Technology and the Advancements it is Bringing to Underwriting
Over the last ten years, technology has been improving most of the life insurance value chain. With so much to do, from simplifying and digitizing the application process to training agents in new technologies, carriers had only just begun to realize InsurTech’s possibilities in underwriting. But then the coronavirus pandemic hit, and many insurers realized the need to focus on InsurTech’s application in underwriting.
According to Erin Anders, Vice President of Business Development, MunichRe, Automation Solutions, “Covid-19 has created a perfect storm for the rapid advancement in underwriting automation.”
Consumers who hadn’t seen the need for a life insurance policy before the pandemic started thinking about what would happen to their families if they passed away. Some insurers saw a 15% to 30% increase in applications.
Without immediate investments in technology, companies will struggle to meet the new demand.
As Anders puts it, “We can get policies in electronically and send them out electronically, the missing step is the automated processes around assessing risk.”
Carriers had already been increasing their technology investments. McKinsey reported a 3% growth in IT investments in the life insurance industry over the five-year period from 2012 to 2017. Carriers who’ve begun to embrace the digital transformation have seen expense ratios drop and the time to market for new products shrink. But now, the pressure is on.
“Covid-19 has certainly had an impact on and has expedited a lot of what carriers had in their roadmaps but out of necessity were forced to accelerate,” says Dan Clifford, Senior Vice President at SBLI of Massachusetts. “We’ve seen this particularly with accelerated underwriting.”
One way that companies are accelerating the underwriting process is through outsourcing. Partnerships with specialist, third-party risk assessment companies who’ve already built the technology infrastructure to automate, process, and analyze underwriting data allows incumbents to skip the time and cost of an internal software development process. Their automated risk assessment tools often access third-party data to underwrite a policy.
Third-party data “has advanced to the point where we can leverage these publicly available pieces of information such as MIB, Motor Vehicle Reports, Rx information, Credit Scores, etc,” says Anders. An algorithm can crunch the data in prescription records, digitized medical records, and clinical test results and underwrite a policy in minutes, in some cases.
Machine learning algorithms learn from compiling and analyzing large data sets, then turning around and making accurate predictions based upon what they’ve learned. They’ve become particularly good at uncovering fraud and identifying client non-disclosure or discrepancies.
Clifford thinks that, “Using expanded data sources to underwrite provides an efficiency factor - there’s a good benefit to the consumer and a lower overhead cost associated with pulling in third party data.”
Automated underwriting benefits both sides of the equation, and helps carriers offer quick, simple, and non-invasive products.
But what about more complicated, or high-dollar, policies that formerly required medical exams? Carriers used to only be able to offer policies up to $1 million without fluids (blood) or a full medical exam. But, during COVID and shelter-in-place orders, consumers have become reluctant to either go to a Doctor’s office for an exam or have someone visit their home to collect fluids.
With the rapidly advanced automated underwriting and the use of technology and data during the coronavirus pandemic, some insurers now offer policies from $2-3 million or even more. The COVID-19 pandemic forced many consumers to confront their own mortality and think long and hard about how to protect their family’s futures. Incumbents have responded by directing their attention to underwriting - one of the last, but most important, areas to embrace InsurTech.