What’s Happening in Commercial Lines Underwriting Automation?

March 18 2014 | Deb Smallwood

Insurers are paying closer attention to how they can automate commercial lines underwriting – not just the simple risks that some have already highly automated today, but the very complex and specialty risks as well. They are looking at sophisticated functionality that extends beyond what a policy administration system can deliver – to specialized underwriting workstations that can help them become more efficient and more effective by enabling better decisions based on improved insights and additional information.

The technologies for commercial lines underwriting automation are showing maturity at just the right time. According to a recent SMA research report, State of Commercial Markets Underwriting Automation, over two-thirds of all insurers are planning to spend over 10% of their IT budget on underwriting over the next 18 months. More than a few insurers will be making underwriting a significant focus, with 15% of insurers that write simple risks saying they will spend over 30% of their budget on underwriting and 20% of insurers that write complex risks saying over 30% of their budget will be spent on underwriting.

The focus on underwriting is being driven primarily by the pressure to grow, pricing pressures, and competition. This is no surprise, but the emphasis that is being given to the automation of underwriting for complex risks is much stronger than it was even a few short years ago. Automated capabilities are being deployed to enhance the underwriter’s productivity and decision-making quality. This automation is taking the blend of underwriting art and science to new levels of sophistication – finding new ways to make the best use of the specialized experience and judgment of highly prized underwriters.   

While the projections for technology spending on underwriting automation are healthy and technologies are maturing, the biggest challenge for insurers will be to determine how to meet the underwriting automation requirements in ways that go beyond the traditional approaches. There is still some misunderstanding around the role and breath of capabilities for the policy administration system in underwriting automation for complex risks. According to this latest SMA research, all technologies that support underwriting automation were ranked for satisfaction levels, and the policy administration system ranked at the lowest level. Of course, some of the dissatisfaction comes from legacy systems, but the rest comes from the lack of capabilities for underwriting complex risks.

There is a troublesome gap in what business and IT professionals view as pressing problem areas in the automation of underwriting capabilities. This gap must be addressed. The business professionals see efficiency and productivity as needing the most improvement, drawing a link between data and processing. IT professionals do not view data for decision-making as a priority. By and large, IT does not concur with business on the need to prioritize data-driven decisions and improve effectiveness in complex risk underwriting.

SMA believes that the insurance industry is ready to fully embrace new approaches and projects, and over the next few years the level of sophistication in underwriting automation will increase significantly.

For more information about SMA’s research and thought leadership in the area of underwriting automation, contact me at dsmallwood@strategymeetsaction.com or 603.770.9090.

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To learn more, please contact:
Deb Smallwood
Senior Partner
ReSource Pro