By Adrian Morgan, Global Head of AdvantageGo

Risk runs through every facet of insurance. Products are taken out as a mitigation against it; customers pay a premium based on how much of a risk they pose to insurers; it colours every decision, the constant balance of trying to find where the risk is acceptable, and where it is not.

But how are these decisions made? If you were to ask senior executives at most major insurers, they might say how any assessment of risk includes science and data. A study we conducted recently on the Science Of Risk with underwriting decision-makers from across the UK and the US, revealed that 99% of decision makers are confident in their organisation’s ability to make underwriting decisions on risk that are data-driven and scientific.

Dig a little deeper, however, and things start to appear a little less clear cut. There was certainly a sense of there being room for improvement – 87% admitted their organisations could be more scientific in their approach to underwriting decision making and risk.

But is that a major problem if they are already using data in their processes? Surely the gap between being confident in their abilities and could do more is negligible?

Unfortunately not. With just 16% of organisations saying they have access to all the external data they need, it’s not surprising that 81% have had to make pre-bind decisions and 72% have had to make post-bind decisions that are not based on all of the data necessary to be profitable. Put another way, a lack of access to the right data directly impacts the bottom line.

What then do insurers need to be doing to get more scientific?

Three ways to become more scientific

Quite simply, it breaks down into three areas: organisational change, skills availability and the right technology.

First, there needs to be a clear understanding of the organisation’s true use of data and science. We’ve already seen that almost all decision-makers are confident in their company’s data-driven decision-making capabilities. What’s also notable is the gaps in perspective between senior executives, such as the C-suite and heads of department, and the people on the frontline – the underwriters. When it comes to whether competitors are using technology to make more accurate decisions, just 12% of sector leaders were very concerned, growing to 22% of their employees.

There were also marked differences in opinion when talking about how effective the technology insurers currently were in adapting quickly to customers’ changing underwriting requirements. Well over a third of C-suite respondents rated it as highly effective, compared to slightly more than a fifth of frontline workers.

Adrian Morgan

If there’s a significant disconnect, organisations are less likely to make the right decisions when it comes to investing in appropriate tools and technologies or, even if they fail to get the correct levels of user adoption to make it a success. Insurers need to have a consistent understanding of how the entire business uses data, which means clearer communication between senior executives and the front line.

Of course, that frontline needs to have the skills to use science, data and the right tools in their decision-making processes. That is why the second area of focus is on skills availability, and making sure insurers are attracting the right talent. Positively, there is significant confidence that the talent available has the skills to ensure technology can drive better and more scientific underwriting decisions, with 89% stating confidence in employees’ willingness to embrace new technologies to deliver better decisions on risk.

Attracting the next generation of employees was more of a concern, with more than half saying that they struggle to attract new talent into underwriting roles. However, even then there are hopes for the future – 72% believe that the growing acceptance of remote working practices post COVID-19 will increase access to technical talent going forwards.

Ultimately, however, the right people, with the appropriate levels of understanding across the business, can only do so much if they do not have the best tools at their disposal. That’s why technology needs to be the foundation for insurers to get more scientific in risk.

The research highlighted time and time again that technology could do much more when used to assist with underwriting decisions. Ninety-three percent stated there was room for improvement with how technology provides scientific insights to guide the underwriting decision process, while almost all believed that technology could improve profitability and drive down combined ratios.

Furthermore, nearly three-quarters think they will need to evolve their use of technology to compete effectively post COVID-19, with 96% stating a likelihood that they will look to invest in new technology platforms to help with this challenge.

However, most organisations have barriers that are holding investment back, with the top two reasons cited as investment cycles for IT being set and difficult to influence (28%) and tech investment not being controlled by those making underwriting decisions (25%). This again highlights why there needs to be better communication and understanding at all levels of the business as to what the true capabilities of the organisation are when it comes to data-driven, scientific-based decision-making.

The science of risk

Insurers understand the value of applying a data-driven, scientific approach to risk decision-making – they wouldn’t rate themselves so highly if they didn’t. The problem is when there’s a disconnect between what leaders think is happening and the frontline reality. By focusing on the three areas of organisational understanding, skills availability and technology, insurers will be better placed to ensure that the technology they deployed can be effectively used by employees with the right abilities to become even more data-driven. In doing so, not only will their risk decision-making processes become more scientific, but they will enjoy enhanced bottom-line benefits.