Underwriting: An Art or a Science?

I've noticed a marked contrast among underwriters - between those less seasoned, who show a growing eagerness in underwriting automation techniques, and the more experienced underwriters, who express their reservations. The latter group points to the perceived pitfalls of relying too much on technology and the inability of those newer to the role to match the value of instinct that is gradually acquired over time. One of the main concerns is that an overreliance on technology can mislead insurers into deciding to invest less in the training of new hires, which would in the long term impede the overall quality of underwriting. While there is merit to this argument, it fails to acknowledge the advantages to be derived from the smart use of technology.

art-or-scienceTo be well prepared, insurers need accurate and easily accessible statistical indicators. Flexibility is key, as well as the ability to configure the granularity at which data is made available. Numbers do not necessarily paint the complete picture, however, and insurers still need to trust their underwriters’ intuitions to know when to deviate from what the statistics tell them. This is especially true when insurers are entering new markets or trying out innovative approaches. There is a danger that the growing amount of technology and data available to underwriters could end up making their work more complicated. Too much data can obscure the intention or rationale behind the underwriting itself. Data needs to have a purpose; underwriters need to know how to use it. Analyzing this data can only be done by someone with expertise in evaluating the risk. Underwriters also need to beware of interpreting data too freely. If you don’t have a large enough sample size, it can be a risky proposition to use data to evaluate a risk. More accurate pricing will result as insurers get better at understanding their data and build better models to predict exposure. 

All sides agree that insurance is, and will remain, an industry where human relationships are key. Automation will not change that and does not aim to; instead it provides underwriters the opportunity for deeper risk analysis and more thorough, precise underwriting.