Underwriting Automation – Inevitable, and a Path to Success

Posted by Ivan Maddox on Feb 8, 2017, 8:00:00 AM

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Two weeks ago, Insurance Thought Leadership published a piece on innovation by Devie Mohan, and there’s a thread in there that deserves a bit of a deeper dive.

Community_Planning.jpgThe article is called Three Major Areas of Opportunity, and lists three ways that technology / innovation will impact insurance in the near future. Nothing controversial in the choices – they are the calling cards of “innovation” for insurance:

  1. Underwriting automation
  2. Connected devices (i.e. IoT)
  3. Cyber

Naturally, we’ll take a deeper look at the underwriting piece, with IoT and cyber stuff beyond the Risks of Hazard horizons.

Ms. Mohan lists six benefits than underwriters can realize with the modernization of their systems, and it is hard to argue with any of them. Here are all six, with quotes from the article and comments:

1. Data

  • Ms. Mohan states: “Automation in the insurance industry can make underwriting both more efficient and more precise”.
  • We here could not agree more: using underwriting analytics that increase automation is a sure way to reduce underwriting leakage.

2. Current Automation

  • From the article: “Insurers are currently using automation primarily to support underwriters and aid in triage”, and “in the most advanced segment, personal lines, only 42% of insurers say they have “mastered or almost mastered” automation.”
  • Personal lines is particularly interesting in the US with the coming privatization of flood insurance. As carriers get into flood coverage on residential property, the winners will be those with the best combination of automation AND quality in their risk assessment analytics. Every piece of property in the US can be assessed for flood risk right now at a level of detail way more precise than “triage-level”, and independently of NFIP information.

3. Insurer Ambition

  • Here is the ITL piece on ambitions: “Insurers are focusing on personal lines and small and mid-market commercial to expand their automated underwriting capacities, with more than 40% saying they will increase their spending in each field.”
  • All we can add is “Yep.” This is happening now across the P & C world.

4. New Data

  • Ms. Mohan outlines the wider possibilities available with more up-to-date underwriting systems: “For most policies … an underwriter reviews between eight and 15 factors.” And then: “These amounts of data are small compared with what a sophisticated automated system could use to assess risk.”
  • Not only will updates to risk assessment and underwriting systems incorporate better and more data, they will use risk scoring to keep it simple and effective. Underwriters and actuaries don’t need to be swamped with more data.

5. Trends

  • Opportunity: ”better assessment of risk that could fundamentally change the way risk is priced.”
  • Do it now: see here.

6. Insights

  • Ms. Mohan’s summary:
    • Underwriting automation will become a significant field of innovation around both reducing staffing and coping with the new amounts of data, with each business line requiring its proper automation technology. As risk assessment algorithms become more reliable and executives more confident in them, they will be able to make low-level underwriting both cheaper and more consistent. As new sources of data for risk analysis become available, insurers will have to use machine learning algorithms to be able to make sense of the vast amounts of data.
  •  Risk of Hazard summary:
    • What she said.
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Topics: Insurance Underwriting, Innovation in Insurance, Insurance News

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