Has Anyone Noticed That Our Underwriter Is Missing?
Large account property/casualty underwriting has undergone a fundamental shift over the last 4-5 years. Casualty underwriting and pricing has been ceded to actuarial departments and property underwriting is now dictated by Cat Modeling (RMS 2013).
These days just about every underwriter comes up with very similar expected loss estimates on any given account. Once this “loss pick” has been established, it is a simple matter to add on expected profit and expenses which becomes the basis of the quote.
A few higher-level underwriters have the authority to release their quote to the broker, but most still have to run this statistically derived quote by an underwriting manager or even higher authority before it can be offered as a quote.
The Underwriter’s Dwindling Authority
In reinventing the process of underwriting and quoting, the insurance carriers have fundamentally changed the position of “underwriter.” This new type of underwriter is essentially a clearinghouse for underwriting data between the broker and the carrier.
The actual inputting of the data is performed by clerical level employees that are paid significantly less than the traditional underwriters while the actual quoting and binding authority has been pushed up to the level of an underwriting manager or higher authority.
This has basically stripped away the responsibility and authority of the underwriting position that brokers have been acquainted with for the last hundred years.
Raising the Bar for the Broker
It has become very difficult for brokers to produce significant amounts of new business because most still sell based on price. Brokers will no longer be able find an underwriter that will provide a quotation on an account that is 30-40 percent lower than other competing underwriters.
Advancing technology has allowed actuaries to insinuate themselves into the individual account underwriting function instead of simply giving pricing guidance on large books of business or classes of risk.
From now on, if a broker does not have a compelling reason other than price for a client to fire their current broker and sign on with them, the account almost never moves.
Predicament for the Buyer
This new phenomenon masks the inefficiency of the broker system because competing brokers will be unable to deliver proposals with premiums low enough to justify changing brokers.
The insurance buyer will be led into the belief that their current broker is doing a good job since it appears that no other competing broker can offer pricing low enough to justify changing brokers which is a disservice to the buyer.
What Can Buyers Do?
Buyers should pay as much attention to the services offered by a broker as they do to the “premium summary page.” The one surefire way to lower costs is to lower losses.
Challenge the broker to outline a specific plan to reduce losses in addition to just placing policies. Request a proposal that details the services the broker is going to provide and find out how the broker proposes to measure the effectiveness of their program.
Read all of Jeff Hallman’s Risk Insider contributions.