A couple of months ago we wrote an article called Four Barriers that Carrier Technology Cannot Fix. Then we discussed the first two barriers: 1) not providing a clear, consistent appetite and 2) not offering quick and easy access to knowledgeable underwriters. Removing these barriers will improve growth and profit.

Today we examine the third barrier to improved growth and profit—an overly-complicated decision process.

As underwriters, we are trained to analyze risk, make decisions, and price exposures. The best underwriters are very good risk managers.  However, unless carriers intentionally review and amend their underwriting practices on a regular basis, decision-making processes will become unnecessarily complex.


Most humans, when given a choice, will avoid the risk of loss, even to the point of giving up a more probable gain. We lose perspective when we try too hard to avoid loss instead of logically assessing and managing the risk.

This can happen in underwriting as we adjust our decision-making processes to accommodate new situations. Underwriting processes can devolve into complex webs that slow down or inhibit decision making. This inefficiency results in lost opportunity cost by:

  • making a carrier less responsive to their agents and policyholders
  • muddling their risk appetite and negatively impacting agents’ perceptions of their flexibility
  • making it harder for underwriters to move quickly on the best opportunities

How does this happen?


When I was a kid, I loved swimming. But I ruined one entire summer of swimming by watching the movie Jaws. You remember . . . a crazed shark terrorizes a community and graphically eats a bunch of bloody screaming people.

It took over a year for me to feel comfortable swimming in pools and lakes again. Of course, this was totally illogical. The probability of being eaten by a shark is millions to one—and 0% when swimming in a lake or pool. However, because of the drama of the movie, I knew that if I went swimming, agonizing death by shark was a certainty.

A famous psychologist, Daniel Kahneman, identified reactions like mine as the Availability Heuristic. His research indicates that the more memorable a scenario, the more probable we humans think it is.

The same thing happens to underwriters and underwriting teams. When there is a random claim that results in a large loss, the loss is painful and very memorable. The probability of another similar loss has likely not changed. However, in our minds it is almost certain to happen again, and therefore we must address it. We develop new approaches to the underwriting analysis, such as asking new questions or adding steps to the process.

Sometimes the underwriters and underwriting leaders do not recognize a loss as an unlikely random occurrence with a low probability. Surely this unpredictable event could have been predicted if we had just asked the right questions.

Granted, sometimes the event was predictable, and it is correct to add steps. However, many times this is not the case. Over time, as other similarly biased decisions are made, carriers can build a very complicated and bureaucratic underwriting process.


These processes can even outlive the people who initially developed them. I recall, early in my career, challenging why certain steps were required. No one could remember why, just that some previous leader had put them in place. No one had the courage or took the time to change the process. It was no longer about thoughtful risk management; it was about risk aversion driven by bias.

Decision processes based on risk aversion often include unnecessary questions or information gathering.

Agents know which carriers have unnecessary requirements. We routinely see comments from them such as this one:

“I think our agency does a good job of submitting complete applications for new business and remarkets, but we still get push back requiring additional supplements to be completed before they will move forward with quoting, which is very frustrating.”

We are not suggesting carriers do away with all supplemental questions. However, they should request only necessary information.

The environment created by an overly complicated underwriting process discourages intelligent risk taking. This in turn makes it unnecessarily difficult for an agent to place business and drives them to competitors.

Here is another representative comment from an agent offering advice to carriers.

“Staff their companies with desk underwriting staff that are capable of doing more than `looking at the box’.  Give them some authority and allow them to differentiate.”


Force yourself to do an annual review of your underwriting process. Take a fresh look and question each of the steps taken.

  • Are you actually using the requested information for day-to-day risk-taking decisions?
  • Which pieces exist just because someone had to make it look like they did something?

Try to look at actual loss data to be sure each question is pertinent to actual losses that are being experienced, or that you can reasonably imagine might be experienced in the future. Eliminate steps and questions that are not essential.


You can create a team to challenge the process.

Encourage your team to use various exercises to help them identify what is essential and what is not. Here are some useful examples:

  1. Bring in a few old submissions and ask the group, “If we could ask only half of the questions we ask, today what would they be and why?”

  2. If the members of the team are particularly experienced and successful underwriters, you can ask each member individually to rank each of the questions in order of its importance to them. (This is best done anonymously to prevent group think.) Each team member assigns 1 to the most important question, 2 to the next and so on. Then have the facilitator add up the importance numbers given to each question and divide the sum by the number of team member rankings provided. Now look at the questions from the lowest average rank to the highest. Are there any surprises?

  3. If you have multiple independent groupings of underwriters, the process review team can compare how the information requirements of the various groups differ. Are there any outliers? Why do these outliers exist?

  4. Challenge the assumptions made when the underwriting question or step was added to the process.
    • Do they still apply to the current situation?
    • Can anyone remember the assumptions made? If no one knows why they exist, it is possible they are not needed.
  1. Discuss each question or information requirement. Identify the potential benefits for asking the question and compare these to the time, difficulty and expense of obtaining them.

Key Take Away

Carriers must intentionally review and amend their underwriting practices on a regular basis. Otherwise, decision-making processes become overly complex. An overly-complex decision process leads to excess expense and missed growth opportunities.