Unleashing the true potential of automated underwriting – Digital Insurance

The pandemic has forced the industry to hasten its embrace of automation. By the start of this year, over 40% of life insurers had either already incorporated some degree of accelerated and automated underwriting into their new business process, or had imminent plans to do so. This was a dramatic increase from 18% the year before according to research from Celent.

Pandemic or not, this pivot was always inevitable, and the numbers underline why. According to Celent, over half of insurers that have already adopted accelerated underwriting report payback periods of less than a year, with another quarter either reporting or expecting payback in just two to three years. Decisions that would once take 20 to 30 days are made in 3, and the huge reduction in the costs of policy-issuance means that these systems rapidly pay for themselves.

Nonetheless, the initial wave were currently seeing only scratches the surface of the technologys revolutionary potential.

Simple vs Deep automationMuch of the concrete activity and investment to date has, understandably, focused on the simplest and most straightforward of life insurance applications. For example, applications from younger, healthy customers with no underlying health conditions, where risk is low and policy issuance is straightforward. The accelerated decisions being made by the software here typically amount to unambiguous if X then always Y logic. These are decisions that never truly needed to be seen individually at least by human underwriters in the first place.

This simple layer was always going to be the first port of call for automation as insurers started to dip their toes into new systems and ways of working. We all know that digital automation is great at replacing humans when it comes to the easier, more repetitive tasks.

But this layer is also inherently limited. By definition, this layer can only ever encompass the most risk-free minority of applications. And, ironically enough, the rush for more and more third-party data to feed these systems can actually push the automatic approval percentage down over time. Where the aim is to avoid any need for human involvement from start to finish, for cases with minimal risk, more data can end up meaning more automatic rejections.

One silver lining of the last year, however, is that the need to learn more rapidly has shown insurers the extent to which they can also use data to accelerate decisions in the far more nuanced and complex cases, which would not have been natural candidates for an automated approach before the pandemic.

This is referred to as deep automation, where the aim is not to remove the human element entirely, but to create a more collaborative fusion of man and machine, automating as much as possible while ensuring that human underwriting expertise is focused where it is most needed, as efficiently as possible. By making smarter use of data, and treating accelerated underwriting systems as a tool for human underwriters, rather than a replacement, insurers can reap huge benefits in both time and cost across the majority of the applications they underwrite as opposed to just with one specialty layer.

This is the thinking behind the current industry interest in predictive models and rules-based processing. These systems are able to deal with far more complex chains of if, then logic, drawing on a wide variety of third-party data in sophisticated ways to make much more nuanced judgments about risk without having to involve human underwriters in every individual decision. The human element is still very much there, but the skills and time of expert underwriters are put to better use on perfecting and tweaking the models themselves, as well as dealing with the most difficult and complex of applications that arise.

While its early days, and these models are still being developed and improved, the untapped potential is there for the taking with current technology. At the moment Celent estimates that around 10 to 20% of issuances across the industry involve some form of automated underwriting. With properly integrated systems using deep automation, theres no reason why this number cant be closer to 70%. And thats as things stand today, before models and techniques inevitably improve in the imminent future.

Of course, the potential is about more than just industry opportunity. For customers accessing policies that make use of accelerated underwriting, the result is a far more user-friendly experience in terms of speed and convenience. Extending these benefits to more complex cases could herald a new era of convenience and accessibility in life insurance, not just for those in the lowest risk groups, but right across society including millions with complex, underlying or changeable health conditions.

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Unleashing the true potential of automated underwriting - Digital Insurance