From Underwriter to IT Service Provider – Alexander Stolte’s digitization column

Underwriting is an experience-driven business. When I began my career in transportation insurance my boss showed me a form with four questions on it: Which goods are involved? From where to where are they going? By which mode of transportation? And which risks are they insured against? “Now,” he said, “you basically know all you need to know about transportation insurance. But it will be five to ten years before you’re a fully-fledged underwriter.” He was right. It takes experience to assess risks adequately.

A key challenge that digitization faces is to map this treasure trove of experience in systems and to delegate decisions to the system. There are three decision classes here:

  • White: The system decides that the risk is to be insured.
  • Black: The system refuses to insure the risk.
  • Gray: The system does not make a decision yet; it needs more information or an underwriter’s assessment.

In order to benefit from digitization the system should make as few gray decisions as possible because the process is then no longer automated, there is an interruption and manual processing. This is the very point at which there is a conflict with the self-conception of the underwriter, who is accustomed to making individual decisions on the basis of his experience.

If underwriters pour their experience into systems that they entrust with making decisions they must lay down rules. And to prevent gray decisions certain fundamental decisions are required – along the lines of “We always do it this way now.” I can fully understand how hard that is for an underwriter. In, say, 80 per cent of cases the system may make the right decision and get it wrong in 20 per cent. But decisions are made faster, processes are faster, and costs are lower.

The insurance company must weigh up these advantages and disadvantages. At the same time it must also relieve the underwriter of the responsibility for having by means of this digitization been partly to blame for making the wrong decision in individual instances. Digitization does not begin as a sure-fire solution. It is more a matter of starting with an acceptable decision-making matrix in the system and going on to improve the rules step by step.

About the author:
Alexander Stolte spent over 20 years as an underwriter assessing risks in transportation insurance. He is now taking the digitization of industrial insurance forward as an IT and consulting service provider. In his column he deals with the experience he has gained from this change of perspective.

Image source: Fotolia – Sergey