“You Must Unlearn What You Have Learned” - Underwriting Success
In The Empire Strikes Back, Yoda gives Luke Skywalker some sage advice, “You must unlearn what you have learned.” With so many changes in insurance and technology, we would be wise to also consider this advice.
1. Unlearn what we first feared about some occupancies.
As underwriters, we become comfortable with well-thought out underwriting processes helping us to reach logical outcomes on similar risks each and every time. With experience we become familiar with and learn to trust our models and tools.
However, technology is changing so quickly that risks and tools are changing, too. It’s what keeps this job so interesting.
Recent natural perils events (2010 to the present) have given scientists fresh new data, and along with analytics, our models and tools are better than ever.
Advances in technology are also constantly changing the risk for some occupancy exposures.
Take the printing industry, for example. Years ago, printing was a messy business that involved cleaning print blocks of characters with kerosene or similar solvent in open baths.
Now the printing industry is mainly a spotlessly clean automated occupancy that uses very small quantities of acrylic ink. These advancements have greatly reduced sources of ignition and fire load, compared to 40 years ago.
2. Unlearn how business interruption can affect a loss.
Today business interruption risk is the biggest disruptor facing the printing industry. Computers are now so integral to the printing process that even minor accidental property damage to computer and control equipment can cause large losses. New technology, materials, manufacturing methods and types of construction can all bring a change to the risk.
3. Unlearn how construction materials and occupancies can influence the size and frequency of fire loss.
Consider the construction risk associated with multi-story apartment residences in earthquake prone locations. Recent advances in wood frame technology have led to large apartment complexes utilizing laminated wood beams and plates for earthquake resilience. While reducing the earthquake risk, this has greatly increased the fire risk during the construction phase. The recent New Year's Eve hotel fire in Dubai may also have been affected by new construction materials and techniques.
Models and tools must continually adapt as risks change. But most importantly, we need to continue to apply the "Does this look right?" test to model outcomes.
4. Unlearn the wisdom of the market.
As underwriters, the continually changing landscape can make us less sure of our loss cost.
This current environment is no guide to correct pricing as it is too easy to become anchored by what we are hearing in the marketplace.
Having a line in the sand to anchor our decisions, along with models, tools and underwriter judgement, is the only way to ensure an underwriting profit.
If you feel insecure about pricing or want a second head to check “Does this look right to you?”, please reach out to a Gen Re colleague; we are happy to help and share ideas.