It is well known that the insurance industry is facing a combined ratio crisis. For a variety of reasons, most of them out of the control of both insurers and their customers, it is simply more expensive to make policyholders whole following an incident. Further, severe weather incidents and other natural disasters have created an environment where a greater number of claimants are filing higher value claims, exacerbating the situation. Whether due to regulatory or competitive conditions - or both - only raising premiums to cover claims losses is not a tenable solution. I covered these factors in an earlier piece: The Combined Ratio Problem: Closing the Gap Between Claims Costs and Premiums Using AI.
The good news for insurers is that there are options available to significantly improve combined ratios by applying artificial intelligence (AI) to a number of key processes governing the policy and claims lifecycle. For this article I will focus on the role that mitigating underwriting risk can have on the combined ratio and explore the various ways that having an effective underwriting risk strategy in place can improve the bottom line.