Picture price-setting by a busy London Market underwriter during a renewal season… Using Excel they can easily code their five insurance pricing factors to reflect whether they like the broker or not. Then they can use some Excel macros for rating purposes (or for the more sophisticated, it might even be a short piece of Python code manipulating Excel entries). Sound familiar?
Why is it that in 2021 the industry is still in love with Excel, a product launched in 1985 before the Queen even opened the Richard Rogers’ Lloyd’s building, for insurance pricing? Not to mention for finance, bordereau, and many other functions!
The short answer is that Excel is easy to learn, results are visually at your fingertips and you can code complex formulae. However, Excel is also difficult to track, audit (or version control), prone to hard-coded errors within complex formulae, and large legacy spreadsheets are next-to-impossible to modify or even understand. Excel is also often author-specific “Our Excel expert was a wizard, took no time to build solutions with sophisticated macros and Python code, however, she’s now moved on and with her it appears so has much of the knowledge of what was where and why!”… Again, sound familiar?
Our specialty insurance colleagues in the US moved some time ago to industrial-strength purpose-designed rating tools, like CGI’s Ratabase. Tools like these are extremely easy to use (like Excel), but are also fully auditable, connect to external data sources to enhance pricing, and work seamlessly with any digital-trading platforms. This also aides global distribution of automated rating rules with just 1-click to go ‘live’; how quick is it to globally distribute an Excel spreadsheet?!
So, is it time to start a new love affair?
To get an idea of what the market experts think, I asked around. Please see their thoughts and comments below.
Dave Matcham - CEO, International Underwriting Association London (IUA):
“I agree that rating engines must be better than cumbersome spreadsheets. Underwriters have long suffered at the hands of detailed spreadsheets sent in as a basis of underwriting a complex risk. I sense that those ways of trading are fading away and instead data driven engines are becoming the way forward as part of the future of underwriting. Combining such digitalisation with the human element will always be important though in the London market.”
Chris Newman - Managing Director, Global ACORD:
“There are a growing number of enterprise rating engines that are gaining traction within the London Market. As we saw in general insurance, they are a natural evolution as a way for the industry to manage pricing, real-time distribution, regulatory and underwriting controls, data enrichment, renewals and endorsement processing, and better access to product choice – not to mention the significant cost and processing time savings to be gained for the less complex risks. The benefits are simply too great to be ignored. Spreadsheets are a powerful tool that play a role and can be integrated into a full solution, but they are no match for an enterprise insurer rating and distribution platform that’s capable of so much more.
Insurers are facing a growing volume of distribution partners, as well as an ever-growing portal ecosystem that they provide rates to. Speaking from prior underwriting experience, insurers need to manage these in a more efficient manner from the centre, and allow direct access to anyone they wish to distribute to.
ACORD are working on a number of exciting strategic projects in this space and are dedicated to ensuring connectivity and interoperability for all stakeholders in the end-to-end distribution chain, from coverholder to capacity and everything in between. By promoting adoption of global data standards, and API’s utilising industry-owned digital accelerators connected to established market leading rating solutions, our 36,000 members can benefit from improved data exchange throughout the rapidly evolving global insurance ecosystem.”
Kirstin Duffield - Managing Director, Morning Data:
"It really gives you the context when you send some information to an “experienced” developer, by that I mean with 40 years plus experience and they have no idea how to sort, filter, or use Microsoft Excel spreadsheets. This brings it home, Excel is not computing and yet the movement of data using the convenience that humans relate to has become the de facto. Overlay the myriad of data ethics problems those actions attract and we have to step back and recognise this is not a situation we should be promoting, in fact it is overdue that we need to move away from and quickly.
All the while the amount of data being moved, copied, recopied, sorted, augmented and sliced and diced has grown exponentially. It is not just about adding a password to protect the one copy you are attaching to an email it’s the whole network of places and impacts this data has passed through. As such, just like the London Market Insurance community has felt the MS Word journey, it is NOT about extracting data from a slip it’s about creating a slip from the data. Manage your data properly, govern it, and adhere to standards in formats, references as well as ethically, technologically and structurally. It is not actually as hard as people make out, it is about having a willingness to do it!"
Robin Merttens Co-Founder and Partner InsTech London:
"In most walks of life loyalty and fidelity are admirable traits, but not in the world of data and technology where they act as a drag. It wouldn’t be too bad if the love of spreadsheets was specific to formulas and calculations, but they’re used as the data transport mechanism of choice for the London market too! Enough is enough. See the forthcoming InsTech London report on Algorithmic Underwriting in Commercial insurance for how I think we should be evolving from here."
With ever increasing volumes of data points available allowing for increasingly sophisticated techniques to analyse them, this should clearly be a call to action for those insurers who wish to gain a competitive advantage and harness the benefits that an auto-rating tool can provide.
I’d love to know whether you agree with any of the points made in this blog, and if you’d like a wider chat around rating software, please get in touch.
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