The Perfect Storm on Policy Wordings – 6 Difficult Questions for Underwriters

We have seen of late the Perfect Storm on policy wordings:

– Commercial Insurance products increasingly becoming a commodity purchase based on price, not quality of coverage

– Focus of underwriters in recent times on risk assessment and price

– Policy wordings becoming dominated by compliance and regulatory clauses, with less focus on coverage

– An extended period of soft market conditions (prior to the last two years or so) resulting in considerable widening of many coverages

– Consumers’ expectations of All Risks and other policies of inclusion – i.e. everything is covered

– Underwriters who do not necessarily understand the full implications of the cover provided

– An emerging and systemic risk hitting a broad range of commercial insurances – i.e. the pandemic – being inadequately catered for in Business Interruption and potentially other policy wordings.

OUTCOME – large losses resulting from the pandemic for commercial insurers and serious reputational damage.

The way forward for underwriters should be illuminated by answering 6 difficult questions:

  1. What have we learnt from the Covid 19 pandemic, the resultant legal actions and claims costs?
  2. What focus do we have on policy wordings compared to risk assessment and pricing?
  3. Is there any difference between the cover provided by the wording and our intent?
  4. How do we control amendments to standard policy wordings and how stringent is our review of broker and MGA wordings we sign up to?
  5. Are we using the opportunity of hardening market conditions to tighten policy wordings where necessary?
  6. How do we train our underwriters in policy wordings?

Question 6 on Training fundamentally underpins our ability to solve the issues arising from the other five difficult questions and, if you like, sail through the next storm.

The need for training in policy wordings has interestingly been identified by many of the respondents to our recent survey – Impact of the Covid19 Pandemic on the technical & trading capability of the Insurance Industry

Our experience of working with many commercial insurers over the last five years is that training in policy wordings is a lost art, with little time given to it and little training material being available to support it. Furthermore, with remote working, training on the job has become more difficult and new entrants/inexperienced colleagues have suffered particularly – especially in technical areas such as underwriting and on detailed issues such as coverages and policy wordings.

In contrast, we have seen enormous effort by many insurers invested in improving the capability of their underwriters in the use of data for pricing and exposure management, to name two areas; in both of these relationships between actuaries, pricing analysts and underwriters have been transformed.

The impressive improvements in use of data could be totally undermined by lack of capability of our underwriters in other areas.

Now is the time in capability development to focus on policy wordings and issues of coverage, and if there are relationships issues to concentrate on – it is underwriters’ relationships with our claims colleagues and with legal specialists.

In fact, to ask one more “difficult question”:

How can an underwriter underwrite and sell their product unless they have an in-depth understanding of the coverage and therefore the policy wording?

At MAP Training we have considerable experience in the development of technical competence in insurance – in risk assessment, in pricing, in trading and sales skills and in building structured programmes for underwriters, including the critical issue of insurance coverage and the policy wording.

If you want to discuss this or anything else in this article please do get in touch.

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