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Technology can't replace insurance underwriting

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Technology can't replace insurance underwriting

CHICAGO—Technological advances and capital allocation have had significant effects on insurance underwriting during the past several years, according to Bob Shine, New York-based chief underwriting officer for North American property/casualty at XL Insurance.

While technology has provided insurers with tools like predictive modeling and analytics, companies still need to balance that with skillful underwriting if they're to succeed, Mr. Shine said. Meanwhile, at many insurers the focus on capital allocation strategies is shaping their underwriting appetite, limiting underwriters' options in some cases, he said.

Mr. Shine made his remarks in a keynote speech last week at the seventh annual View from the Top Luncheon in Chicago sponsored by the Assn. of Lloyd's Brokers, the LaSalle Street Club and the Chicago chapters of the Risk & Insurance Management Society Inc. and the Chartered Property Casualty Underwriters Society.

“The technology is the biggest story and the biggest change on the underwriting side,” Mr. Shine said. “We haven't been known for our technology.”

Mr. Shine noted that early in his career at Fireman's Fund Insurance Co. in New Jersey, where he managed large accounts, there was a more “regional view” of underwriting. Much of the business was consistent and less volatile, and underwriters were familiar with the risks. “They basically saw the same business year in and year out,” he said.

The impact of computers also wasn't fully realized at that time, Mr. Shine said. “From an underwriting perspective, (the computer) wasn't that dynamic. It was more about processing business,” he said.

The emergence and prominence of mobile telephones “fundamentally...changed underwriting,” as insurance professionals suddenly had 24-hour accessibility, he said.

Predictive modeling and analytics have further changed the industry for underwriters, who must balance the use of data with solid underwriting, Mr. Shine said. Today, companies often have proprietary data, he said, adding, “You're no longer relying on ISO data or an industry database to drive your pricing models.”

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Mr. Shine said much of today's underwriting behavior is driven by insurers' capital allocation strategies. In the past five or six years, he said, “everybody's focused on capital allocation,” which has become “the No. 1 thing driving underwriting appetite today.”

“The underwriter sometimes gets boxed in by all these parameters being set at the senior management level,” Mr. Shine said.

While some say technological advances may diminish the underwriter's role, the best way for an insurer to be profitable is to use the new wave of analytics in synergy with the human element of underwriting, he said.

“The best way to make money from an underwriting perspective is to take all the analytics, take all the information you can get...and make better decisions,” Mr. Shine said.

Mr. Shine noted that the next wave of underwriters is going to have a greater understanding of analytics, adding that the ability to “slice and dice” data is “going to be table stakes in the future.”

Moving forward, Mr. Shine stressed the importance of training and recruiting new underwriters for the future.

An “extra emphasis is on training new people,” Mr. Shine said, noting a gap in talent that emerged during the extended soft market of the 1990s when many insurers cut underwriting training programs.

As younger generations are interested in working in part for the social good, the insurance industry needs to make the case for its importance in the community, Mr. Shine said. To train and retain a new wave of underwriters, “we need to sell the fact that...we do serve a social purpose,” he said.

Meanwhile, in terms of future success, Mr. Shine said, “If you really want to make money, you need quality underwriting.”