the approach followed by the underwriters conducting the audit is consistent.

In addition, there has been increased focus on enhancing the quality of the local self audit processes as the "first line of defence" to deliver a high quality of underwriting and appropriate governance. This has also been supplemented by the development of portfolio reviews where a nationwide underwriting review is undertaken by expert underwriters in order to identify best practices and to establish areas for improvement in the underwriting process.

Product development

Insurers have improved their product development capabilities to meet customer needs and to differentiate themselves from their competitors in an attempt to win more business. Alongside the increasing number of schemes, affinities and delegated authority arrangements, there has also been growth in the availability of bespoke wordings and products. Improvements in both technology and process have helped insurers increase the speed with which new products and product refreshes reach the market.

By using modular product structures, components developed for existing products can be reused and new ones added. Individual products can be easily changed to suit different distribution channels or arrangements. Technology has helped here too, with the use of tables and rules meaning that changes are easily configured by underwriters or other members of the product development team without the need for IT specialists. Variations in the product might include:

  • different eligibility conditions
  • limits and excesses
  • rating values
  • branding

Key Facts

  • Technology has allowed automated rules-based underwriting on personal lines and small commercial business.
  • Technology has improved efficiency in the mid-corporate underwriting area by streamlining workflow, automating routine functions and supporting underwriting decisions.
  • Greater levels of risk segmentation allow insurers to avoid adverse selection and win more profitable business.
  • Geographic information systems help underwriters understand the risks posed by perils such as flood, and help them manage the aggregation of their exposures to avoid potentially catastrophic losses.
  • The traditional roles of insurer and broker have changed with the increasing number of delegated authority arrangements and MGAs.
  • Underwriters increasingly need to focus on portfolio underwriting, financial analysis and audit and control.
  • There has been significant growth in the number and type of insurance activities being outsourced or moved to offshore operations.

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