ANAND PATEL: Hello, and welcome to Rethinking Insurance. I'm your host, Anand Patel. And, today, we'll be exploring the concept of risk scoring within the Commercial Lines market. This podcast is inspired by our video series, Thinking Unbound, in which we explore the latest trends and challenges facing the commercial and global specialty markets. If you'd like to watch the full video on this topic, please search for Thinking Unbound on our website, wtwco.com. Today, I'm joined by our guests, Rajeev Janagal and Jonathan Aubrey-Smith. Thank you for being here.
If I can start with you, Raj. Raj, you recently did a talk at Lloyd's Old Library around risk scoring and how the market was trading differently going forwards, around enhanced underwriting, portfolio trading, digital trading, however you want to kind of describe that concept. And, through that, through that mechanism, we've seen the concept of risk scoring emerging. Can you give us your take in terms of, what do you mean by risk scoring? And then, why is that important today?
RAJEEV JANAGAL: Sure. So, for me, risk scoring is very much taking the granular risk information that an insurer has, particularly in the London market, or in specialty lines of business, and forming a view of the quality of that risk, which is separate from pricing dynamics, so adherence to underwriting appetite statements, adherence to underwriting strategy. That then gives the ability for an insurer to form a view of the risk score, both on an individual risk, and across a portfolio, which can feed into other things downstream.
In terms of the importance today, we're seeing new and different techniques in the market around the way that insurance is traded and how insurance risks are managed as a whole. And the the scoring that we're seeing can feed into both decision making, but also into the metrics that are used for that decision making, across an insurance business.
JONATHAN AUBREY-SMITH: I think there's also a really interesting take around how that risk scoring begins to be absorbed into the market. As we move towards a portfolio-driven world, as we've seen this in enhanced underwriting approach, whether we're talking open market underwriting, or whether we're talking portfolio underwriting, the ability to assess and track whether the risks that you're underwriting, in one lens, are a reflection of, actually, what you're intending.
But, also, leveraging third party data to bring in additional viewpoints for our underwriters so they can have more granular and clean understanding of what that risk is. And, therefore, they can more easily track it over time, understanding how it relates to the wider portfolio. It gives a powerful new lens, over and above the historic choices around price, or even simple tiering. It's taking that next step forward in reflecting those core market changes.
ANAND PATEL: That's really interesting in terms of managing business through what appears to be a relatively a new metric, which is necessary as that market trades differently going forwards. It's different to price adequacy, price loss ratio, which are the more traditional metrics that people will be using to effectively manage business. If insurers do make the investments as part of that risk scoring process, how should they go about doing that? And what value will it unlock for those insurers going forwards?
JONATHAN AUBREY-SMITH: I think one of the key value pieces here is a consistent understanding of risk. One of the big challenge I see consistently across the market is, whether you're looking at a traditional DA portfolio, a portfolio solutions business, taking a tracker position, or an open market position, is because you're now working across multiple different work streams. And different types of risk are coming through.
Your ability to assess those risks on a like for like basis is much more constrained. And I think that's that key enabler. Ultimately, portfolio management has been a core part of our business for a long time. But, as we move into more portfolio-driven underwriting, as we move into this world where leads are more dominant, followers tend to, or may become increasingly digitized. Your ability to understand the nature of your portfolio and the consistent risk across it, and, actually, are you making different decisions in different places, that's not a bad thing to do.
But the problem is, how do you know you're doing it? And risk scoring enables that portfolio management to be much clearer and cleaner. So, you're much more concerned about what's actually happening, and taking the actions that you need to about that portfolio divergence. And it gives you an opportunity to get down into the detail, where, historically, we lose a lot of the grain, particularly in that portfolio world.
RAJEEV JANAGAL: I think, for me, right now, it's unlocking these new mechanisms of trading, particularly algorithmic underwriting. I think we're starting to see models stand up that are very yes, no. And I think risk scoring gives you the ability to form a view of, is this risk in appetite? And, therefore, I can have a model make a decision, potentially, rather than a human, in some instances. But, also, then, off the back of that, the model has a view of what the quality of that risk is. Is it OK? Is it very, very good? Does it adhere to appetite and strategy?
And then, we can make more nuanced decisions off the back of it. I think, longer term, the scoring gives people like actuaries, data scientists, the data to perform more advanced analytics. I think, as you're seeing more and more business traded through these new mechanisms, you can use the data, the granular scoring that's generated, into those advanced analytics, getting better parameterization of models moving forward, and better development of models moving forwards in the underwriting space.
ANAND PATEL: That's really interesting. And I think both of you also mentioned the data as being one of the key enablers to risk scoring. Is that data, internal data, is that data that's provided through the traditional mechanisms from brokers? But, also, actually, I'm probably more interested around the use of external data. Does that have a role within risk scoring as well?
JONATHAN AUBREY-SMITH: Absolutely. I think one of the key opportunities here is, this is a way of bringing in external data into your decision making in a structured and controlled way. One of the big problems, let's be honest, the market's gone from talking about, we don't have enough data, we don't have enough data, to going, how do we handle all of this data?
And, actually, one of the roles risk scoring can help play for an organization is to give shape to that data, to make it more easily understood by the underwriters, the portfolio managers, the actuaries, what that performance what that quality of risk is. So, using those third party sources is giving you a way of shaping those gargantuan data sets. We've seen some really interesting work with individual clients. They were bringing in huge amounts of external data.
But it was very difficult for the underwriters, without the risk scoring structure around it, to understand the so what of it. It's kind of like, great, we now know this particular risk factor about this particular risk. But it was in such a huge dimension that it made it difficult to digest and go, OK, so, from an underwriting action, that means I should do, what? Or that means it's better, or worse, or otherwise? And, for me, that's where risk scoring plays a really critical part in helping enable that
RAJEEV JANAGAL: I definitely agree with Jonathan. But I think, for me, data in the context of risk scoring depends very much on the use of risk scoring. So, we talk about risk scoring in lots of context. And, if you're in a more simple context, simple decision making, it might just be that the data is the data submitted by the broker at submission, or data about a few risks that you're looking at. I think, absolutely, when you're broadening out and you're looking at portfolio management, or, how do we bring in those external sources, risk scoring is a very good mechanism for it. But, ultimately, it depends on your use case.
ANAND PATEL: Thank you very much. A very interesting development in terms of the way that the market will trade differently going forwards, and how the concept of risk scoring will be critical to that success. Jonathan, Raj, thank you very much for sharing your perspectives. And to all our listeners, thank you for joining us today. And, if you found this interesting, and make sure to join us on future episodes of Rethinking Insurance.
SPEAKER: Thank you for joining us for this WTW podcast, featuring the latest perspectives on the intersection of people, capital, and risk. For more information, visit the Insight section of wtwco.com This podcast is for general discussion and/or information only. It is not intended to be relied upon. And action based on or in connection with anything contained herein should not be taken without first obtaining specific advice from a suitably-qualified professional.
