Due to the rise of automation, the role of the underwriter is changing. Even though technology is an enabler, the expertise of an underwriter will always be an essential part of the equation.
To validate this, Valen conducted a study of a regional P/C insurer to identify the power of underwriting expertise. The study compared the usage of a model against the underwriters’ own predictions, as well as a hybrid approach.
In a three-part test comparison, the results yielded the following:
- Underwriter (green line): This underwriting organization did in fact separate risks from best quality to worst quality. The best risks had a loss ratio about 20% better than average. The worst were 30% to 50% worse than average.
- Predictive Model (red line): This improved the overall differential between “best and worst” – the best risks are 50% better than average, and the worst are about 75% worse than average.
- Hybrid Model (blue line): The average of the underwriter’s prediction and the model’s prediction, which is represented by the blue line on the graph. It has by far the most lift which is 75% better than average, all the way up to 120% worse than average.
Time and time again the expertise of an underwriter, supported by technology, proves to be a winning combination.
It is important to note, resistance to predictive analytics in an organization is relevant. Out of 2,000 participants, a recent Celent study found nearly 47% of their organizations use of advanced data is infrequent at best, to none at worst. Therefore, the first hurdle is getting leadership to adopt a data-driven approach towards profitability. Then together, with proper support, implementation and analytics training, the value of the underwriter can never be eclipsed.
ABOUT THE AUTHOR:
Kirstin Marr, CMO of Valen Analytics, has a passion for building companies that invent leading-edge technologies to improve customers’ lives and solve the inefficiencies that exist in traditional marketplaces. As the chief brand advocate for Valen Analytics, she helps pave the way for Valen’s clients to lead the innovation initiatives required to compete in today’s marketplace. Before Valen, she ran business-to-business marketing for internet technology pioneer and market leader, ServiceMagic.com (now HomeAdvisor).
Kirstin has a long-standing commitment to philanthropy and community leadership. Most recently, Kirstin is leading the Insurance Careers Movement coalition, a grassroots initiative of more than 850 insurance organizations raising awareness of what insurance has to offer young professionals. She has been involved in several non-profits focused on Science, Technology, Engineering and Mathematics (STEM) education, among other non-profit causes.