Underwriters facing ‘hard time’ due to data increase

Underwriters are facing a “genuinely hard time” in today’s insurance market due to the amount of data they are having to work with, according to PWC UK’s general insurance leader Mohammad Khan.

Speaking during Insurance Times’ Top 50 Insurers: Best in Class Underwriting in the Digital Age webinar – in association with Insurance DataLab – Khan said underwriters had “lots of alternative data sources on tap” and the “ability to assimilate all of that knowledge and make sense of it is a really key challenge for underwriters”.

This issue with data comes amid a changing world environment that underwriters must stay abreast of, with the Middle East and Russia-Ukraine conflicts playing a part.

Economic factors are also contributing to the challenge. For example, inflation started to bite off the back of the Covid-19 pandemic in 2022, with the Office for National Statistics recording an 11.1% UK inflation rate in October 2022 – at that point in time, this was the highest recorded rate compared to the prior 40 years.

This escalating inflation rate impacted pricing.

Khan said: “We had a golden period of low inflation and suddenly you’ve got inflation [peaks and troughs] depending on which line of business you write. You’ve also got supply chain inflation.

“And you look at what’s happening in the Middle East, you look at piracy going up, you look at the Ukraine situation and you look at more wars breaking out across the globe.

“And you think ’how do you make sense of all of that and then assimilate all of that and then make tweaks to your pricing model to then come up with the underwriting price?’

“That’s the challenge facing everyone.”

AI help

The rise of artificial intelligence (AI) and digitisation within the industry can help underwriters face this challenge.

When looking specifically at AI, large language models such as ChatGPT have been piquing the interest of many market participants, especially for supporting underwriting.

For example, in May 2023, insurtech Artificial Labs said it had been experimenting with ChatGPT as part of a pilot to assist underwriters.

And in March of that same year, insurer Zurich said it was feeding claims data into a chatbot to identify specific causes of loss in order to improve underwriting.

Khan said that at the current rate of technological change, new innovation can have “more processing power than putting someone on the moon”.

Karen Dayal, chief underwriting officer for commercial lines at Aviva, added: “There’s more data than ever that we have to digest, so using AI to help us digest it and find trends and patterns [means] we’re not sitting there with lots and lots of metrics.”

Khan added that AI was still evolving and felt its ability to do more complex mathematical tasks would come.

He continued: “The exciting thing about generative AI, for me, is it should make an underwriter’s job easier.

“In theory, we could get a generative AI model to learn about how an underwriter sifts through all that data. And then for the underwriter, if they could get a generative AI model to do the first pass and then document how it had come up with that auditable trail, the underwriter can review it and then make tweaks.

“Then, the generative AI model can learn from that.”

‘Focus and agility’

Good quality underwriting is not just about tapping into technology, however, with Adam Clarke, chief underwriting officer at Ageas UK, saying that the two key words for an underwriter today was “focus and agility”.

And amid macroeconomic uncertainty, one of the ways he felt it was best to achieve this was through scenario planning.

Clarke said: “You’ve got to think about what the future might look like. Have different scenarios in your mind, have different outcomes and different actions that you’ll take depending on which scenario.

“Then, [you’ll have] the ability to act on that and make quick decisions and actually deploy that into the market.

“That’s where you get competitive advantage. It’s having that agility, that flexibility and the ability to deploy your knowledge very quickly into the market.”

Dayal agreed that “really knowing where to focus is the key to winning” in underwriting.

When defining a best in class underwriter, she said: “Best in class today are definitely those underwriters who have strong processes and support functions around them that they can focus on underwriting rather than transactions.

“I think they are people who are data literate, they’re really engaged in AI and they’re really embracing innovation.”