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Harnessing Artificial Intelligence: A New Era for Construction Underwriting

Justin Levine

Justin Levine

Co-Founder & CEO

April 3, 2023


Accelerating Shepherd's vision for a better insurance experience in Construction

As AI tools, particularly language models (LLMs), rapidly reshape the business landscape, OpenAI's ChatGPT, armed with its trailblazing GPT-4 technology, has taken Silicon Valley by storm. This technological stepchange has spurred countless startups to race for ways to integrate these powerful tools into their daily operations.

At Shepherd, we're thrilled by AI's potential to achieve a foundational company goal: the elimination of administrative underwriting. By doing so, we can pioneer a service model unique for the high-volume, middle-market construction sector, which has long been served by insurers through low touch transactional relationships. As we delve into AI and its applications, it becomes clear that its potential extends far beyond automating basic administrative tasks.

By capitalizing on AI, underwriting can become data-driven, efficient, and proactive, unlocking insights and analyses that were once out of reach. In this blog post, we'll delve into three specific ways AI will revolutionize underwriting in construction and explain our wholehearted embrace of this technology.

Insights at Scale: AI Empowers Underwriters to Assess Exposure and Optimize Risk Selection

Among AI's many strengths in underwriting is its capacity to swiftly and accurately process vast quantities of data. AI can perform simple tasks such as triaging submissions, extracting exposure data, and reviewing coverage of underlying policies.

Insurance submissions house a wealth of untapped data that, until now, has remained largely unexploited by carriers. AI possesses the ability to meticulously analyze loss runs, identifying claims drivers or patterns, and equipping underwriters with the insights needed to make informed decisions based on a comprehensive understanding of their clients. With a profound grasp of a client's needs, insurers can even recommend tailored tools or technologies to address the client's unique loss experiences.

During the proposal process, AI can assist in providing real-time exposure analysis, premium driver identification, price benchmarking, loss modeling, and cohort analysis. By sharing this information with clients, insurers can provide transparency into the decision making and help our customers enact changes that will improve their risk profile.

From Good to Great: AI Boosts Underwriters' Productivity and Decision-Making

AI streamlines administrative tasks for underwriters, enabling them to focus on technical review and risk selection, thus enhancing their efficiency. By automating routine tasks like data entry, AI allows underwriters to manage up to several times more accounts than they could handle manually.

A study by the National Association of Insurance Commissioners (NAIC) examining the expense ratios of major insurance providers such as Chubb, Travelers, and Liberty Mutual reveals that the average expense ratio for construction insurance hovers around 30%. This data underscores the significance of AI in optimizing underwriting processes and reducing operational costs. By leveraging AI, insurers can target these expense ratios, resulting in a more cost-effective and efficient underwriting process.

The Future of Insurance: AI's Impact on Risk Mitigation and Client Relationships

AI will be a driving force behind the transition to active insurance partnerships, a concept that’s already being pioneered by our friends at Coalition in the Cyber Liability space. In middle-market construction, today’s insurance providers are engaging with their clients once during renewal and only a few times per year.

This creates a reactionary relationship between the parties, whereby adverse development of losses or market conditions are met with rate changes that often surprise brokers and clients. This is especially painful for contractors who are often bidding on projects several months in advance. Any negative change in their insurance costs may affect their profitability, especially if it involves a future contract that has already been awarded.

At Shepherd, we’re exploring how AI can help deliver a more active insurance experience for contractors. One day, we hope our customers think of us as an outsourced risk management arm for their company. In practice, this could include resources like customized, timely risk mitigation training for clients or supplying automatic alerts and risk monitoring based on project incident data. Furthermore, AI will enable clients or brokers to self-serve for coverage changes and policy needs, transitioning the insurer-client relationship from a mere transaction to a true partnership.

Embracing AI-Driven Underwriting Solutions for a Brighter Future in Construction Insurance

Shepherd is already integrating AI into our toolkit, harnessing its efficiency gains. As one of the most data-rich industries with no two businesses being identical, construction is ripe for the application of intelligent models that can adapt and understand a variety of datasets.

Employing AI for risk and pricing analysis enables us to make well-informed decisions and provide better service to our clients. Additionally, AI allows underwriters to handle more accounts at greater depth, making their job both more personal with our clients and more enjoyable for our team. Lastly, AI is set to revolutionize risk mitigation and client relationships, transforming the insurance landscape from reactive to proactive. By embracing AI-driven underwriting solutions, Shepherd is positioned to stay ahead of the curve and deliver unparalleled value to our clients in the construction industry.

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