At the heart of the insurance industry is where you’ll find the underwriting process. Whether in health or travel insurance, part of the remit of the underwriter is assessing the information at hand and analysing risk.
Historical data is combined with expert judgement to evaluate an evolving set of risks, but with the nature of risk changing and becoming more complex, insurance underwriting must adapt. The unprecedented Covid-19 pandemic disrupted the relevance of historical data, which in turn impacts the accuracy with which future
trends and exposures can be predicted.
“With so much change in the industry, it’s difficult to base any underwriting activity on data we garnered pre-Covid-19. Much of that data has become largely redundant,” Jochen Heinemann, Head of Underwriting Europe for Travel, Allianz Partners, told ITIJ.
The underwriter is aiming to achieve the perfect balance between offering coverage that is attractive to the consumer and profitable for the insurer. “It’s important that underwriters have the skills to drive profitable business while also ensuring fair value for customers,” said Dipesh Patel, Senior Travel Underwriter at Allianz Partners. “It’s important that there’s a balance between both – the customer has to be placed at the heart of the policy and it needs to be fair for them.”
What do consumers want? Great value policies, policy benefits such as flexibility and, of course, cover that gives them peace of mind. Working to improve the customer experience and enhance efficiency and decision making throughout the underwriting process, against the backdrop of shifting consumer expectations and evolving risks, is no easy feat, but travel and health insurance underwriters are doing just this.
Overcoming underwriting challenges post-pandemic
Underwriting involves assessing the likelihood of an event occurring and the potential financial impact of such an event. Nobody could have predicted the Covid-19 pandemic and the dire repercussions, financial or otherwise, and there is no denying that it disrupted risk analysis. Richard Bader, CEO of ERGO Reiseversicherung, detailed the impact of the pandemic on risk models. “Performance is predictable and stable when underlying insurance assumptions remain largely unchanged such as composition of insured business, consistency of trends over the years and external macro-economic factors,” he said. “Travel insurance during the ‘Covid years’ was particularly challenging, where these core assumptions went through material changes, meaning credibility of risk models reduced considerably.”
With so much change in the industry, it’s difficult to base any underwriting activity on data we garnered pre-Covid-19. Much of that data has become largely redundant
Heinemann shared his thoughts on how the pandemic has changed consumer behaviour: “The Covid-19 pandemic has significantly altered how we approach underwriting within the travel and health insurance business. The manner in which travel and booking behaviour has changed is perhaps the most obvious challenge today. Interest in destinations associated with high medical costs, such as the US and Mexico, has fluctuated dramatically. Travellers are also booking their trips at shorter notice than before the pandemic.”
Heinemann also pointed out how the improved flexibility of airlines post-pandemic has led to fewer trip cancellations. “Since the pandemic, airlines have been showing greater flexibility regarding rebookings, and we have seen fewer claims for trip cancellation. But there is no guarantee that airlines will not return to their older policies, meaning that we will need to continue to monitor our underwriting and pricing activity carefully,” said Heinemann. There is no room for the underwriting industry to rest on its laurels as external factors, such as airline policies, never remain static.
Patel agreed that the environment is more challenging in the wake of the pandemic. “While Covid is now treated like any other medical condition, when new variants arise it’s important to see what impact they will have and whether it has an impact on pricing and cover,” he stated. “It’s also true to say that there is a changing cost base postpandemic, particularly in US hospital costs.”
Bader also commented on the impact of the pandemic, short- and long-term, on health insurance: “In health insurance, lockdown meant reduced engagement between medical services and customers with medical conditions. This in return has meant medical declarations perhaps aren’t as accurate as they have been in the past, which has a knock-on effect on underwriting, pricing, claims etc. Similar to travel, health has also needed to expand qualitative analysis to ensure evolving and emerging risks are being identified and quantified.”
Detlef Gastner, Corporate Underwriter and Product Manager at Foyer Global Health, is another industry expert who shared his thoughts on the challenges facing health insurance underwriting since the shockwaves of the pandemic. “During the lockdowns, the consumption of health services was massively reduced. In the following periods this was compensated,” he said. “These facts have to be taken into account while projecting customer needs into the future. Generally it is becoming more challenging to find proper and usable data to work on.”
An inflated sense of unpredictability
In addition to the significant ongoing repercussions of the pandemic for travel and health insurance underwriting, there have been environmental issues to contend with for travel underwriting.
Since the pandemic, airlines have been showing greater flexibility regarding rebookings, and we have seen fewer claims for trip cancellation
“This summer we have experienced environmental challenges, which have had a considerable impact on travel,” pointed out Patel. “In Europe, for example, we’ve seen both wildfires and floods. We have to ensure we keep our customers informed of what compensation they are legally entitled to from their travel providers, as well as the cover that is available to them under their
insurance policy. If these weather patterns become the new norm, as underwriters we will have to take these disruptions into account when pricing the insurance policy and look at our products to ensure they meet any new client requirements.”
Research conducted in 2022 by GlobalData found that more than one-third of insurance industry insiders considered inflation to be the key challenge of that year and this has proven to be a difficulty for travel and health insurance underwriting, impacting on all claims expenses and affecting the profitability of underwriting. “As is the case in all other industries, insurance isn’t immune from the impact of inflation,” said Heinemann. “Trip cancellation became a common occurrence following the pandemic. That has since been replaced by actual inflation. But we have also seen an increase in costs for drugs, doctors, hospitals etc. that cannot be explained by inflation only. It means the future is becoming very difficult to predict for underwriting.”
Gastner agreed: “For the first time in this millennium we are facing massive global inflation. We can observe a changing behaviour in all our target groups, following the development of new working models, that has a massive impact on the mobility of our customers.”
Delving into how health insurance consumer behaviour is changing, Gastner said: “Customer requests for additional services such as support on mobile devices (e.g. e-doctors) is increasing and, as a result, we face an increasing requirement of a third-party service that has to be integrated or connected to the traditional coverage of health recovery benefits.”
Patel agreed that consumer needs are changing and flexibility is key for underwriters. “Customer needs are continuously evolving and it’s important that underwriters embrace flexibility in order to meet these needs,” he said. “One important tool is collaboration, which needs to take place across the organisation.”
One notable change in consumer behaviour, according to Bader, is a greater understanding of the importance of insurance. “Post lockdown, awareness of insurance and its benefits is heightened in society, meaning the propensity to buy insurance and to claim are greater than they have been previously,” he said.
“Increasing customer demand and awareness is accompanied by a strong regulatory push to evidence and ensure that insurance propositions are fair and just to the customer.”
Knowledge sharing is power
With these shifting challenges and expectations, travel and health insurance underwriting must make sure that it is equipped with the necessary tools to succeed. Patel expanded on the crucial role of collaboration: “At Allianz Partners, we work closely with a number of teams: product innovation, claims, compliance and complaints teams. This ensures we have clarity of cover and that we understand our customers’ needs and expectations and how these are changing. Doing this means we can be confident the product provides fair value to our customers. We can then modify our policies to ensure they meet the needs of our target market.”
Heinemann agreed that the importance of collaboration can’t be
overstated: “Insurance underwriters need access to a large network
of key stakeholders and peers internally, such as claims handlers, as
well as access to market and industry sources externally to be able to
assess trends and developments.”
Customer needs are continuously evolving and it’s important that underwriters embrace flexibility in order to meet these needs
He also highlighted the importance of a global database containing centralised, accurate data: “While an underwriter may be working for a domestic travel insurance company, the business is still international. They therefore still need to have access to a harmonised international database with claims data from around the globe which can capture trip dates, destinations, suppliers etc.
For underwriters working for a global travel insurance company, such a database is even more of a necessity. Within this database, it’s also imperative that claims departments enter data accurately and promptly.”
An invaluable cog in the insurance machine
Reflecting on the role of the insurance underwriter, Bader said that the position of the underwriter of today expands beyond profitability and portfolio responsibilities. “They need to regularly review internal and external benchmarks to understand customer sentiment and satisfaction. The ability to collate and analyse such information is crucial in product design and delivery that will capture the customer’s attention,” he stated. “Such continuous demand analysis will also help the underwriter understand how risk exposure for each insurance peril could transpire in the medium and long term. Underwriters also need to have a solid understanding of compliance and regulatory considerations and how to take relevant guidelines and policies and convert them into evidenceable and evolving processes.”
Underwriters are invaluable to the insurance industry, applying analytical skills to navigate complex processes. “Underwriters clearly bring a lot of value to insurance businesses in today’s landscape,” affirmed Heinemann. “They are familiar with advanced mathematical and analytical methods, exhibit analytical mindsets, and boast clear business acumen on a daily basis. They tend to come from different professional backgrounds, as opposed to through one specific career path, and usually undergo continuous professional development throughout their careers.
“In my personal experience, underwriters have a passion for lifelong learning that they bring to their day-to-day work. Within their line of work, the only certainty is change, so an analytical and business-orientated mindset is a prerequisite for success. Effective travel underwriters have many qualities: they are fantastic team players, meaning they can work with various internal stakeholders; they have an international mindset due to the nature of the business; they’re good decision makers; and they can anticipate trends and update pricing models as appropriate.”
Looking ahead, given the many continually changing factors within insurance, the role of the underwriter is one that must be willing to adapt and ready to continually evolve. “As with very many disciplines, it is unlikely that any role can afford to remain static,” said Bader.
Those who adapt to an evolving insurance landscape are likely to fare better than those who are reluctant to incorporate changing market practices and realities into their daily routine
He highlighted some of the most prevalent changes and the resulting need for adaptability: “Insurance is in a constant state of flux with changes in carrier capacity, reinsurance appetite, customer demands, explosion of data availability and waves of technology challengers. In the case of underwriters, as is the case with the wider insurance value chain, those who adapt to an evolving insurance landscape are likely to fare better than those who are reluctant to incorporate changing market practices and realities into their daily routines. A curious, dynamic and adaptable underwriter is highly likely to have the skills required to drive profitable business. Such personnel will be best placed to leverage changing data, modelling and technology practices, and have a good understanding of how to continuously incorporate said information streams into their disciplinary practices.”