Developments in property underwriting - Innovate to accumulate


The development of innovations such as mapping technology have historically been a result of market losses instead of forward-thinking measures. However, Bernard Mageean explains that, in order to be truly successful, the insurance sector needs to turn this trait around and get ahead of the game

Perhaps it is a natural consequence of being part of an industry where past experience has historically driven future activity, but the insurance sector is not generally noted for business innovation within its own operations. This is all the more ironic given the hard-earned reputation of some sections of the market for being responsive and innovative when it comes to the insurance needs of policyholders.

Even where innovations are widely adopted - for instance, analytical risk modelling or, in the wake of the UK floods last year, mapping technology - more often than not such change is driven by market losses, rather than a desire to get one step ahead of the curve. This, in turn, means the focus of such innovation tends to be on containing or preventing a problem, rather than on how to shift the underwriting equation to the benefit of insurers and policyholders alike.

The property sector now has a real opportunity to change that pattern but only if it is prepared to grasp the wider possibilities offered by advances in mapping technology.

Much has been written about the applications of advances in mapping technology but all too often such commentary misses a key point. The benefits of such tools can only properly be realised if, at the core of the process, there are real underwriters that understand the value that should be put on a particular risk. It is about getting the right blend and balance between the skills of the portfolio underwriter and of the case underwriter in a manner that raises underwriting standards across the board, while delivering maximum value to insurer and policyholder.

Tools of the trade

In other words, as ever with innovation, creating a tool is only the first step. The real leap comes when people have the imagination to see how they can use a tool to significantly change the way they do business.

In itself, mapping technology is a very useful tool for identifying and managing accumulations of risk but when linked with other data sets that relate to the factors that drive claims experience - such as crime statistics, planning and building regulations, arson trends and unemployment figures - it can become an incredibly powerful real-time portfolio management tool.

It does not take a rocket scientist to see that real-time portfolio management offers a number of significant advantages. Critically, these are not just about controlling risk and exposures. If used correctly, it offers an equally powerful tool for new business development.

On the risk control side, the ability to better manage the cycle - to put in place real-time pricing adjustments that anticipate trends rather than react to them once they have fed through into loss data - offers clear benefits. Just as important, because of its ability to work as an early warning system, using data and modelling in this way has the potential to be as much about claims prevention as it is about loss experience cure. Armed with such information, insurers would be able to work in conjunction with risk managers on initiatives designed to target emerging problem areas early, so pre-empting possible losses.

However, perhaps most exciting of all from an underwriter's perspective is the way in which such tools better enable a portfolio view to be developed, which, in turn, assists in identifying new business opportunities. This reflects the fact that building a balanced portfolio is as much about the spread of exposure as it is about the quality of the risk. Knowing where a portfolio is under-developed is just as important as knowing where exposure limits have been reached, because this knowledge highlights target areas for growth.

Going beyond theory

As ever in life, turning theory into reality is a far from simple equation. Using technology in the right way and making the correct choices in respect of the data to use are critical first steps. How to interpret and apply the output of models to pricing is the greatest challenge.

To do this most effectively, a culture must be created that brings together the best of both underwriting worlds - blending the skills of the portfolio underwriter, which focuses on the overall direction and performance, with those of the case underwriter, which uses in-depth technical knowledge to price a risk.

At present, it is probably fair to say that most insurers tend to lead with either one of those approaches. In particular in the commercial property sector, portfolio underwriting is more often than not taking the lead. As a result of the demise of the branch networks, many insurers have retreated into big, centralised underwriting factories, so losing the local touch.

It is important to understand that every risk has a context. The overall risk appetite, direction and objectives of a portfolio have to be understood by case underwriters. Without local underwriters that have the necessary high-level decision-making authority and local knowledge, portfolio underwriting can fast become a blunt tool that is as much about excluding risk as it is about embracing opportunity. There is nothing wrong with making a strategic decision - for instance, in relation to core clients where there is a long-term relationship - to discount in the short term, providing that pricing reduction can be balanced out elsewhere.

Reaching potential

Equally, case underwriters can never perform to the best of their potential without the backing of sound analytics regarding the underlying dynamics affecting the risks which they are insuring. It is a simple fact that the technical price for a risk should not change because of the cycle. Costs might change, or an insurer's return on equity requirements might change, but the technical price is the technical price. However, without the information to determine the technical price in the first place it is very difficult to make an informed call on where and how pricing can be adjusted.

The importance of such potential developments should not be underestimated. Not only would real-time portfolio management assist significantly with cycle management but, due to a number of factors, the landscape of the UK property sector is also altering dramatically. As a result, rates and underwriting appetite need to change.

However, in order to be truly successful - to grasp the many opportunities that are out there as well as avoid the various pitfalls - the insurance sector needs to focus its energies on how it can start to tackle such issues before, rather than after, they become another major loss trend.

Bernard Mageean is managing director, property at QBE European Operations

Underwriting the property market - some key challenges

Property risk can never be regarded as a static equation. It is constantly changing in response to environmental, economic, political and social developments. To be properly equipped, underwriters need to be able to reflect how such changes impact on the nature of the exposures that they are insuring. The current economic climate is likely to have a number of implications for future claims trends. These range from the potential for an uplift in arson and crime to upwards pressure on claims costs as a result of general inflationary pressures, in addition to the pricing of commodities that are commonly used as building materials, such as steel.

Just as important, however, is the fact that recent demand for commercial and domestic property has led to more building in problematic areas such as flood plains or brown field sites. This not only means that flood exposures are increasing but also that the 'geography' of urban areas is altering. For instance, developments on inner city sites can adjust the balance and mix of local populations and commercial activities in a way that will have a significant impact on the pattern of local crime statistics.

Separately, the globalisation of business and the move to outsource non-core business activities has led to a far more complicated picture in relation to commercial property risks. Understanding the chain of interdependencies that now exist for many businesses, especially when it comes to customers' and suppliers' extension cover, is a key part of the equation. However, it is far from clear that rates have yet been realigned from the historic 'soup to nuts' business model to reflect this new business reality.

In broad terms, key areas of importance currently include:

- The impact of globalisation on business structure
- Changes in industry mix
- Industry interdependency
- Implications of technological development
- Climate change and resulting alterations to weather patterns
- Developments relating to planning permission and building techniques
- Crime and arson patterns

QBE's profile

QBE Group is Standard and Poor's 'A+' rated and consists of four geographically focused operational divisions: European Operations, based in London; the Americas, managed from New York; and the Australia and Asia Pacific operations, both managed from Sydney.

QBE European Operations, which accounts for almost 40% of QBE Group turnover, is a leading specialist in London market and European commercial lines business. QBE offers considerable diversity to the broking community; active in both the Lloyd's and company market.

QBE operates eight product-focused underwriting divisions: casualty, QBE Re Europe, property, motor, marine and energy, specialty, aviation - all of which have the ability to write on both Lloyd's and company market paper - and British Marine, the protection and indemnity specialist.

In the UK, QBE is one of largest insurers of business risk and is known throughout the market for its willingness to work flexibly in partnership with brokers. The QBE approach is to use its market expertise to understand the needs of individual clients and then tailor solutions to fit those needs.

Outside of its leading position in the London market, QBE operates seven UK regional underwriting centres in Birmingham, Bristol, Chelmsford, Glasgow, Leeds, Manchester and Stafford. Each centre offers property, casualty, professional indemnity and motor insurance on both a combined and a stand-alone basis.

For more information, visit

  • LinkedIn  
  • Save this article
  • Print this page  

You need to sign in to use this feature. If you don’t have an Insurance Post account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: