Insurers must accelerate the transformation of underwriting or risk entering a “negative spiral” that will be difficult to reverse.

A report by Deloitte says that in future, underwriters must stop relying on historical data to make decisions.

“Underwriters are being challenged to move from hindsight, where underwriting decisions are evaluated after the fact, to foresight, where portfolios are actively monitored, to understand the impacts of risks added to their books of business in real time,” Deloitte says.

“In the future, historical data alone may not be enough to underwrite an evolving set of risks, particularly in commercial lines.

“Take cyber insurance, for example, where threat actors are constantly evolving their tools and techniques, making rearview-mirror underwriting less than reliable.”

Risk selection will become more competitive and insurers will need to integrate new data and technology, the report says, but the underwriting function will not be completely automated.

“Underwriting will always be partly judgment-driven,” Deloitte says.

“Indeed, there are still gaps between rules-based underwriting and what’s actually happening in the market – shifts in capacity, emergence of new risks, and a subsequent need for coverage and price adjustments – that only a human underwriter can manage.

“Underwriters need to be able to thrive in both realms – as data pioneers and technology trailblazers. They also need to remain agile and flexible, and use their experience and judgment to manage portfolios, adapt to changing market conditions, maintain broker and client relationships, and keep coverage and pricing realistic in a competitive market.”

Sticking with the old ways is not an option.

“Insurers that continue relying on traditional ways of underwriting could start a negative spiral that would be difficult to reverse.

“They may face adverse risk selection, could drop off preferred lists of distribution partners, and may have a more difficult time recruiting and retaining skilled professionals.”

Click here to read the full report.