Always-On Underwriting

As real-time data provides underwriters with an ongoing view of risk, how will their methods of actively managing risk to mitigate exposure change moving forward?

Connected policies and data-led brokerage all rely on real-time data to automate policy changes, create new products and differentiate services. The value of data received is akin to level of insight derived. There is always the potential for further understanding through improved asset monitoring. Underwriting with the benefits of a big data analytics and insight platform offers a plethora of benefits. Specifically, an ongoing view of asset behaviour derived from the real-time data it receives. Using the same platform as Brokers gives Underwriters access to the same datasets and an equal view of risk. Understanding behaviour as it happens allows Underwriters to have an ‘always on’ approach to risk management. Therefore, when negotiating business, Underwriters are more informed before writing a policy and remain informed during the life of the policy.

When deciding to write business or not, the conversation with Brokers fundamentally changes. Real-time analysis ensures the visibility of behavioural trends over time, ensuring judgements are based on correlations over snapshots. This includes trends based on initiatives a Broker may have regarding improvements to Client risk profile. As mentioned previously, policies can take shape around set initiatives. Automated updates can initiate new terms and conditions that align with agreed milestones. A new structure to policies can broaden the scope of what types of risk an Underwriter is prepared to write. This can improve Broker relations through increased policy uptake. Such policies will also put an emphasis on Brokers to pro-actively work with their Clients to achieve agreed milestones. This filters out high risk Brokers by rewarding those who can demonstrate a consistent improvement in risk over time. Digital tools that monitor vessel activity enable Underwriters to enforce such terms, reducing exposure.

Monitoring the Insured’s asset(s) is key to an ‘always-on’ approach. If a vessel were to display adverse behaviour, Underwriters could act. For example, turning up the engine whilst trying to make up for lost time during a delivery. The act of increasing speed may put additional stress on the engine. If there is an increased potential of a fault, the Underwriter can look at the relative cost of making the delivery against paying the late cost. If the late cost is lower, an Underwriter can offer to cover it instead. Doing so would avoid the high maintenance costs associated with being on time.

Real-time weather monitoring can also ensure geographical risk profiles are up to date. As geographical areas see increased rates due to meteorological risk, policies can adapt automatically to ensure the right coverage is in place. Such data directly influences pricing models, with rates in place that correlate to ever-changing, high-risk geographies. This can include sanctions, war and piracy zones. As vessels enter and leave zones, they can either incur a fixed increase in premiums or opt for a flexible approach. A flexible approach would be ad hoc and see costs based on time in zone. Insurers will be able to ensure appropriate coverage whilst Operators make judgements based on changing scenarios. Again, this provides a new product that adapts to the needs of specific operators.

Geographical monitoring doesn’t only apply to asset behaviour, however. A connected approach to accumulation can also provide benefits for reinsurance. If you see a peak in accumulation, an extra reinsurance layer can be adopted automatically. This introduces further capital for the duration required. In fact, improvements in reinsurance may be seen through more effective segmentation. With digital tools, Underwriters can effectively segment areas of a policy they may find too risky and only write the segments they are comfortable with. This approach can also be applied to the reinsurance market, where Insurers package segments of risk to further insure. The value comes from the level of segmentation and analysis now available, allowing new capital sources to be selected, such as ILS markets. Drawing new capital provides further growth opportunities for businesses that adopt new digital tools. Better tools enable Underwriters to adapt to new market pressures through automation and understanding.

“A holistic understanding of the market is invaluable when it comes to risk selection. Better segmentation improves a (Re)Insurers ability to serve market needs. Having the right digital tools in place will not only allow us to explore targeted opportunities, but also integrate with specific partners to amend cover on demand. This allows us to diversify our product offering whilst remaining close to the market.” – Donald Harrell, COO, Managing Director, Willis Re Speciality

For more on our connected policies blogs check out 'Real-Time Data and Connected Policies' 'Data-led Brokerage' and 'Differentiation Through Data'.