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Insurance underwriters are seemingly pulled in many directions today as risks quickly evolve, from extreme weather events to changes in the legal and regulatory landscape to general inflation trends. Underwriters who work to understand the changing landscape and how it affects the classes of business they write will have a leg up on the competition.

Executive Summary

As insurance underwriters navigate a challenging risk landscape with changes in weather patterns, legal and regulatory hurdles, and economic uncertainty, experts say they’ll need to learn to balance both the art and science of underwriting. Using behavioral science to understand client needs and introduce more personalization is one step of this process, as well as developing deep expertise in specialized areas. Most of all, experts say the use of data and automation is key for underwriters moving forward.

“It’s art and science, and we wrestle with both of those every single day,” said Tracey Ant, head of middle and large commercial business units at The Hartford. She was speaking with Carrier Management for its newest episode of Between the Lines, a video series that explores topics in the latest magazine issue.

“Making data-driven decisions has become part of our DNA, but there’s also underwriting judgment, and that’s the art that comes over the top,” she added. “When you meet a client and understand how important safety is to them, you get some insights that the data doesn’t always tell you.”

Behavioral Science and Personalization

This is where behavioral science can step in to help underwriters understand the behaviors and needs of their clients in such a challenging risk environment, according to Lore Farrell, vice president of product management at Slice Labs, later in the episode of Between the Lines.

“Behavioral science is really about the study of human behaviors, how we go about making decisions and choices,” she said. “And as well, it looks at how we respond to influences in our environment.”

In a three-part article series for Carrier Management published in March of 2020, Andy Clapson, data science lead of Slice Labs, described behavioral science as a discipline that the best insurance agents and carriers are already practicing. He said the challenge is to harness what they know—and what behavioral scientists teach—and to scale it across the enterprise.

“It’s art and science, and we wrestle with both of those every single day.”

Tracey Ant, The Hartford

Farrell said behavioral science should be applied across the value chain for insurers, from product ideation to underwriting and pricing, as well as sales and claims. This is because in all aspects of insurance, including underwriting, Slice Labs has found customers like to be engaged in each step of the process.

“We’re all connected, and we’re connected all the time, it seems,” she said. “I think we were initially surprised that customers liked to be engaged. It seemed to be quite contrary to what is the traditional experience with insurance where you would have contact with your insurer at the time that you purchased the policy, and then you probably wouldn’t hear from them again until it was a renewal time unless maybe you had a claim throughout the year. But we found that customers were positive about being engaged, about having connections, as long as the connections were timely, helpful and relevant.”

Behavioral science can help insurers identify those integration points and how they should be connecting with consumers, she said.

“We can determine appropriate timing, when it’s best to send messages to different segments of customers who respond better at different times, reminders, nudges, that type of thing,” she said. “We can style messages that work best for a specific group.”

“The value of data is important. Data is key.”

Lore Farrell, Slice Labs

Slice Labs is a technology company backed by insurers and reinsurers that offers on-demand insurance products with a particular focus on small businesses. One of its products, launched in 2016, is an on-demand, pay-per-use insurance product for home share hosts who use platforms like Airbnb. Using this product as an example, Farrell said personalization is increasingly important for insurance consumers.

“For our home share hosts, it was really important that we start and be able to provide that personalized experience,” she said. “Not just on the sales side of things, but also on the claims side of things.”

She said the company used behavioral science to understand its customers as it worked to personalize email notices, and as a result, was able to provide targeted content that varied in style and was tailored to each client.

“I think that focusing on personalization really helped us create and establish a customer-centric culture for Slice, and it was really important that we all have a really thorough and good understanding of our customer profiles,” she said. “The application of behavioral science and personalization, I feel those really go hand in hand. They’re kind of two halves of the same whole. Behavioral science, we could say, is the fuel that fires the engine on how we use data to achieve personalization.”

‘Data Is Key’

In fact, data is the science behind the art of understanding the customer, Farrell said.

“Data and artificial intelligence will continue to be used throughout the life cycle of a policy and will help create new ways of managing risk.”

Heather Boyer, Society Insurance

“The value of data is important. Data is key,” she said. “That, in turn, means that the specialized skill of underwriters can be used more effectively by the insurers. They can spend time on more complex cases where they’re adding more value to the overall process.”

This specialization in underwriting is becoming more important than ever, Ant added. “With our distribution partners and our insureds, there’s an expectation that we understand their businesses in a really deep way,” Ant said.

The Hartford offers specialized insurance products for the construction industry, which Ant pointed to as an example of this business strategy.

“A construction client, and a broker on their behalf, wants to make sure that they’re dealing with an underwriter who understands the trends in construction, what’s going on, the risks, the emerging risks,” she said. “It starts with speaking the same language as our brokers, our agents and our insureds…and I think there’s an expectation that we are bringing those insights to our clients in a specialized way.”

She said this is because the construction industry is so big that underwriters need to work to understand the many sub-verticals and sub-industries within it.

“Our data is allowing us to really understand trends on a micro basis, [which is] different than a decade ago,” she said. “So, for our underwriters, when they have those kinds of data and trends at their fingertips, the conversation is much richer.”

Ant said The Hartford works to empower its underwriters to look at the entire scope of risk, from a macro to a micro perspective, and harness the right data by creating constant feedback loops.

“We are trying to free up time for our underwriters to be more consultative with their brokers and their agents and insureds by leveraging data and automation,” she said. “We have that feedback loop around what it is that we can do. And with our agents and brokers, we probably spend less time boasting about the great things that we’re doing but rather asking them, ‘What can we do better? What is it that you and your clients need that The Hartford could help with?'”

Heather Boyer, CEO of Society Insurance, said the specialist insurer (for restaurants and other small businesses) is applying the same emphasis on data and automation in its own business strategy.

“Data and artificial intelligence will continue to be used throughout the life cycle of a policy and will help create new ways of managing risk,” she said. “This will speed up change the property/casualty industry is already experiencing. It will never replace the insights of people, but it will allow us all to do much more to serve customers.

Dennis Saldana, Society Insurance’s vice president of underwriting, said the insurer’s approach as a specialized carrier is in not only understanding the micro risk characteristics of policyholders but also the industry as a whole from a macro perspective. “Having a higher level of knowledge of the legal environment, emerging trends and the financial conditions of the industries we target better equips us in the underwriting process,” he said.

Underwriting Specialization and Climate Risk

This strategy is becoming increasingly important with changing weather patterns, in particular, as it is one risk area that is evolving especially quickly and unpredictably, Ant said.

“I think that weather patterns are becoming much more pronounced than in the past, and using models to help us make our decisions—understanding where an insured’s business is domestically and across the globe—matters a whole lot,” she said. “All of those things require—again, back to that specialization—in many cases, more than one underwriter to tackle a problem that [insureds] maybe have or that they might be seeking some guidance on.”

This is especially important as climate risks continue to grow, said Tim Zawacki, principal research analyst at S&P Global Market Intelligence, in an interview for Between the Lines.

“Companies are not just taking a look at the obvious but also looking at some of the more potential concerns that loom out there and taking a very conservative approach to how they’re underwriting.”

Tim Zawacki, S&P Global Market Intelligence

“They’re numerous, and I think as we talk about this and think about how climate has sort of jumped into the national mindset, it’s gone beyond a concern that’s specific to insurance,” he said. “It’s something that’s on the top of everyone’s mind, really.”

He said that with this in mind, insurers will need to consider the industry’s role in shaping the societal response to climate change.

“Is it a leader? Is it a follower?” he said. “Is it somewhere in between?”

Zawacki said he sees insurance as a leader, as he believes the industry was ahead of the game in realizing what climate risk means for how insurers operate, underwrite and price business.

“The insurance industry has increasingly used sophisticated modeling technology through numerous vendors to try to get a sense as to what this all means for their existing book of business, where they should allocate their capacity going forward, and perhaps more importantly, where they should avoid as we think about some of the emerging risks,” he said.

When it comes to these emerging risks, he said incumbent providers are taking a hard look at what kind of business they’re writing.

“We’re starting to see companies take an even more aggressive approach to underwriting their existing book, whether that’s through nonrenewing entire business lines, as we’re seeing in some markets, or whether that’s maybe taking more of a scalpel approach to addressing some risks that may be emerging,” he said. “Companies are not just taking a look at the obvious but also looking at some of the more potential concerns that loom out there and taking a very conservative approach to how they’re underwriting. They’re seeking very aggressive rate increases in markets where catastrophe exposure is significant.”

Intellectual Curiosity, Building Relationships

With all of this to consider, what are insurance companies looking for in underwriting talent as they work to manage so many new and everchanging risks?

“Having a higher level of knowledge of the legal environment, emerging trends, and the financial conditions of the industries we target better equips us in the underwriting process.”

Dennis Saldana, Society Insurance

“It probably starts with an intellectual curiosity,” Ant said. “Underwriting is about contemplating risk and sometimes thinking about what’s not right in front of you.”

Saldana added that Society Insurance seeks underwriters who not only have technical capabilities but relationship capabilities so they can embrace data and automation as well as a deeper understanding of client behavior and needs.

“Our underwriter hiring profile has evolved as we have become more specialized with improved technology,” he said. “The underwriting process had been highly manual, and we looked for desk management and organizational skills in our underwriting candidates. As we have moved into a highly automated straight-through processing environment, we’ve shifted to underwriters who have a sales and relationship aptitude and more focus on decision-making abilities.”

In fact, he said this balance between the use of technology and building relationships will remain an important part of the underwriting process for all insurers in the future.

“Data analytics, predictive modeling and artificial intelligence will continue to evolve as tools for underwriters,” he said. “The future of underwriting will be highly automated, utilizing straight-through processing on smaller accounts to allow underwriters to focus on larger, more complex accounts as well as building relationships with their agency partners.”

He added that while individual risk analysis will always be a mainstay of underwriting, understanding the larger picture is becoming more and more important.

“Underwriters who understand the changing landscapes of things like the economy, legal environment or weather patterns and how they affect the classes of business they write will have a leg up on profitable growth,” he said.