Has underwriting become harder (and should people buy insurance care?)

The financial products industry has used underwriting since the eighteenth century. However, underwriting has become a lot harder in the contemporary age because of many uncertain factors like environmental changes, economic disruptions, and more. Over $21.2 billion worth of underwriting losses were faced by the property and casualty insurance sectors in the US. On the environmental crisis side, there have been almost 28 billion-dollar disasters in 2023 alone, the scale of many of which was unprecedented at the time. All these things make it hard for underwriters to predict the right strategies to plan for claims and insurance required.

However, do consumers who buy insurance policies care about these changes in the underwriting space? Or does this in any way alter or have an impact on insurance? Let’s look.

Why has underwriting gotten harder?

  • Economic conditions

A few months ago, the US was among the worst-hit major economies with inflation rising rapidly. When inflation reached 9.1% in 2022, even basic goods like eggs became excessively expensive. This led to the coining of the intriguing term “eggflation” later in 2023, marking how a basic item like eggs became a premium product for a certain period. These kinds of things, or macroeconomic phenomena, can have a significant effect on all industries, insurance in particular. Underwriters find it increasingly difficult to project premiums and cover when costs for healthcare, building, repair, etc. are rising at such breakneck speed.

  • Natural disasters

As mentioned above, the US saw over 28 billion-dollar disasters in 2023, which were very taxing on the insurance industry. Due to climate change, such problems seem to be recurrent. The US faces a harsh time because of mixed weather conditions, be it heat waves, cold waves, tornadoes, floods, earthquakes, wildfires, and others. As these natural disasters impact different regions, demographic complexities make it harder for underwriters to navigate the complexity of the scenario.

  • Technology influx

Over 40% of an underwriter’s time is lost on non-core and administrative tasks, according to an Accenture report. Over $160 billion can be lost in efficiency over the next five years because of this. AI (artificial intelligence) and other technologies are being used more and more in underwriting. With so much data available for access and input, the process is becoming increasingly reliant on technology. However, the industry is finding it difficult to use technology completely because of the upcoming regulations for the safe use of AI. The system is in flux. This puts underwriting or the entire insurance industry in a state of ongoing transformation.

The insurance and underwriting industries also have to deal with data protection laws, onerous standards and regulations, and other issues. In the digital age, underwriting is challenging due to all these factors.

For those who need these services—small business owners, individuals, and more—all these factors have a significant impact. Let’s look at how big the impact can be.

Impact on insurance for small business owners

  • Increase in premiums

Natural disasters, technological advancements, and economic shifts have all contributed to premium price increases. Insurance firms must make investments in models that can select the best underwriting procedure for each applicant, determining the ideal deductibles, rates, and other factors. Small business owners and individuals have ultimately been burdened due to some underlying underwriting challenges as a result of all these added costs over the past couple of years.

  • Claims processing and investigation

On the plus side, technology has made the processing of claims much simpler. The insurance industry is also gradually transitioning to automation, which makes it possible for claims to be automatically processed and investigated, keeping policyholders informed at every turn. On the other hand, if we consider claims for natural disasters, the process may take a little longer than usual. This is because of the seriousness of the circumstances and the potential complexity of the investigation process, which causes claims to be delayed.

  • Customization demand is on the rise

Small business owners and individuals want customized quotes to protect their assets in their specific circumstances. Business owners do not want to pay for unnecessary items when it comes to insurance. Reports indicate that uninsured rates in the US have been gradually declining. This has occurred because of the availability of personalized policies that are made especially for individuals and small business owners, as there is no one-size-fits-all solution. Creating risk profiles and tailoring the policies will only become more common and will have a lasting effect on those who purchase insurance and it has become possible with smarter underwriting.

  • Availability of innovative policies

A trend of comprehensive policies and add-ons has emerged of late. Various policies are available to address specific gaps, contingent on the nature of the business and its prerequisites. This enables coverage for various kinds of liability risks in addition to natural disasters. Small business owners can smoothly navigate their day-to-day (and unusual) challenges thanks to a variety of creative policies in place.

Small business owners must constantly evaluate their risk profiles and fill in any gaps with more complex policies that protect their assets and operations in this ever-changing economic scenario. If you are a small business owner, please contact us so that we can examine your current insurance strategy and perform a risk assessment. We can assist you in identifying the risk areas and creating robust mitigation strategies that are right for you.