Navigating cognitive biases in underwriting: A guide for new underwriters

Cognitive biases are subtle mental shortcuts that can make our judgements irrational and lead to less objective assessments of risks. This advice piece aims to shed light on some lesser-known cognitive biases which I have encountered in the market and provide strategies to navigate them, helping you become a fair-minded and proficient underwriter.

1. The Availability Heuristic:

In your early days as an underwriter, you may encounter the availability heuristic, whereby your judgment is heavily swayed by recent and vivid events; such as news stories or claims your company has just paid. To combat this bias, remind yourself to maintain a comprehensive perspective when evaluating risks. Avoid overemphasizing recent incidents and instead consider a broader range of data over time. This approach will lead to more balanced and well-informed risk assessments.

Advice: Guard against 'underwriting by hot topic'.

2. Confirmation Bias:

Confirmation bias can be a challenge for new underwriters, as it involves favoring information that confirms your existing beliefs. As you embark on your underwriting career, strive to be open-minded and seek out diverse perspectives. Actively look for contradictory evidence to your initial assessments. Embracing a willingness to challenge your own beliefs will help you make fair and objective decisions.

Advice: Embrace diverse perspectives.

3. Overconfidence Effect:

The overconfidence effect can sometimes lead new underwriters to overestimate their judgment and abilities. As you build your expertise, acknowledge that no one is infallible. Stay humble and be open to learning from seasoned professionals. Seeking second opinions and incorporating data-driven insights can help you make more informed and well-rounded decisions.

Advice: Acknowledge your limits and stay humble.

4. Anchoring Bias:

Anchoring bias can influence your judgments based on the first piece of information you encounter. As a new underwriter, remember to approach each case with an open mind and gather comprehensive data before forming conclusions. Avoid fixating on initial impressions and remain receptive to additional insights that may emerge during your evaluation process.

Advice: Avoid tunnel vision.

5. Groupthink:

In a team-oriented industry like insurance underwriting, groupthink can be a challenge. Guard against the pressure to simply conform with the prevailing view without critical analysis. Encourage open dialogue, welcome diverse perspectives, and be willing to constructively challenge prevailing opinions. Independent thinking can lead to more robust risk assessments and innovative solutions.

Advice: Embrace independent thinking.

As you embark on your underwriting career, staying vigilant about cognitive biases is essential for making sound and impartial decisions. Being aware of biases like the availability heuristic, confirmation bias, overconfidence effect, anchoring bias, and groupthink will help you maintain objectivity in your assessments of risks. Embrace a commitment to continuous learning and seek diverse viewpoints. With these strategies in place, you'll become a trusted and proficient underwriter, contributing to the success of the insurance industry while navigating its ever-changing landscape.