Of course, the hallmarks of underwriting excellence differ by segment, so insurers also rely on segment-specific data and their knowledge of underlying risks to inform the highest-impact use cases. Analytics teams are deploying descriptive, predictive, and prescriptive models that employ the latest techniques and workbenches. They also have developed sophisticated tech stacks that enable efficient model development and continual revisions. They have built agile capabilities to obtain, test, maintain, use, and reuse the data in their models. Leading carriers regularly tap once-unimaginable volumes of third-party data from diverse domains, including environmental data, industry-specific data, location data, government data, and more (exhibit). The same insights can often be used in loss prevention.
Leading insurance carriers use data and advanced analytics to reimagine risk evaluation, improve the customer experience, and enhance efficiency and decision making throughout the underwriting process. We also share tips on organizing for success with data and analytics initiatives, including setting up agile, cross-functional teams developing needed skills and capabilities providing training to encourage adoption and sharing feedback to continually improve performance. In this article, we review best practices for applying advanced data and analytics capabilities to underwriting in each of three segments-personal lines, small commercial lines, and midmarket and large commercial lines. We anticipate that carriers will increasingly use the power of data and analytics to proactively assess their outlooks-similar to what hedge funds do in predicting capital markets-and identify market opportunities ahead of competition. For example, even the leading insurers can see loss ratios improve three to five points, new business premiums increase 10 to 15 percent, and retention in profitable segments jump 5 to 10 percent, thanks to digitized underwriting. Best-in-class performers are putting distance between themselves and competitors by building advanced data and analytics underwriting capabilities that can deliver substantial value. Meanwhile, data and analytics capabilities are becoming table stakes in the P&C sector in Europe and North America.
Indeed, McKinsey analysis has revealed that underwriting excellence is one of two key traits (along with pricing sophistication) that industry leaders have in common. In this constrained environment, improving underwriting performance is one proven way to boost competitiveness. And insurance was among the industries hardest hit by the massive economic contraction wrought by the pandemic. 1 “Billion-dollar weather and climate disasters: Overview,” National Centers for Environmental Information, 2021,. Commoditization of both personal and commercial lines products, particularly in the small commercial segment, continues unabated.Ĭompounding the industry’s struggles, 2020 set a new annual record for catastrophic events-defined as those with at least $1 billion in damages-with 22 such events in the United States, shattering the previous record of 16 that occurred in 2017. Intense price competition erodes value across the board, and globally, only a small number of sector leaders turn a profit. The property and casualty (P&C) insurance sector has long struggled with challenging fundamentals.
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