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9 Underwriting Trends for 2024

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Published on:15th January 2024
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2023 was another year of global turmoil.

Natural catastrophes continued to cost the industry record figures; in December, Swiss Re reported that insured losses from severe thunderstorms had reached a new all-time high of 60bn USD. We’ve also seen earthquakes, wildfires and flooding devastate countries around the world. Conflict erupted in the Middle East adding to the ongoing disruption of the Russia / Ukraine war. Global inflation remained high, putting financial pressure on individuals and businesses alike. Cyberattacks continued at pace hitting some of the world’s largest firms.

But turbulent times spark innovation. As the industry rises to meet these challenges, it is forced to innovate to find new and exciting ways to mitigate the impacts on end customers (and the bottom line). We’ve seen great leaps in innovation in the last year, particularly in Generative AI. And new products, solutions, and businesses emerge committed to driving the industry forward.

Nevertheless, underwriters have been under extreme pressure to carefully select and manage the risks on their books, as well as looking ahead to predict what might happen next. They can’t afford missteps in the current market cycle, which although shows signs of softening across some specialty lines of business, remains hard in areas such as property reinsurance. Insurers aren’t quite out of the woods yet.

The key to adapting and responding to these challenges is data, and the ability to access insurance and risk information in real time. Smarter use of data will unlock untold potential for underwriters, enabling them to stay ahead of the market and remain competitive.

But data itself presents a problem. The proliferation of data risks overwhelming underwriters if they can’t wrangle it into shape in a meaningful way.

2024 must be a year of change. We need to embrace technology, agile underwriting, and work together to find ways to harness and leverage this data to drive the industry forward and ensure hard-working, skilled underwriters can do the job they love with the best possible tools.

Data underpins many of the 9 insurance industry trends we expect to see over this year, so, what else can commercial underwriters expect to change their world in 2024?

Trend 1: AI is the norm now, what’s next?

It wouldn’t be a trends article without the mention of Generative AI (Gen AI), a buzzphrase of 2023 that shows no signs of disappearing any time soon. But we must acknowledge that AI in insurance isn’t a new phenomenon, it’s here and has been for a long time. AI is already a game-changer for commercial and specialty underwriters with practical uses ranging from machine learning to spot patterns in claims data, optical character recognition (OCR) to interpret data from various sources, and natural language processing (NLP) to read documents and contracts.

But the new kid on the block is Gen AI, heralded as the dawn of a new age. It has the potential to drive tangible business value to underwriters in 2024 … IF companies are ready and able to adopt. We believe the real power will then be when insurers use large language models with their own datasets. As companies move past experimentation to wider adoption, 2024 could be the year when a new way of working starts to take shape.

According to a 2023 report by EY, there are four emerging patterns of generative AI use cases in insurance:

  • Summarising unstructured content and policy documents
  • Synthesising these summaries to create content
  • Answering questions based on what it is summarising and synthesising
  • Translating between natural languages, such as English and Italian, as well as computer code, for example, translations that yield new modern code that can run on the cloud.

For underwriters, these uses translate to increased efficiencies. The ability to automate increasingly sophisticated underwriting decisions frees up underwriters to focus on the more complex, profitable risks that require their expertise. As regulation increases and global sanctions change on an almost weekly basis, generative AI can be used to monitor compliance and automatically flag emerging sanctions so insurers can be confident in the risks they’re writing.

We also expect to see Gen AI used to generate policy wordings and computable contracts which make interrogating policy conditions quicker, fairer and simpler.

Trend 2: The year of the API

Underpinning many of the trends, and the bonds that hold the insurance ecosystem together, the Application Processing Interface (API) will become more important than ever in 2024.

We spoke to Altus Consulting’s Matt Carter, to get his take on why underwriters should be exploring APIs this year, and how they can level up even the most entrenched legacy systems.

“APIs create the connective tissue for insurance and underwriting. This year, organisations need to raise both the profile and understanding around what APIs can do and how they are used, moving these discussions, as I have said before, from the backroom to the boardroom. The pace of development is super-fast, so understanding the capability of APIs is vital for an organisation to appreciate what they can do generally and what they can do for them.”

“Take AI. APIs can deliver many use cases that extend the mysterious but clever world of AI into an underwriters’ remit. The most obvious is image recognition or sentiment analysis (read underwriting appetite), or if an underwriter were to receive a video of a building walk-through. AI could be used to both visually inspect the video, as well as convert what it finds into metadata such as how many sprinklers or windows it finds, to then play back to an underwriter through an underwriting workbench or equivalent.”

“APIs power these advancements by embedding themselves between an input and an output, adding a sprinkling of magic and significant time-saving. Whilst insurance organisations are starting to adopt AI capabilities, this remains mainly around the collation and assessment of information, not the decision-making.”

Being an API-first company, this trend is close to our hearts at Send, and we expect to see greater demand in 2024 for systems to ‘speak’ to each other and for tech-driven collaboration.

Trend 3: Talent – the rise of the generalist

The acceleration of technology, the application of AI, and the increased prevalence of digital underwriting will inevitably lead to a shift in the skills needed to be an underwriter. This is part of a wider cultural shift in how we think about and transact insurance.

This doesn’t mean we’ll no longer require the valuable technical expertise, specialist knowledge and “gut feel” underwriters already bring to the role. It would rather mean that their experience will be augmented with future-focused, sustainable skills, such as data literacy, digital fluency and agility, putting customers at the heart of products, and design thinking.

EDII’s Caroline Bedford explains:

“It wasn’t that long ago that the specialist skills you learned at the start of your career would stand you in good stead for your entire career. Not anymore.”

“At EDII, one of the talent trends we find most interesting is the growth in ‘Generalists’ across the industry. It’s no longer enough to have a deep vertical skill set – the most sought-after insurance and broker organisations are concentrating on developing horizontal skills in their staff to complement and accelerate the specialisms that used to be the sole measure of success. Generalists are now leading insurance organisations, and cascading this new way of being by their demonstrating their own personal curiosity, willingness to experiment, and their own commitment to perpetual learning.”

“Encouraging data-fluency, data-appreciation, innovative curiosity, creativity and critical thinking across the entire value chain has become the differentiator that savvy organisations know is the way to attract and retain the absolute best in talent.”

Last year we spoke about the war for talent, and how technology will be a key differentiator in attracting the new generation of underwriting talent. What we’ll see over this year is the evolution of this. The technology is here, but we need the skills to support it. The type of skills required to drive the underwriting evolution has the potential to open up the talent pool to individuals with abilities we may not have considered before.

This could bring the additional benefit of new and interesting perspectives to the industry helping to ensure we’re reflecting the population we serve.

Trend 4: Collaboration is the new competition

Collaboration and partnership will be key to success in the coming year. The underwriting evolution can’t happen if disparate groups of people and businesses work on their own pockets of innovation. This will only lead to systems and technologies that don’t talk to each other or drive holistic benefits for the wider insurance industry.

Insurers must start looking for partnerships to bolster their own offerings, providers and strategic partners who can connect different value-add services and facilitate a better flow of data and resources.

For underwriters, this could mean working with third-party data providers to seamlessly ingest address, perils or financial information for companies, integration experts to strengthen data flow between links in the insurance value chain, or Insurtechs who can provide underwriting solutions to bolt on to existing systems.

Insurtechs are well-positioned to offer solutions to bolster the insurance ecosystem. Collaborating with the right ones can circumvent the need to rip and replace old systems. A trend towards modular systems means that it’s easier now for insurers to pick the companies that best fit their needs and bolt these components together.

This exchange of skills and information will be important in moving the insurance industry forward together, but to achieve this, we must embrace collaborative competition, what ‘the InsurTech Queen’ Sabine VanderLinden refers to as, “co-opetition”. This concept is already par for the course in Asia, but much less the norm in Europe and the US.

To facilitate the strengthening of the blossoming insurance ecosystem, it will also be important to attend some of the many insurance conferences and events throughout the year. We’re still a relationship-driven industry, and the ability to meet so many peers and discuss new ideas is one of the foundations of success.

2024 must be the year to start finding these partnerships, as Katherine Bryant, CEO of the Progress Partnership highlights, “building relationships authentically before you need them is key”, so it’s important not to wait until you need a partnership to look for one.

Trend 5: Market softening: Cyber in 2024

Despite a number of high-profile cyber incidents at the beginning of 2023, the tide appears to be turning on the cyber market. Last year saw stabilisation in rates and the return of capacity to a market that has been beleaguered with challenges as underwriters and their clients struggled with how to manage the growing, complicated risk.

Factors such as geo-political tensions and the rise in AI presented significant threat to cyber underwriters but despite this, the industry’s response was largely favourable. Market analysis by WTW indicates that insurers have been much more willing to offer reduced rates, pricing and a greater array of options for clients. Larger volumes of cyber capacity were offered more frequently, and more insurers recognised the need to offer capacity at various parts of a programme, both primary and excess layers, to enhance their chances of securing participation.

The fact remains that cyber-attacks continue to present a costly threat to the market. According to a survey by US insurer Woodruff-Sawyer & Co, more than half of underwriters surveyed think cyber risk will increase greatly in 2024. Carriers were already sounding the alarm in late 2023 about the rise in ransomware attacks.

Last year we talked about a shift towards cyber risk management to help underwriters and their customers to better understand and mitigate the impact of a cyber-attack. This will continue to be important over the coming years and we’re seeing more innovative insurance businesses entering the market with solutions that leverage data to enhance the underwriting process and manage the risk throughout the lifecycle of the policy.

According to a report on cyber market conditions in 2024 from Gallagher, we’re now experiencing a cyber market that has “matured to a level where both applicants and providers have gained valuable insights into how threats manifest into claims.”

We expect to see further innovation this year as professionals continue to build sophisticated insights into cyber risk. We could see more insurers exploring cyber security products that can be added to their insurance policies to provide greater value to policyholders. This will also facilitate increased data capture to allow underwriters to better understand their clients’ risk.

Trend 6: Emerging risks – what’s next?

It’s unlikely we’ll see too much change to the top risks in 2024. Geopolitical conflict, interest rate volatility, regulation, cybersecurity and ESG are all likely to feature high on the risk radar. But how can insurers predict and manage the next big emerging risks? And what should risk managers be on the lookout for?

The definition of ‘emerging risks’ varies across organisations, but according to Risk Management News: “Emerging risks are characterised by their speed, uncertainty, complexity, and significant impact. Organisations are encouraged to develop a nuanced approach to emerging risks, one that aligns with their risk maturity level, appetite, and overall risk framework. This approach should extend beyond risk management to encompass strategic change and innovation, fostering cross-departmental collaboration.”

New guidance from the International Organisation for Standardisation (ISO), “ISO 31050 Guidance for Managing Emerging Risks to Enhance Resilience” available from April 2024, should help risk managers to recognise these risks and refine their integrated risk management processes, in turn, providing insurers with clear processes and guidance for responding to emerging risk.

Alistair Blundy, CEO at Skyrisks, talked to us about his innovative approach to tackling emerging risks in one fast-moving sector, aviation:

“The aircraft recipe of the last 70 years is familiar to underwriters; a tube-shaped fuselage, a couple of engines, a couple of pilots at the front and whatever you’re carrying in the back.”

“But in 2024 a new breed of aircraft is forming an unfamiliar ecosystem known as “Advanced Air Mobility”. Dozens of start-ups, empowered by billions of dollars, are coming up with next-gen aircraft using electric propulsion, multiple distributed rotors, efficient batteries, hydrogen systems, dynamic flight characteristics, and futuristic pilot-less capability. This unlocks a variety of compelling use cases like never before, such as urban eVTOL air taxi services and autonomous cargo logistics.”

“It’s all very exciting, but what will underwriters make of it? As we insure emerging aviation technologies at Skyrisks, we start with a fundamental principle of underwriting: you can’t insure what you don’t understand. The physics of flight are the same as ever, but a rapidly changing risk landscape requires underwriters who grasp the technologies, have sophisticated data analytics at their fingertips, and industry experts on speed dial.

By adopting this approach from the genesis of the industry we can catch emerging trends, generate early insights and ensure that insurance is not an encumbrance, but a catalyst for the success of the next 70 years of aviation innovation.”

There is no doubt that rapidly evolving threats (and opportunities) are on the horizon. However, how insurers identify and respond to these greatly differs as they consider their risk tolerance thresholds. Data is key here. According to Krzysztof Biernat, at Sollers Consulting, it is the only way insurers can keep on top of new and emerging risks. Underwriters need to seamlessly collate, process and assess data in real-time to help them to spot trends in emerging risks, and identify those they are happy to take on, those they can help the client to mitigate, and those they want to avoid completely.

Trend 7: A proactive approach to managing climate change risk

We continue to be surprised by the rate of climate change and the natural disasters it sparks. In 2023 we witnessed some of the costliest catastrophes around the world including Hurricane Idalia in the US, wildfires in Canada, Typhoon Doksuri in the Philippines and the devastating earthquake impacting Turkey, Lebanon and Syria.

We’re likely to see more of the same in 2024, and with losses surpassing hundreds of billions of dollars globally, the industry must begin to adopt a more proactive response to extreme weather events.

There’s no shortage of climate data available to insurers. They have access to sophisticated risk modelling software, weather monitoring and forecasting specialists and geo-coding experts who can predict how and where they face the biggest exposures. We now need to connect those various parties and find ways for underwriters to quickly access this data to manage and mitigate these risks.

Experts, like our data partner Addresscloud, have developed a geocoding solution that gives underwriters a rooftop-level view of properties across the UK and Europe and provides peril scores including flood, wildfire, storm and subsidence risk. This gives underwriters high resolution insight at point-of-quote that helps them to view and make an informed assessment of how the risks on their books might be vulnerable to incidents sparked by our changing climate.

Mark Varley, founder and CEO at Addresscloud, told us that by working with climate and weather experts, they can give insurers pre-bind, post-bind and post-event specific information to tackle the problem of exposure accumulation:

“Before a risk even goes on cover, underwriters can understand the perils associated with that address, as well as how accepting that risk might impact their portfolio to avoid costly accumulation scenarios, for example within a river catchment. They are under pressure to deliver results, but it’s often not until an event, such as a flood, occurs that they realise they have multiple properties concentrated in the affected area. Having access to this vital data from the pre-bind stage will help them to understand this risk at an earlier point.”

“We know the climate is changing rapidly, and weather events are becoming more frequent and severe. Underwriters need to be able to visualise how these will impact their book, and calculate the cost of reinstating affected properties. Data is a powerful tool in any underwriters’ armoury and can help them get ahead of even the most unexpected climate scenarios.”

In a complex risk landscape, insurers are stepping into a stronger risk management and advisory role for their clients. They have access to a wealth of data that allows them to be more proactive and offer value-added services above and beyond mere risk transfer. They must now embrace novel ways of using this data to help their customers and lessen the impact of climate change on insurance.

Trend 8: The hard insurance market persists

While 2023 saw easing conditions for certain lines of coverage, the overall market remains hard.

According to The Council of Insurance Agents and Brokers who reviewed the second half of 2023: “Most lines of business saw increases at around the same level as the first half of 2023, except for workers compensation and D&O. Commercial property continued to struggle in Q3 2023. As with previous quarters, respondents pointed to high reinsurance costs and a lack of reinsurance capacity as important drivers of high premium increases for the line.”

Experts at Oxbow Partners estimate that on the whole, the hard market has another 12-24 months to run. Specialty lines such as cyber are likely to soften sooner than property CAT, which continues to be impacted by major weather events.

Aside from CAT losses and the wider economy, several factors contribute to the hard market. These include inconsistent underwriting profits, mixed investment returns, inflation and the cost of reinsurance.

We heard from Martina Conlon, Head of Insurance Practice at Datos Insights:

“Across commercial lines in the US, loss costs are up significantly, reinsurance costs are skyrocketing and many organizations are increasing their risk retention because they cannot get adequate reinsurance coverage at an affordable price. With industry combined ratios of 104 for commercial lines near the end of 2023, many companies are hurting. Most are busy raising prices, implementing cost cutting measures and investing in technology to become more efficient and effective.

I anticipate continued challenges in 2024, in particular for commercial property and auto. While some lines, for example speciality, may have more favourable conditions, no one can afford to take their eye off the ball.”

So, when and how should underwriters start to prepare for the inevitable shift to a softer market? According to Oxbow Partners:

“Some carriers will think that 12-24 months is a comfortable buffer. However, carriers need to think carefully about their level of preparedness for the inevitable downturn. Industry executives need to be confident they have in place a soft market ‘playbook’. For many the playbook will likely highlight gaps in operational or technological capability. Given often lengthy change and transformation cycles, 12-24 months starts to look like a very short window.”

Trend 9: Investment in underwriting

Finally, we’re experiencing a tangible shift in investment from claims and post-bind to pre-bind technologies that improve the underwriting experience, facilitating profitable growth and increased efficiencies.

79% of respondents in our Big Underwriting Survey expected investment in technology and data to increase over the next 12 months. We predict top areas of focus will be in automating the submission process, finding ways to access and sort real-time data and reporting and analysis of risk performance.

It’s clear from the customers and partners we speak to that underwriting technology is now table stakes. In order to compete, insurers broadly need to pursue three main objectives; to grow their top line, maintain COR and lead the market in certain lines of business. Investment in underwriting technology is the thing that will power insurers to succeed in these areas, but only if approached correctly.

Send co-founder and CEO, Andy Moss, advises underwriters to approach investment and choose technology wisely.

“You need to consider what business benefits you want to realise, think carefully about how technology could increase your efficiency and lastly, how technology can be best deployed to increase underwriting effectiveness. This is always an education process and we work closely with customers to understand exactly what they need and why”.

Conclusion

2024 is set to be another busy year for underwriters, and we expect to see intention turn to action as the industry embraces solutions to some of the biggest challenges it faces from AI, to the economy, to climate change.

It’s an exciting time to be in this industry, which shows pockets of real innovation and creativity. The task now is for us to connect these strands of innovation and work together to move the conversation forward for everyone.

So, we’ve shared our top predictions for the underwriting sector in 2024, now, we’d like to hear from you. What technologies and trends will you be keeping a close eye on in the coming year? How do you see underwriting evolving for you? And what greater role can you see technology working for you?

Drop us a line and share your thoughts at hello@send.technology.

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