There is a common misconception that underwriting is primarily about identifying bad risks. In reality, most bad risks are relatively easy to spot. They are the submissions with obvious issues. The poor claims history. The distressed financials. The business operating well outside its area of expertise. The risks that immediately raise questions.
The more challenging part of underwriting is often something entirely different. It is identifying the risks that appear perfectly acceptable on the surface but carry exposures that only become visible once you start looking more closely.
Over time, I have become increasingly convinced that some of the most significant losses in insurance come from risks that initially looked ordinary. Not because information was hidden. Not because anyone was trying to be misleading. Simply because the information that mattered most was sitting beneath the headline description of the business.
A contractor may have an excellent reputation and a long history of successful projects, but a closer look reveals increasing project concentration, growing reliance on subcontractors or contractual obligations that have changed significantly over recent years.
A manufacturer may present strong financial results and stable operations, but key dependencies within their supply chain create a vulnerability that only becomes apparent when disruption occurs.
A transport operator may have a strong safety record, yet a review of fleet utilisation, driver availability or customer concentration tells a more complex story.
None of these businesses would necessarily be considered poor risks. In fact, many are very well run organisations. The challenge is that risk quality is rarely determined by the factors that are easiest to see. This is where underwriting becomes less about process and more about judgement.
Data has never been more available. We have access to more information, more modelling tools and more external insights than at any point in our industry's history. All of these things are valuable and have undoubtedly improved underwriting outcomes. What they have not changed is the need to understand how a business actually operates. A submission can tell you what a business does, it does not always tell you how it does it. It can tell you where revenue comes from, it may not explain how dependent that revenue is on a small number of relationships. It can tell you what controls exist, but it does not always reveal how consistently those controls are applied.
The gap between what is documented and what is occurring in practice is often where the most important underwriting questions exist. This is one of the reasons underwriters sometimes ask questions that appear unrelated to the coverage being sought. Brokers occasionally tell us that clients are surprised by the level of detail requested around operational processes, contracts, staffing, supply chains or future growth plans.
The reason is simple.
The best underwriting outcomes are rarely achieved by collecting more information for the sake of it. They come from developing a deeper understanding of how a business functions and where pressure points may emerge over time. In many cases, the answer to a single well considered question can provide more insight than pages of supporting documentation.
As markets become more competitive, there can be a tendency to focus heavily on speed. Fast decisions are important and brokers deserve responsive service. However, speed and understanding are not mutually exclusive. The objective should never be to remove underwriting judgement from the process. It should be to apply that judgement more efficiently.
The risks that concern me most are rarely the ones that arrive with obvious warning signs attached. They are often the businesses that appear stable, successful and straightforward until you spend the time to understand the detail behind the operation.
Good underwriting is not simply about identifying bad risks. More often, it is about identifying misunderstood risks.
