Last Wednesday Fitch released their report on 2017 P&C Underwriting, and it was a pessimistic appraisal. Soft pricing, increased competition, increasing cat losses - sounds bad, doesn’t it?
Actually, only the most conservative underwriters will be worried for 2017 because the solution to all three problems is well known: better risk assessment and selection. Here is how underwriting software that improves risk assessment can help:
Soft Pricing goes hand-in-hand with excess capital in the industry, and that excess capital is looking for risk to back. Meanwhile, falling rates mean that underwriters need to discern their risks with more precision to ensure they are not backing risks without adequate premium. Better assessment of risk helps with both: it helps find the risk for that excess capital to back, and it ensures adequate premium is collected for more risks.
Increased competition is related to soft pricing (it’s one of the downward pressures on pricing), but it is also due to there being more underwriting options available to property owners. Effective risk assessment and selection is a fundamental way to improve a competitive edge – especially with configurable analytics.
Increasing cat losses are unavoidable, in that they are going to happen no matter what. However, with risk assessment analytics that can predict where (not when) the damage will be, increased losses can be both reduced and adequately rated.
The increasing cat losses have another effect on the P & C industry: they also contribute to the protection gap by daunting would-be underwriters. However, that protection gap is an opportunity for underwriters to overcome all three of these problems – underwriters arriving in the gap early can set a market’s pricing, with negligible competition, and they can handle the losses if they’re underwritten it accurately.
In the end, good underwriting is good for insurance – regardless of reports like this one.
