Renewal trends and the changing role of the property underwriter

By Authored by Laurent Richème Chief Underwriting Officer for Property, Construction and Energy, APAC & Europe, at AXA XL

The European property insurance market is gearing up for renewal season. Laurent Richème, Chief Underwriting Officer for Property, Construction and Energy, APAC & Europe, at AXA XL, discusses current market trends and how the role of the underwriter is changing.

As we approach the European property renewal season, several trends are clear. After a string of natural catastrophe losses throughout the year, buyers of property insurance can expect the market to remain challenging for the time being.

The natural catastrophes events that occurred in 2021 – floods in Europe, cyclones and freeze events in the US, wildfires, etc. – add to the long list of recent major events that saw 2017, 2018 and 2020 be among the five costliest years of the past two decades for public and private property insurance/reinsurance entities. These events, coupled with tension on supply chains, social instability in various parts of the word and the low interest rates in financial markets, mean the threshold for profitability for property insurers is higher than it was at the end of the last hard market cycle in 2004. And this will have an impact on the premium clients can expect to pay, and terms and conditions for their property coverage, especially for the most sensitive ones, such as natural hazards and contingent business interruption.

In this context, and though it isn’t necessarily a new trend, the amount and quality of data that clients are able to share about their exposure is critical as it allows underwriters to develop solutions that align more closely to their underlying risks, with pricing and terms and conditions reflecting those.

Words as well as numbers

Insurance industry insiders have often posed the question; is underwriting an art or a science? Certainly, as the quantity and quality of data available to us has increased, the ability to understand that data has become an ever more important underwriting skill.

But underwriting is not just a numbers game. It’s about wordings too. Underwriters need the skills to be able to analyse wordings, to find ways to ensure that what is covered by policies accurately reflects all Parties’ intention.

On the day of a loss, the essential thing for a client – and indeed for its insurer – is the wording of the policy and what is, or isn’t, covered. The COVID-19 crisis has reminded this to all parties.

The future

The increased use of data is changing the skills needed by underwriters and the way in which we work. But this is nothing compared with the advances on the horizon.

An increasing use of technology – such as satellite imagery and the Internet of Things – will change the role of the underwriter still further. This technology will release underwriters from low-value-added tasks and free them up to perform more value-added roles. Underwriters will need to be skilled not just at analysing the data gleaned from this technological progress but also in being able to clearly communicate the solutions they are proposing to clients and the underlying criteria influencing these.

In the future, risk selection will be even more granular as technology enables us to gather ever more precise location data. This is good news for clients as it will mean that their premium is even more closely correlated to their own loss experience and risk profile. Underwriters will need to rely less on historical loss averages to calculate premiums and write coverage and instead will be able to gain even more accurate insights into clients’ risk profiles.

In turn, this will enable underwriters to help their risk manager clients more accurately communicate about their cost of risk; this should help risk managers in conversations with the C-Suite and financial teams about investment in risk management and the cost of risk transfer.

I have been a property insurance underwriter for more years that I care to disclose! I have seen the market go through various cycles and have experienced at first hand the advancements in technology that are going to drive us to develop our underwriting skills even further. We are on the cusp of big change. The role of the underwriter is evolving – for the better. We will likely see a shift from static to dynamic underwriting. And I am excited for the progress that lies ahead as we enter a new phase for the insurance industry.