Underwriting v claims: who is at fault when the loss ratio is too high?

ILC’s MGA Claims Conference 2023 hosted a fair and frank panel debate which considered the implications of high loss ratios and asked: is underwriting or claims at fault?

Taking part in the debate were Dan Berry, Chief Underwriting Officer, Brown and Brown; Trevor Bowers, Underwriting Consultant, TMM Risk Solutions; Kath Mainon, CEO Claims Solutions, Davies Group; and Nikki Nagra, Director of Claims – Operations and Recoveries, Edam Group.

Before the debate, delegates were asked to answer a series of questions surrounding the issue of high loss ratios. The results were then presented to the panellists before they debated each question in turn.

Below we have produced the questions, the results from delegates, and an abridged version of the panel discussion that followed:

On a scale of 1-10, how would you rate collaboration within your company between claims and underwriting, with one being low and 10 high? 6.3

Dan: I think that’s about fair. Claims can be a bit of an afterthought. For MGAs, where claims are often outsourced or handled by the insurer, you have additional challenges as the handlers aren’t always your people. Collaboration has improved, but a lot more can be done and it’s key that from a business planning stage, claims and underwriting are being considered together.

Kath: There has been an improvement over the last few years; MGAs are smaller and more flexible so maybe they find it easier to get into collaboration mode than large insurers. But it has been a tough environment in the last few years and that has forced us an industry to collaborate more. We haven’t got time to point fingers now, we have to look for answers together.

Nikki: From a customer perspective, claims aren’t involved when policies are taken out. I think it is a good idea to take a claims colleague with you to talk about what happens at the point of claim so they know what to expect and a relationship between claims and the customer is established from the start.

Who is responsible for customer satisfaction following a claim? Claims 90%

Nikki: Claims own the journey. We’re the product at the end of the day. We have to hold the customer’s hand so we’re ultimately responsible for delivering on our service value proposition.

Trevor: The customer journey starts at the quote so underwriting also has a role to play. When the underwriter starts building the proposition for the customer, that will impact whether the customer has a good experience or not. As underwriters we can do a lot at the front end to help our claims colleagues at the back end. We can set the customer’s claims expectations and share that with claims team so their service aligns with what has been promised. That can help to bring the front and back end together.

Tom: Unfortunately, there are often technology problems hindering collaboration as you may have claims on one legacy system and underwriting on another. It should be simple to have all the information in one place so we can all see the same data, but as an industry we’re behind the curve on this.

Kath: The whole customer journey is determined at the FNOL stage of the claim, and if the claims department doesn’t have access to underwriting records it can be very detrimental.

Who is responsible for policy wording? Claims 27%, underwriting 73%

Dan: There is confusion over what policy wordings mean even within the same company. There is no need for wordings to be as complex as they are. Consumer Duty brings an obligation to simplify the language, but businesses have to make it priority or it won’t happen. And revising the wording once isn’t enough. Things are changing all the time to it needs to be regularly updated.

Trevor: We focus on building a rate book and algorithms and pricing structures, but policy wording is sometimes a poor relation.

Kath: There is great chance for further collaboration here. Claims will hear first if customers think they’re covered when they’re not. We should share that information with underwriters so if there is confusion around certain clauses and wordings they can address it.

Who is responsible for fraud underwriting and detection? Claims 94%, underwriting 6%

Kath: Detecting and avoiding fraud is a claims responsibility. We put an awful lot of effort into detecting and avoiding fraud and deploy increasingly sophisticated technology and data analysis techniques. But we cannot detect every fraud and we cannot avoid every fraud we detect. As the dialogue between claims and underwriting has become more pragmatic in recent years, there has been a recognition that we need to underwrite away from fraud. None of us can do it alone. We have to work together.

Dan: Underwriting has to take some responsibility for fraud. We’re onboarding customers and there are tools that can give us an idea of who we’re onboarding. We have to be aware through risk solutions so we understand who we’re insuring.

Trevor: The underwriting role is making sure you charge the right price for the risk they present. Data science can be used more to make pricing more accurate. If we get more information from claims around fraudulent claims, then we can link that up to the front end and get a better understanding of what type of person is more likely to commit fraud.

Who is at fault when the loss ratio is too high? Underwriting 80%

Dan: On the pricing point there is a huge obligation on underwriting to get that right. You have to keep looking at pricing and revisiting it because external factors will have an impact. There will always be bumps in the road in the short-term, so you need to get pricing right for the long-term. Catastrophe events are going to be very difficult to price in, and in the short term you can’t price them in, so it’s about taking a long-term, sustainable approach to pricing.

It is definitely an underwriting responsibility, but what happens if there is leakage or claims life cycles being extended? That has huge impact on loss ratios too.

Kath: We moved straight from pandemic to an era of unprecedented global inflation, which has gone into claims costs. In claims we’re thinking about how we can help our underwriters to price in these circumstances. Claims must capture and provide granular claims data so we can see precisely what is driving claims cost inflation, that will help underwriters price more accurately. We are also plugged into to our vehicle and building repairer networks and over the last 12-18 months we’ve been using that to get an advanced view of what’s coming down the line and feed that to our underwriters. So as well as looking back at inflation, claims people can help underwriters foresee what’s coming next.

Trevor: Pricing is critical to success and certainly drives loss ratio. But I think risk selection is underestimated. You’ll write a certain risk at a certain price, but the market won’t allow you to charge the right price. So you write the risk and know you’re underfunded. But you can turn those risks down. You can use data models to identify that risk and say no, you don’t want that risk – at least not at that price.

Key message?

Dan: Challenge the status quo and collaborate in new ways. It’s improving, but there is more we can do together.

Trevor: Data, detail, dialogue, and decisions: Get the data, examine the details, then have the dialogue around it to make good decisions.

Kath: Collaboration has improved in recent years, but we’re also more diverse. Those two things may be coincidental or they may not be.

Nikki: Generate the dialogue yourself. If they don’t speak to you, go and speak to them.

Held in association with the MGAA, ILC’s MGA Claims Conference was supported by Headline Sponsor Claims Consortium Group (CCG); Gold Sponsors: Activate Group, Carpenters Group, EDAM Group, Enterprise, LexisNexis Risk Solutions, Pulse, Value Checkers, and Wiser Academy.


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