What's Happening?

The sustainability of underwriting



To see what the future looks like for underwriters, we need to look at their relationships – from the bonds with their clients to their agencies to the technology they have come to rely on.

And in the insurance industry, a hallmark of a good relationship is a symbiotic one.

In light of the theme of the hugely successful FIA Summit, here’s an in-depth look at the sustainability of underwriting and advice.

We will explore the lessons we’ve learnt over the last year, how it’s affected us as underwriters and advice-givers, and where we’re moving forward as an industry.

The broker and the underwriter

Seamus Casserly, CEO of Lockton South Africa, points out the nuances between brokers and underwriters. 

“As brokers we do not underwrite per se but we may estimate premiums and conditions that are appropriate for that particular risk,” he explains. “Therefore, in a way we do underwrite but our views are not binding.” 

Casserly says that technology has sped up Lockton’s operations, citing the role of drone technology in remote surveys. “In addition, the ability to assess significant volumes of data gives a different perspective on the particular risk that we are attempting to evaluate,” he says.

“Therefore, the underwriting process has become much more complex and digitalised and information which is available far exceeds anything that has preceded it,” says Casserly. “Comparatives are much easier to achieve and benchmarking is materially enhanced.”

The underwriter and the agency

To explain the ideal relationship between an underwriter and their agency, one needs to look at the tasks of an underwriter.

“Insurance underwriters evaluate and analyse the risks involved in insuring people and assets,” explains Christelle Colman, CEO of Ami Underwriting Managers. “Insurance underwriters establish the pricing for accepted insurable risks. Underwriting means receiving remuneration for the willingness to pay out a potential risk. Underwriters use specialised software and actuarial data to determine the likelihood and magnitude of a risk,” she elaborates.

It’s through working with an underwriting management agent (UMA) that underwriters can be most effective.”In South Africa, you can say without reservation that the UMA is a broker’s friend, as direct client business is prohibited by law,” explains Christelle Colman.

“A UMA is a specialised insurance agent to whom an insurance licence has granted underwriting authority. Functions can include binding cover, underwriting, pricing, settling claims, and appointing brokers – all of which are typically carried out by insurers. At its core, the UMA manages all or part of the insurance business of an insurer and acts as an insurance agent for the insurer,” she explains.

The influence of technology on underwriting

Paul March, MD of Horizon Underwriting Managers, says that technology has made it easier to find information but as yet, it has not changed their approach to underwriting.

For Barry Shrosbree, Senior Manager of Distribution at 1Life Insurance, tech has sped up processes impressively. “Our underwriting process is done in real-time, with minimal medical questions and only an HIV saliva test required,” says Shrosbree. “Through Vantage, our digital solution for intermediaries, we currently accept up to 97% of policies under 35 minutes.”

The sense of speed is also felt at Auto & General. “We are seeing a more sophisticated buyer with a larger range of needs and wants. To meet these changing needs, we need to be nimbler, work faster, and make delivering a superior customer experience our top priority,” says Alex Terblanché, Head of Distribution at Auto & General. “This goes for everything, from pricing, to underwriting, to the sales experience and the post-purchase experience.”

“We have simplified our processes and invested in straight-through processing and real-time underwriting, precisely because we understand that time is an extremely valuable commodity for both clients and intermediaries,” Barry Shrosbree points out. 

“At Auto & General, we have already seen the commercial lines customer experience mimicking that of the personal lines customer experience when it comes to them wanting to interact with both the insurer and the broker on multiple devices and from any corner of the world,” says Terblanché.

These adaptations require innovation, Terblanché points out. “That’s why we are constantly exploring ways in which all our processes can enable the advice process,” he says. 

Is AI a threat?

For all its perks – which came to the fore in lockdown – there are concerns that underwriters could be replaced by artificial intelligence. We asked industry leaders about how underwriters could be considered irreplaceable.

With the expansion of technology, the insurance landscape has changed irrevocably. “Over the past two decades, we have seen a flurry of change in the personal lines space with the adoption of digital innovation, the massive rollout of contact centres to service personal lines brokers, and an increase in data requirements to ensure more accurate pricing as well as more effective management of motor repair costs, primarily driven using big data,” says Colman. “If you sit down and ask brokers how the change described above affected them, they will tell you that insurance has become impersonal and service levels by insurers have deteriorated. Essentially the human element has been removed.”

Despite good intentions, the overemphasis on analytics led to a vicious cycle in which inaccurately modelled advice could have correctly anticipated future risk experiences. As a result, underwriting performance deteriorated, brokers lost faith in the models, and (since judgement and creativity were discouraged) underwriting skills diminished,” she explains. “Add to this the massive increase in regulatory pressures with the quantum and scope of regulatory requirements that will likely only increase. It is not a pretty picture.” 

Balancing the best of both

Her solution lies in collaboration; human initiative and technological efficiency working together.

“There is no question that underwriting in insurance is essential to performance excellence, and the answer is blending human judgement with data-driven analytics to find a balance between humans and machines. Today’s insurers and UMAs will need to evolve their role to meet tomorrow’s industry and customer needs,” she says.

It’s a sentiment that’s shared across the board of underwriting experts. “We don’t believe AI could replace underwriters because experience plays a vital role, as well as ‘gut feel’,” says Grant Cross, MD of Motor Acceptances, a Lombard partner. 

“AI could possibly assist in processing basic information,” he adds.

Paul March of Horizon Underwriting Managers can’t see AI replacing underwriters in the near future, either.

“Marine insurance has many risk factors,” he explains, talking in the context of his specialty. “Then you have the softer issues: your relationship with the broker and the broker’s results.” All of these elements require the human touch.

Seamus Casserly of Lockton is emphatic about this. “I absolutely disagree with this assertion, as AI has the ability to process data but it requires a decision tree.” “Underwriting is a soft discipline rather than a hard discipline. While data can be processed, I believe that in the volume market AI may very well play a role but there is no doubt that every single risk in the business environment, commercial and corporate, differs from one another.” 

While categorisation may take place for a particular industry type, each risk is different, he notes. This sense of balancing continues into the rise of the hybrid workplace – working remotely is a convenience but not always the best option. 

“I believe fundamentally that hybrid workplaces will work for commoditised product, such as Personal Lines and Motor,” says Casserly. “There is no way that adjudicated (underwritten) business can be commoditised. My experience is that workplace decision making, and discussions derive a better result for clients.”

Making more time

Barry Shrosbree of 1Life is in agreement. “We don’t foresee this happening. We simply see digitalisation enabling underwriters, to free them up to focus on the human side of insurance,” he says. By freeing up underwriters’ time through the digitalisation of routine tasks, they are able to focus on more complex underwriting cases.”

The experts’ opinions on the benefits of granting extra time are mutual. “We don’t believe underwriters can be replaced by technology,” says Auto & General’s Alex Terblanché. “But by digitising the routine administrative tasks, it can free-up the underwriter to focus on specialised underwriting or cases where more complicated underwriting is required.” 

This also goes for interacting with the clients, he says. “Most consumers have become so digitally savvy in recent years that the type of advice dispensed digitally or face-to-face is not the issue. The issue is whether the client feels comfortable with the medium. The adviser needs to listen to their client and follow the client’s lead when it comes to the preferred method of communication.”

This leaves the underwriter working with and not against the changes that technology brings; keeping relevant while remaining relatable.

What are today’s various personal insurance business models?

The personal insurance market in South Africa looks very different from even a decade ago. Personal insurers and UMAs fall into one of five main business model types, as explained by Christelle Colman, CEO of Ami Underwriting Managers.

  • Intermediary model: These insurers use intermediaries (e.g., brokers, banks, agents) to write business and access a broader customer base. Intermediary model insurers tend to offer a standardised ‘menu’ of products distributed through their chosen intermediary channel(s). They often rely on advice from “locally-based, known, human entities” and therefore utilise standardised processes and products for their sales force to help ensure consistency of offering and assist with reducing regulatory or mis-selling risk.
  • Direct multi line: These insurers typically aim to maximise their share of the customer wallet with comprehensive product offerings. The most successful combine deep CRM and data analytics capabilities to create a single customer view which they then use to help maximise customer lifetime value. Direct players often appeal to clients looking for “one-stop shop” insurance through bundling.
  • Bespoke/HNW: These insurers (or more typically UMAs) focus on high net worth (HNW) and ultra HNW clients, offering low-volume, high-margin products that differentiate through cover, service, and prestige. Clients demand specialised cover (for fine art and jewellery) with few restrictions. Risk and relationship-based pricing often rely on underwriter experience and manual processes.
  • Direct single line: These insurers (often we see the InsureTechs play in this segment) focus on the top line, driving volume by offering commoditised products with relatively basic coverage for common risks (areas like standard motor risks, home or bicycle policies). They leverage sophisticated marketing expertise to attract mass-market clients and carefully contain servicing costs through lean standardised processes.
  • Niche risks: These insurers focus on niche risks for customers with unique needs. They are often accessed via UMAs or brokers and can command high margins due to their expertise and product innovation in niche risk areas. Propositions tend to focus on specialised products and coverage for unique items like thatched roof homes and non-standard motor risks like classic cars.