Zurich: The Art and Science of Underwriting
Underwriting is in the midst of transformational change, especially with the ability to collect and analyze "Big Data." But underwriting is a combination of art and actuarial science, with the goal of creating a risk profile that will guide the application of data to the underwriting analysis.
With many risks, the data on claims and losses is a key factor in underwriting. This data can help identify causation and indicate the potential scope and size of losses.
But even with risks where excellent loss and claims data is available, the value is often in applying the information to develop strategies to prevent or mitigate losses. For example, property risk loss data can help identify improvements to a roof that could significantly reduce losses in a severe windstorm. If those changes are adopted, then the risk profile and the underwriting will be different.
Many risks are not easily quantifiable. "We always want as much, detailed information as we can get," said John Graham, Zurich's professional liability, security and privacy liability product manager. But, professional liability underwriting, for example, often revolves around contracts and the legal liability in a financial transaction. Here, the underwriting analysis may suggest changes in a policy's terms and conditions -- generally not a data issue.
Underwriters seek to understand the dynamics of a specific, individual risk. Data analysis helps with that assessment, but many risks present imperfect scenarios. "Underwriting risk is never black and white," Graham added.
There is always an element of subjectivity and that's where the experience, consistency and flexibility of the underwriter may have the most impact, he said.
July 22, 2013
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