AIG's Loss: A Wake-Up Call

AIG's announcement last month that it would take a fourth-quarter charge of $1.8 billion because it underestimated its US liability claims should serve as a wake-up call to the industry that it has to renew the focus on improving underwriting technology, according to analysts.

Although an AIG spokesperson refused to comment further after asserting that the charge "was not due to our technology," and blamed the underestimation of the claims on external factors, such as increased jury awards, observers say it is time for insurers to get back to basics: underwriting. (Editor's Note: More on underwriting technology will be reported in next month's issue May 2003 of Insurance & Technology).

"Every underwriter's decision is an underwriting event that commits the company's assets," says Bill Mudge, partner, Business Consulting Services, IBM (Armonk, NY). "There is no silver bullet for underwriting technology, but insurers really have to focus on their core business-managing risk."

It is especially important since some insurers, primarily P&C, have been enjoying a hard market for some time. "I can't emphasize enough that now is the time to allocate some monies to overhauling the underwriting process," says John Lucker, senior manager, advanced quantitative services, Deloitte & Touche (New York). "If they wait for the market to go soft, they will be too late."

And improving underwriting is not just about automation, says Peter Migliorato, partner and Americas director, insurance, Braxton (formerly Deloitte Consulting, New York). "Insurers have traditionally automated certain parts of underwriting to reduce human costs," he says. "That only improves expenses. The core of the business is underwriting and it has been neglected."

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio