The ‘truth’ about the ‘gold standard’ of unstructured data and AI

Underwriters understand the value of data, but perhaps not the ‘gold standard’ that is unstructured data. Especially when dealing with SMEs, it saves money, reduces loss ratios and makes underwriting departments more efficient – I wanted to find out more.

Getting a true handle on the risk of small- and medium-sized enterprises can be tough for underwriters and brokers. The manual effort can be inefficiently high, and the pricing hit and miss given the limited amount of information available to work with, and with no way of easily and reliably validating that data.

Those are some of the complaints I hear when I speak to senior brokers and underwriters everywhere, struggling to make decent profits in what is a highly competitive market. And this is becoming even more challenging with the growth of e-trading with more business moving online.

But imagine having thousands of pieces of data at your disposal which is also accurate, timely, complete and auditable – and which then also seamlessly combines to offer a better rating of a risk. What if your underwriting decision-making could deftly take into account information you never previously imagined having access to?

For restaurants, pricing might be partly informed by customer reviews and ratings on social media; for all risks, the previous convictions and financial records of directors would be sourced and thrown into the mix.

That is increasingly possible in a sector rapidly being transformed by technology. In my experience, those companies embracing that now will survive and thrive; those that do not, will eventually fall by the wayside as either their investors or customers or both lose faith in them.

Robots can be daunting

I completely understand from the many executives I speak to that the real-world use of artificial intelligence (AI) in underwriting can seem daunting; even executives with a decent understanding of the potential of AI may still baulk at the prospect of integrating new technology with incumbent systems – or scrapping them completely.

But the barriers to leveraging such technology are often much lower than many people think. What is more, the benefits can be realised quickly and can make a big different to both the cost base of an underwriting department and the profitability of its business.

In an extremely competitive market characterised by too much capacity and low margins, the willingness to seek an advantage by embracing such technology cannot be ignored – insurers that fail to invest time and money in leveraging the potential benefits will be left behind.

It is on such a basis that insurers are increasingly open to working with technology firms that can make a difference to their business – especially if the implementation of that technology can be relatively seamless and the benefits clear and immediate.

One company capitalising on this need is Intellect. Its products include Intellect’s Underwriting Workbench ‘Xponent’ and Intellect ‘Risk Analyst, which, combined, help companies both leverage many more sources of data while also making the underwriting process itself much more cost-effective.

Specifically, Intellect Xponent helps underwriting departments onboard commercial risks quickly and efficiently reducing the manual intervention needed. It scans documents and populates the necessary spreadsheets as required by a client offering a faster and seamless experience – and a faster turnaround time for their customers.

Intellect Risk Analyst will then assess the risk by enriching the data used by integrating many more data points into the analysis from numerous unstructured data sources and using AI to assess it and offer a more accurate risk profile – all while taking into account the underwriting guidelines and risk tolerance of the user. There is no longer the need to flex existing policy administration systems to accommodate these new data paradigms as there are systems now that are specifically designed to streamline the underwriting processes.

I caught up with some of the firm’s senior executives recently, namely, Pranav Pasricha, its CEO, and Nigel Kohler, its business development director of the company’s UK operations. Their perspectives on just how data is transforming underwriting was fascinating.

Not all data is equal

Nigel notes that, in the UK market, insurers and brokers increasingly understand the importance of data and are investing in acquiring and leveraging it. However, for most, this process is limited to acquiring what is often costly structured data – effectively the same raw material that every other insurer has access to.

What is far more valuable and has far greater potential to set companies apart from their rivals in this competitive arena, he notes, is the acquisition and use of so-called unstructured data.

“Some companies are spending a lot of money on data that does nothing to set them apart; the real gold standard is unstructured data; we collect data from many sources and allow our clients access to it at a much lower charge than they would otherwise be paying,” Nigel told me.

He noted that underwriters not leveraging technology may base their assessment of a risk on very few key pieces of data such as sector, number of employees, revenue, number of locations and loss history. Intellect’s systems assess some 2,000 data points for risks making it the most comprehensive system of its type on the planet.

This can also save clients money by scrapping the need for them to be acquiring third party data from other sources – often for vastly inflated fees.

He said the intellectual challenge for many executives in their perception of data is moving from what he calls the “single source of truth” myth to a more pragmatic “element of truth” where the process recognises that no one single source of data will always be accurate and so pools from multiple sources and runs AI over them to determine the most likely “truth” using triangulation.

When it comes to defining the quality of data, Intellect has adopted a mantra it calls the four Vs. These, Pranav explains, stand for: volume (it claims to have the world’s largest repository of commercial underwriting data); velocity (it is available and can be manipulated by users very speedily); veracity (it is of a high quality and always validated); and variety (Intellect is constantly unearthing new sources of data for its clients).

Short-term wins, long-term victories

All this sounds good, but companies want tangible benefits now – and something that is not a headache to implement.

Firstly, in terms of implementation, they explained that Intellect offers its products via the cloud, making installation, integration and updates much easier. They also run alongside existing systems meaning no fundamental overhaul of any legacy systems is required. “It cohabits with what they already have though in many cases it will also reduce their reliance on other systems,” Pranav told me.

The benefits are also tangible. A number of confidential case studies from their clients confirm that Intellect’s products, by automating many tasks currently done manually, increase the efficiency of an underwriting department by as much as 70%.

Some of the tasks targeted by this process include validating submitted data before automatically integrating it with existing systems. It gets rid of a need for manual rekeying for missing/incomplete/wrong data and the manual validation of the data. “This frees up underwriters to do more risk analysis and assessment work,” Nigel said.

All this is particularly significant, of course, against the backdrop of Lloyd’s recently released strategy document detailing a pathway to greater efficiency in the market.

But probably the biggest advantage is simply getting a better handle on the risk. This allows them to price it more accurately, having a positive effect on loss ratios. It also reduces so-called data leakage – whereby a premium is reduced or lower than it should be because certain key facts and data points relating to a risk are unclear or unavailable.

Finally, another advantage is that the system can prioritise applications that underwriters should deal with first based on the best opportunities and their underwriting appetite. This stymies the loss of business to rivals.

In terms of what is prompting companies to invest in technology, I constantly observe the real fear of being left behind now – but it is not a fear, it is a reality.

Companies that invest in these new tools will put themselves in a better position to compete than those that do not. Their costs will reduce, their service will improve, and they will be able to price risk more accurately, effectively and thus profitably.