Efficient or effective?
The ineffable question of the “effs”. What should a business aim for – and more specifically, for us, the underwriting function in an insurance business – efficient operations or effective decision making?
At a dinner party, or in the pub, when asked “what do you do?” How many of us take the path of least resistance and give a generic “I work in insurance” response?
In that situation, how many of my underwriting colleagues use the word “underwriter”? It invariably leads to a string of follow-up questions, usually starting with “but what does that mean?”.
So, what does it mean?
In the *mumble* years that I have worked in the insurance industry I have never seen two organisations categorise underwriters in exactly the same way, be it the hallowed room of Lloyd’s, a volume driven call-centre or somewhere in between. I’ve been there and got the t-shirts to prove it.
Some have an actuarial or pricing focus, some are tasked with relationship management and some gear themselves more towards the customer facing product and documentation – the “colouring-in department” as one manager once referred to us. I confess that I’m rarely without my handy red pen for correcting wordings or reference guides, but I do so not just for the fun of it but to protect the customer and the insurer from unexpected or unacceptable outcomes. Nobody wants to find out the hard way that a £multi-million loss could have been avoided but for the want of a comma, or a poorly worded question.
Fundamentally, the underwriting function is to decide what risks to accept, on what terms, and at what price. The key word being “decide”. Underwriters are there to make decisions. To make the rules, not to blindly follow them.
So, if being a decision maker is what makes an Underwriter, what makes a good Underwriter? Good decisions.
We should make the rules, but we must do so based on sound principles born out of thorough insight and analysis. Equally important is the ability to measure the efficacy of your actions and a willingness to make appropriate adjustments in a timely manner. Monitor, assess, adjust … rinse and repeat. Yes, if your data is sound (and it’s often a big ‘if’) then there is software out there that can crunch the numbers and make reasonable predictions. But what about the human element? The end customer at the heart of all our decisions. Can a machine ‘learn’ compassion, or simple common sense?
At the end of the day, call yourselves what you like. But ask yourself this: Are you doing the right thing? If so, then to Hell with AI and the rise of the machines – they’ll never take us alive!
Other articles...
The boiling frog
We have all heard of the boiling frog syndrome which says: if a frog is put in boiling water, it will jump out to protect itself. However, if you place a frog in cold water and slowly turn up the heat, it won’t notice the subtle increase in temperature and be boiled alive.
Playing the game
Game theory aims to shed light on outcomes where multiple actors operate. Dry academe often assumes “ceteris paribus” even in social sciences, but in the real world when we are trying to anticipate the outcomes of decisions one actor makes it is essential to consider the possible and likely responses of other actors…
An inspector calls
In various parts of our lives, we are examined and tested to grade our ability and knowledge, be that driving tests, ‘A’ levels, or piano exams.
And so it is with the insurance industry. Boards and regulators are increasingly pushing for demonstrable oversight. This is especially true in the field of Delegated Authority (DA)…
Stick to Your Knitting
Managing General Agents (MGAs) provide insurers a broad opportunity for profitable growth. Operating in niche sectors with lean efficient models and providing customers with products that they often find hard to come by in the mainstream. All of this is wrapped up with the relevant expertise and providing insurers with access to markets that…
Why an MGA shouldn’t fear the hard market
As 2022 was drawing to a close, insurers across the UK were starting to look at their results, keeping their fingers, toes and everything else that they could, crossed in the hope that December would fizzle out in a whimper.
But alas it was not to be as temperatures plummeted and the industry suffered…
Actuarial big bucks
What use statisticians and actuaries when the world is being transformed by modern data-analysis techniques? What hope for clunking humans in the era of Big Data (Facebook sells data which influences US presidential elections), of Artificial Intelligence (China can identify disliked racial groups through automatic facial recognition technology)…
Pricing triptych – Part 3: Four fallacies about cat pricing
Catastrophes – natural events where one “system” (wind, earthquake etc) causes multiple insurance claims in one go – are difficult. Much else in insurance pricing is subject to conceptually simple averaging-over-time, but cats are different. You can’t take a 5 or 10 year history of natural-peril losses and assume you have an accurate view of exposure to catastrophes…
Pricing triptych – Part 2: Four considerations on pricing strategy
In part 1 of this triptych on insurance pricing we looked at Technical Price (TP): what must be covered over the long run to make reasonable profits. I finished that note by considering TP in the context of the market. Here, I take this theme further and explore more how to think strategically about pricing.
Pricing triptych – Part 1: The four fundamentals of pricing
This note covers the fundamentals: the three building blocks of a technical price and a note on the role technical price plays. It is followed with a deeper look at pricing strategies. Finally we consider a knotty topic, cat(astrophe) pricing, in particular the use of cat models to inform the price.
In data we trust (so make sure it’s right)
On 26th September 1983, at the height of the Cold War, Soviet missile monitoring picked up apparent signs of five nuclear missiles launched from the US. Retaliation was the default planned reaction.
Conflict: anticipating it, managing it
Charles Dickens opened A Tale of Two Cities with these lines, contrasting calm enlightenment London with turbulent revolutionary Paris: “It was the best of times, it was the worst of times…
Carrier vs MGA
Calibrant was established to bridge a gap. The gap is that between MGAs and their carriers. And it finds many forms.