The multiple approach to underwriting is only getting better for specialty insurers

Deploying a mix of lead and follow, manual and automated underwriting strategies known as a Multiple Approach to Underwriting (MAU) has brought its own complexities and inefficiencies that many organisations are living with. Organisations need to recognise the opportunities presented by MAU and optimise the benefits from working this way. This can be complex, but the good news is that support is on the horizon.

London is home to many of the most talented underwriters in the world, but that expertise comes at a price and must be deployed with maximum efficiency.

In the analogue age, there were two main approaches to underwriting at play in the London Market: ‘active pickers’: lead underwriters who ‘stock-picked’ risks manually – and ‘active trackers’: underwriters manually re-underwriting on behalf of follow syndicates.

The emergence of AI, rules- or authority-based tools enabling certain triaging and decision-making processes to be automated has given rise to ‘passive trackers’: automated follow underwriters – and ‘passive pickers’: lead underwriters harnessing algorithms to select and price risks, with human underwriters adjudicating only referrals and more complex risks.

Insurers recognise that ‘white glove’ manual underwriting approaches are expensive compared with strategies that take work off human underwriters’ desks, and they are moving away from them where possible. We are not looking to add to fuel to the disintermediation fire, but given the current expense ratios, there is a need for greater market efficiency, rather than elimination of certain roles.

Lead syndicates are increasingly seeking to expand and optimise by codifying the expertise of their talented active pickers to automate and outsource more of their risk selection and grow their portfolios.

Automated following offers particularly attractive scaling efficiency and, while these strategies are still relatively basic, this ‘trust the market’ approach is gaining traction, and AI implementations are learning with major launches such as Beazley’s Smart Tracker and Brit’s Ki.

Active tracking, meanwhile, is under scrutiny, as it makes little sense today to pay £150,000+ for a human underwriter in a Lloyd’s box to “re-underwrite” and follow the underwriting activities of a lead syndicate, when a computer can do that easily using a set of rules. This value of actively re-underwriting diminishes as you go further down the slip. There are of course, still valuable learnings for prospective lead underwriters from starting out as a follower, so the active tracking approach will not die out altogether.

Almost without conscious planning, today’s syndicates typically run three or all four of the prevailing underwriting approaches, even for the same line of business with automated approaches allowing them to scale both their lead and follow books in a way that would have been impossible a decade ago.

They adapt and optimise to run a diversified book of business through a variety of distribution channels. However, most syndicates do it incredibly inefficiently, with each style requiring a separate team, underwriting process, pricing approach and entry point.

In today’s market, carriers and brokers are desperate for low friction distribution that can scale efficiently. This siloed approach underwriting stands squarely in the way.

Internally, each underwriting approach has its own cost and resource base for the syndicate, and these books of business must all be rationalised into a single ledger, compounding the administrative burden. Meanwhile, counterparties working together in the distribution chain must either already know which type of approach the syndicate wants to take for any given risk before they engage or face making multiple submissions.

Most London companies have either not recognised the extent of the problems or are unsure of how to navigate to an optimised alternate. The good news is that developments are underway to tackle this problem and run multiple underwriting approaches in a far more efficient way.

By standardising data exchange and harnessing AI, rules-based triage, and distribution ecosystem technology, it will be possible for brokers access a selection of lead, follow, automated or manual underwriters with a single submission, while syndicates can run multiple underwriting approaches through one shared process.

Verisk, for example, is developing an ecosystem solution called Sequel Hub which triages and orchestrate messaging to enable intermediaries to place submissions, receive quotes and access capacity from multiple carriers through a single system.

Algorithms provided by participating carriers will allow the Hub to route business to the most appropriate underwriting team, regardless of whether the underwriting style is active or passive, manual or automated. For brokers, this means they can access multiple underwriting channels that may in the past have required dozens of submissions.

Brokers do not have to know what lies behind the Underwriter’s front door with this ecosystem, they simply present their risk, and the technology does the rest, scanning the market and returning with a selection of capacity providers with matching appetites. If the right match is not found algorithmically, the broker is given the choice of switching to a negotiation-led service like Whitespace. For brokers this provides greater efficiency in connecting to carriers, an ability to access more products, to access larger lines, to define packages of solutions to combine covers from the same or different providers – aka “the with fries” options where covers such as property and war/terror covers can be provided accessed from a single data set.

For carriers, this enables the efficient growth of auto-rated products, automated underwriting and the codification and automation of existing products. It enables syndicates to scale up far more efficiently too, whether writing smaller lines of business more cost-effectively, adding scale to larger lines or combining forces with consortia partners.

Much like a shopping mall or Amazon, the Hub approach creates a self-contained marketplace of competing and complementary products, enabling new relationships to be formed and cross-selling opportunities to be seized algorithmically, quickly, and efficiently.

As tools like this gain traction, carriers will be able to redesign their approaches depending on where they see the best opportunities and deploy their underwriting expertise and resources accordingly. Data and insights captured in this process will also enable ongoing refinement of underwriting and distribution to drive further efficiencies.

The most competitive syndicates today deploy a combination of underwriting approaches, and this will not change. However, competitive advantages are eroded if this is done using multiple processes. Risk selection and placement should today begin with an algorithm, with talented – and expensive – human resources deployed only where they truly add value.

Author: Paul Latarche, Chief Commercial Officer, UK & EMEA at Verisk Specialty Business Solutions
Published: Insider Engage 13 April 2022