Gain a Profitable Underwriting Edge - No Technology Required
October 19, 2023
As we speak with MPL carriers across the country, we hear their frustration with the current situation: it’s difficult to make a profit from underwriting medical malpractice. While MPL has been profitable for most of the past twenty years, recent years have been challenging, and Milliman predicts ongoing difficulties. Many see “digital transformation” as vague and a potential threat to experienced employees, especially those in underwriting. Ironically, the mention of generative AI and robotic process automation can discourage small improvements because they require significant investments and make innovation seem futuristic.
But let’s forget about the hype. Strong underwriting is the key to success in medical liability and other commercial lines. In this blog post, I’ll share my thoughts on how to improve MPL profitability by focusing on three underwriting trends for new business.
Modern underwriting leverages external data.
Three trends drive the case for underwriting modernization.
1. Underwriters are facing a critical need to shift their approach from looking backward to looking forwards in the realm of commercial insurance. In today’s rapidly changing world, relying solely on past occurrences to anticipate future losses is simply inadequate. This is especially apparent in long-tail liability exposures like medical malpractice claims.
2. Underwriters are being asked to bring more (data) science to the art of underwriting, which does not diminish the importance of underwriting expertise. While data insights and improved technology can support automation, we’re not suggesting that MPL will follow personal automobile to full automation. We believe that medical liability will continue to require experienced underwriters to apply judgment, maintain broker and client relationships, and keep coverage and pricing realistic.
3. Underwriters must adapt to the evolution of risk to underwrite profitable business. To remain competitive, underwriters must have access to reliable external data that can be quickly analyzed, along with information on industry trends and risk behaviors.
What’s holding commercial insurance lines like MPL from transforming underwriting? Commercial underwriting can do more to leverage external data.
- Insurers do not always use external data—including proxies for leading risk indicators—to their full extent.
- Instead, insurers prioritize internal, insurance-specific data sources; not even pricing is always based on the most granular data available on paid and incurred losses.
- External data can be looped into new business workflows to support account-level decisions, e.g., prioritizing capacity and validating exposures for individual prospects.
Advanced data and analytics will be more important in revealing advantaged insights and enabling forward-looking approaches to risk assessment and pricing. Better data, rating and scoring can have an immediate impact by helping avoid potential losses. Within twelve months, these tools can increase underwriting revenues, help streamline underwriting operations, and improve communication with new and renewal customers.
“The first step towards getting somewhere is to decide you’re not going to stay where you are.” – J.P. Morgan
ISO Codes, last updated in 2009, remain the industry standard for malpractice rating. Much has changed since 2009, so many carriers have created their own versions of the ISO standard and continue to modify them as needed to conform to market conditions. We work with these forward-looking carriers to develop a more accurate rate classification and score the likelihood of a malpractice claim next year.
Many MPL carriers recognize that the way to transform is to partner with a forward-thinking company, like Preverity, to stay ahead of the competition. Some use Preverity data as the decisioning tool in underwriting risks, while others use it to inform the underwriter’s decision. These carriers prove to themselves that new data can lead to better underwriting within weeks, not years.
Predicting risk requires truly big data, and Preverity has the largest analytic platform in the US. At Preverity, we have amassed extensive information on medical practice to understand how care delivery is evolving and relates to risk. Our advanced analytics enable us to streamline the workflow for malpractice insurance through automation. By accessing detailed information on the specific medical procedures performed by each physician and midlevel provider, MPL insurers can expedite decision-making and enhance accuracy, all while reducing costs.
Adding external data insights enhances underwriting—without major infrastructure investments or process overhauling. Contact me if you’d like to talk about the surprising ease of using external data to identify and underwrite risk. It works.
Gene Boerger, President and Chief Operating Officer
615-982-7076 | firstname.lastname@example.org