You're probably right. From my vantage point (in an independent agent insurance office right now), the easiest way to shrink UW is to make it ALL run by independent workers (e.g., agents).
The irony of this, though, is that the quality of the underwriting risk assessment can suffer, meaning premiums will often be underpaid relative to statistical risk, and create more problems if enough of them push through.
Another money-saving trick I know of in insurance is to severely downsize the claims department. It's lawfully mandatory to process claims, but I'm not sure if there's a statute on how long to process them. One of the carriers my office hates working with can take 3-6 months to process a claim, and often will find some reason or another to not pay it.
If anyone wants a pain point, the insurance industry desperately needs a decent-quality rater/AMS: the tech and UX is hilariously ancient.
> Another money-saving trick I know of in insurance is to severely downsize the claims department. It's lawfully mandatory to process claims, but I'm not sure if there's a statute on how long to process them.
P&C companies have mandatory requirements for how long it takes to handle claims. During catastrophic events, those timelines are usually extended: because it can be dangerous and there are lots of claims.
Adjusters want to get paid and they don't get paid until the claim gets closed. So it behooves them to work quickly.
Do insurance policies get packaged and sold as financial products, or are they re-insured on the backend but continue to be held by the originator?
Related, at what point of policy origination/reinsurance are standards audited and applied? I.e. if I originate a mispriced policy, where does that get noticed/rejected?
> Do insurance policies get packaged and sold as financial products, or are they re-insured on the backend but continue to be held by the originator?
I've never seen this happen. Smaller carriers carry re-insurance since most smaller carriers are limited geographically and it's entirely possible a big-enough event would cause an issue where they couldn't pay out to cover all claims. State-based carriers (smaller farm mutuals, for instance) could be VERY susceptible to this.
In Texas after Hurricane Ike this caused a slew of changes to our underwriting guidelines along along the coast with rate changes and where we focused on recruiting agents and policies. (e.g. recruiting further north and west).
> Related, at what point of policy origination/reinsurance are standards audited and applied? where does that get noticed/rejected?
A lot of policies are bound for 30 days initially and then can be cancelled if the underwriting guidelines fail for the policy. Some companies may not even bind coverage until after underwriting is completed. As an agent if you sell a policy that isn't priced correctly, MOST of the time it gets caught by underwriting. They have ranges of limits that you can go between. For instance, normally contents coverage on a house can be some percentage of the insurance home value (let's say 40% to 120%). Let's say your house is insured for $250k... but you bought a $120k brand piano. Normal contents coverage might be 80% = $200k for your clothes, computers, electronics, kitchen stuff, etc, etc. That piano would require you to either 1) exceed 120% (which would require EXPLICIT underwriting approval) or you'd have to get a rider/endorsement for a special item. (which would likely also require more underwriting approval.)
I have my own essay that tries to summarize it[1], but the entire idea of insurance is to work with pure risk:
- Speculative risk is when you might gain from big events (e.g., VC)
- Pure risk is when you will only lose from big events.
The entire job of an insurance company is straightforward: take a little bit of premium calculated by actuarial data (historically represented as a table), then pay out large checks to the people who have an unlikely event.
I have a prevailing axiom that 3-10% of the population makes it difficult for the rest of us, and insurance gets complicated for that reason:
- people lie about claim damages
- claims adjusters sometimes find legal ways to not pay claims
- actuarial/legal framing can allow non-coverage of something that ought to be covered in good faith (e.g., driving your car out-of-state)
Now, that's the POV of the insurance company, which sets some context I wish I had had.
The POV of the party seeking insurance is that they're transferring pure risk, then paying rent to the insurer for it. It's possible to recurse this, and an insurer can become the insured by packaging up a bunch of risks and hand it off to other insurers for a price. I'm not THAT knowledgeable, but it wouldn't surprise me if that's what insurance orgs that took on too much risk actually do relatively often when they got a bit ambitious.
The tech world could actually learn a thing or two additionally from insurance. The secret to a functional insurance company with a liquidity issue is to, effectively, do nothing and wait for customers' insurance premiums to replenish the money supply. "Do nothing" is the exact opposite mantra of "Move fast and break things", and there's a time/place for both!
The irony of this, though, is that the quality of the underwriting risk assessment can suffer, meaning premiums will often be underpaid relative to statistical risk, and create more problems if enough of them push through.
Another money-saving trick I know of in insurance is to severely downsize the claims department. It's lawfully mandatory to process claims, but I'm not sure if there's a statute on how long to process them. One of the carriers my office hates working with can take 3-6 months to process a claim, and often will find some reason or another to not pay it.
If anyone wants a pain point, the insurance industry desperately needs a decent-quality rater/AMS: the tech and UX is hilariously ancient.