Corporate Partner Mound Cotton tackle the topic of how the automatization of underwriting may affect the relationship between reinsured and reinsurer, including the classic reinsurance doctrines of utmost good faith and follow the fortunes.
New technology and artificial intelligence are leading to major changes in the traditional underwriting process. This article discusses how the automatization of underwriting may affect the relationship between reinsured and reinsurer, including the classic reinsurance doctrines of utmost good faith and follow the fortunes.
Unprecedented technological advances in recent years have changed the day-to-day lives of individuals all over the world. Disruptive technology and ever-expanding sources of Big Data are likewise changing the way companies do business in countless industries. Hardly immune to change, the insurance industry has been adopting new technology that offers the potential for optimizing business processes and results, including data analytics, artificial intelligence and digital labor. These technological advances are predicted to have a profound effect on the way insurers interact with their customers: for example, the customer experience, from purchasing insurance to submitting claims, will be streamlined and more consumer-friendly, and policies will be increasingly tailored to a particular insured, as already seen in the InsurTech arena.
At the same time, new technology and processes, particularly in underwriting, may also affect another fundamental industry relationship, that between an insurance company and its reinsurer. The role of the traditional insurance underwriter is evolving, with automatization currently available across the entire underwriting process—intake, segmentation, rating/pricing, quote, bid and policy issuance 1. As reinsurance partners move toward increasing automatization, a natural question arises: how will these developments affect the reinsurance relationship and certain of its defining traditions and principles, such as the follow the fortunes doctrine and the duty of utmost good faith? Some may view automatization as a way to enhance the reinsurance relationship and improve cooperation between business partners, which will further serve the underlying aims of follow the fortunes and utmost good faith. Others may see automatization, especially as machines continue learning and become “smarter,” as a harbinger of a further shift in the reinsurance relationship from the traditional honorable engagement to a more ordinary commercial relationship, as the new technology potentially calls into question the relevance of the old traditions.