An insurance company’s underwriting practices can make or break the insurer’s loss ratio. Because underwriting is so crucial to an insurer’s overall profitability, you might assume that it’s something that needs to be done in-house. That may have been the case in the past, but underwriting has changed. Here’s why outsourcing some – or even all – of your underwriting tasks may be exactly what you need to give your insurance company an edge.
Underwriting Is Changing
According to Deloitte Insights, “In the future, historical data alone may not be enough to underwrite an evolving set of risks, particularly in commercial lines.”
Underwriting is changing. Historical data is becoming less important in underwriting, while automation is becoming essential – and the pandemic has accelerated many of these changes. In a report on the impact of COVID-19 on the commercial and specialty property and casualty insurance industry, Deloitte predicts that the pandemic may accelerate certain trends, including digitization and the emergence of pop-up ecosystems. The latter change means that organizations may invest more in partnerships and collaborations.
More and more, insurers can’t do everything in-house. Technology is moving too quickly. To keep up, insurers are forming partnerships. As underwriting becomes automated, outsourcing underwriting becomes an attractive opportunity.
A Solution to the Talent Crunch
Many industries are experiencing labor shortages, and the insurance industry is among those feeling the pinch. According to Property Casualty 360, the insurance industry was already dealing with a talent gap before the pandemic, and the current labor shortages are making the situation worse.
When workers are scarce, both automation and outsourcing can help your company avoid becoming stretched too thin. For insurance companies, outsourcing underwriting is a logical way to ensure that operations remain smooth no matter what happens in the labor market.
Go All In – Or Just Dip a Toe In
Data and automation are leading to better underwriting processes that require less human intervention. Given this, you may be comfortable outsourcing your underwriting processes completely. But if you’re not comfortable with this all-in approach, that’s fine, too. You can still benefit from outsourcing select underwriting services.
Here are two possible ways to supplement your in-house underwriting team with outsourced services.
- An outsourced team can accept calls, collect data and get the ball rolling before handing over the information to your in-house underwriting team.
- An outsourced team can operate with underwriting authority within a defined set of guidelines. If an application does not fall into those guidelines, it can be escalated to your in-house underwriting team for further attention.
For the modern small to medium insurer, insurtech or MGA trying to keep up with rapid technological advancements, outsourcing underwriting processes makes sense.