Inside the Struggle to Transform Underwriting
Managing General Agents (MGAs) and Managing General Underwriters (MGUs) face continued pressure to deliver superior underwriting results while grappling with talent shortages and growing program complexity. Case in point – Everest Group, Ltd.
The global underwriting powerhouse’s pre-announced full-year 2024 earnings disclosure revealed a 45% drop in net income attributable to a $1.7 billion boost in its casualty insurance reserves. Predictably, the decision to strengthen reserves can be attributed to a combination of extreme weather-related disasters, social inflation, and early attorney involvement in claims were critical factors in the decision to strengthen its reserves. While Everest Group president and CEO Jim Williamson acknowledged these macro-challenges, he focused the bulk of his investor presentation on addressing internal problems. “It’s important to acknowledge clearly that our underwriting choices contributed significantly to these results,” he noted.
Most underwriters would agree, according to a 14-year longitudinal study of North American conducted between Accenture and The Institutes. the intersection of underwriting excellence, program management efficiency, and carrier relationships creates an urgent need for digital transformation across all aspects of MGA/MGU operations. But that’s not an easy feat when underwriter confidence is at an all-time low.
Compared to previous surveys conducted by Accenture and The Institutes, underwriters’ confidence in their processes and tools has deteriorated significantly. In 2013, 52% of respondents rated their technical training programs as “superior.” By 2021, that number had dropped to 34%. Similarly, frontline underwriting practices saw a steep decline, with 63% of underwriters rating them as “superior” in 2013, compared to just 46% in 2021. By a significant margin, the most frequently cited challenges in underwriting were inefficient systems, redundant inputs, and manual processes. Other notable obstacles included outdated or rigid systems, poor organization of underwriting data, and insufficient focus on training.
Technology: Friend or Foe to MGAs & MGUs?
Insurance distributors have made aggressive strides to adopt and invest in new digital tools, but underwriting has yet to experience efficiency gains. Seventy-five percent of P&C underwriters rated their organizations as ‘average’ or ‘deficient’ when it came to leveraging tools and technology to make underwriting work more efficient. Only 25% of P&C underwriters reported that at least 50% of the underwriting process is automated. P&C underwriters viewed the implementation of Robotic Process Automation (RPA), and Natural Language Processing (NPL) as particularly sub-par. Thirty-two percent of personal lines underwriters viewed their organizations’ use of RPA and NPL to be superior, when compared to commercial lines (16%) and specialty underwriters (10%).
Instead of reducing workload, underwriters believe these tools often add complexity, requiring them to switch between multiple platforms. One survey participant reported having to use 92 different digital tools in a single workday. Disjointed systems are a major reason insurers haven’t realized the full benefits of their underwriting technology investments. Not surprisingly, underwriters reported they spend more time on non-underwriting tasks. The study revealed that, on average, underwriters allocate 70% of their work hours to tasks unrelated to underwriting. Specifically, they spend:
- 40% on administrative duties, such as issuing policies, submission, or renewal preparation (data entry, data gathering)
- 30% on negotiation and sales support
- Only 30% on actual underwriting
One underwriter told researchers, “Underwriters have essentially become marketing executives rather than underwriting professionals.”
Will AI Be Underwriting’s Ace in The Hole?
As delegated authority arrangements become more sophisticated and data-driven, MGAs/MGUs must evolve their technological capabilities to meet escalating carrier expectations and maintain their competitive position. The implementation of Artificial Intelligence (AI) and InsurTech solutions offers MGAs/MGUs a powerful set of advantages that strengthen their position in the insurance value chain. These benefits span the core functions of delegated authority operations, from underwriting excellence to market relationships, creating sustainable competitive advantages. As program business continues to evolve and carrier expectations increase, these benefits become increasingly critical for MGAs/MGUs seeking to grow and maintain profitable programs. Here are 5 promising opportunities to leverage AI-powered innovation in the journey to transform underwriting.
Selling & Account Servicing
AI has improved how MGAs/MGUs engage with agent partners and policyholders. Advanced service platforms and automation tools are enabling more responsive, efficient service delivery while reducing operational friction. These technological capabilities are essential for scaling operations while maintaining high service standards across multiple programs.
- Digital service platforms for agents
- Real-time communication tools
- Automated endorsement processing
New distribution and sales enablement technologies are enabling MGAs/MGUs to optimize their market reach and program performance. Digital platforms and analytics tools are providing unprecedented insights into agent performance and territory opportunities while streamlining the submission process. These capabilities are particularly valuable for MGAs/MGUs seeking to expand their programs while maintaining underwriting discipline.
- Digital submission platforms
- Automated appetite management
- Agent performance analytics
- Territory optimization tools
Automation of Daily Tasks/Back-Office Automation
Advanced automation technologies are transforming how MGAs/MGUs manage their administrative and compliance obligations. Modern systems are streamlining critical processes like:
- Automated bordereaux creation
- Premium accounting automation
- Regulatory reporting automation
- Automated audit trails
This automation is especially important for MGAs/MGUs managing multiple programs with varying reporting requirements and compliance obligations.
Risk Evaluation & Pricing
Risk assessment accuracy is critical for success, and the integration of AI-powered underwriting systems represents a fundamental shift in how MGAs/MGUs evaluate and price risks. These advanced technologies enable unprecedented speed and accuracy in risk assessment, while maintaining consistent underwriting standards across programs. The combination of automated rules engines and predictive modeling is particularly valuable for MGAs/MGUs handling high-volume, specialized programs where rapid, accurate risk evaluation is essential.
- AI-powered underwriting rules engines
- Automated risk scoring and pricing
- Real-time exposure analysis
- Predictive loss modeling
Better Program Management via Access to Critical Insights
Program management requires sophisticated data analysis, and carrier expectations for data and analytics are increasing. Sophisticated analytics capabilities are providing MGAs/MGUs with unprecedented insights into program performance and profitability drivers. Real-time analytics enable more initiative-taking portfolio management and faster response to emerging trends. These analytical capabilities are becoming increasingly critical for maintaining carrier relationships and identifying growth opportunities.
- Portfolio analytics
- Loss ratio trending
- Exposure analysis
- Profitability modeling
Faster Quote Generation
Competition requires enhanced operational capabilities, and claims processing is no exception. Modern claims processing technologies are revolutionizing how MGAs/MGUs handle claims within their delegated authority. Advanced analytics and automation are enabling more efficient claims adjudication while improving accuracy in reserve setting and loss ratio management. These capabilities are crucial for maintaining profitable programs and demonstrating value to capacity providers.
- Automated claims adjudication
- Loss ratio analysis
- Claims pattern recognition
- Automated reserve setting
While these technological capabilities demonstrate the comprehensive scope of digital transformation in MGA/MGU operations, it is essential to understand the driving forces behind this evolution. The changing dynamics of program business and increasing carrier expectations create a compelling case for why this transformation is not just advantageous, but crucial for long-term success.
Same Challenges, Higher Stakes
MGAs/MGUs are experiencing a technological revolution that is transforming their underwriting and program management capabilities. The next wave of AI-powered digital transformation is creating opportunities for enhanced underwriting precision, improved program management, and more efficient operations. Success in this evolving landscape requires a careful balance of traditional underwriting expertise with modern technical capabilities. Underwriters that effectively leverage AI and InsurTech solutions while maintaining strong relationships with carriers and agents will be best positioned for long-term success.
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