The Role of Human Judgment in Property and Auto Insurance Underwriting

Insurance underwriting, particularly for property and auto insurance, has seen significant strides in automation through advances in technology. However, despite these advancements, the role of human judgment remains integral to the process. This article explores the limitations of fully automating underwriting, the reasons why human judgment is still essential, and the ongoing challenges in achieving automation in a field marked by uncertainty.

Human Judgment vs. Automated Underwriting

Can Insurance Underwriting for Property and Auto Be Fully Automated? The answer, despite impressive technological advancements, is a resounding no. While computers can efficiently apply underwriting rules based on large sets of historical data, the complexity of insurance claims necessitates a human touch. Insurance underwriting is akin to reversing a car out of a massive window, where we have a broad view of the past but a limited look at the future. This inherent uncertainty makes full automation impractical.

For instance, an insurer might be able to decline a risk with a DUI on record, given that the individual has an otherwise clean driving history over many years. Even with automated systems, qualifying exceptions and making judgment calls remain essential. Insurers have the discretion to give "good people a second chance," as one example shows. This human element ensures that the system remains flexible and fair, adapting to unique cases that one-size-fits-all solutions cannot.

Current Capabilities and Challenges

Can Current Risks Be Fully Automated? Theoretically, yes, underwriting certain risks could be fully automated if the conditions are right. For auto insurance, automated systems can already handle tasks like auto-rating, price optimization, and complex predictive modeling. These systems can analyze vast amounts of data and provide insights that humans might not notice. However, practical hurdles must be overcome, such as the cost of automation, the format and quality of data, and the willingness of market stakeholders to accept machine decisions.

In the realm of property insurance, the challenge is even greater. Predicting future risks, such as climate-related perils or emerging fraud scenarios, poses a significant challenge. For example, the ability to predict rising water levels, bushfires, or unforeseen environmental impacts is not yet reliable enough. Even with sophisticated predictive models, the uncertainty of these variables is too high to rely on them alone.

Uncertainty and the Need for Human Input

One of the most significant challenges in automating insurance underwriting lies in predicting the future. While we can model and analyze historical data, the unpredictability of future events complicates matters. For instance, predicting the next major loss reason due to climate change or emerging technologies is a monumental task. Insurers need to remain vigilant and adaptive to changes in the legal and regulatory landscape, which can significantly impact underwriting decisions.

The insurance industry is also plagued by the risk of increasing costs in the judicial process, changes in repair costs, and evolving methods of fraud. These variables are inherently difficult to predict and quantify, and relying solely on automation could lead to significant risks for insurers and policyholders alike. Human judgment remains crucial in these scenarios to ensure that decisions are balanced and fair.

Conclusion

Insurance underwriting is complex, and while technology has made significant strides, it has not made the role of human judgment obsolete. The current state of the industry reflects a balance between automation and human expertise, with each playing a critical role. As technology continues to evolve, the industry must adapt to integrate these advancements while retaining the invaluable human touch required for fair and accurate underwriting.

The future of insurance underwriting lies in leveraging technology to improve efficiency and decision-making, but it is clear that human judgment is a necessity. Insurance underwriting is not just about processing data; it is about understanding and evaluating risk in a complex and uncertain world. The rear-view mirror, while providing a broad perspective, still contains too many blind spots to rely on it alone. The industry must continue to evolve and adapt to these challenges, ensuring that human expertise remains a fundamental part of the process.

Keywords: insurance underwriting, property insurance, auto insurance