Automating Life Insurance Underwriting – A Closer Look
June 30, 2016 by Anne-Frances Hutchinson
Automating new business and underwriting may be costly, but at last life insurers are beginning to embrace the future. In March of this year, Celent researchers Karen Monks and Colleen Risk examined the underwriting process in an effort to help insurers prioritize their tech investments. They asked 26 insurance companies which parts of new business and underwriting could be automated successfully and where they currently use automation. They also attempted to discover if automating the underwriting process makes for better financial results.
The challenges of automating new business and underwriting go far beyond the costs of purchasing technology; the cost of implementation, making changes to ingrained processes, and shepherding agents and staff through the transition to automated processes add up considerably. The researchers point out that although it has taken decades, life insurers are finally increasing automation in the underwriting processes. How they automate differs for each insurer, depending on their line of business, how old their system is, and their overall business strategies.
Surprisingly, the size of the business doesn’t necessarily correlate to how widely automation is used for underwriting. While you might expect larger firms to embrace automation from top to bottom, midsize companies are the most automated. Competition for market share is a big driver for this segment. Automation helps midsize firms stay profitable with the improved operational efficiencies it can deliver. Insurers with new systems are more likely to use more automation, which can open up a slate of competitive advantages that insurers with cumbersome legacy systems may find too challenging to approach. Most life insurers prefer to invest in automation that will increase operational efficiencies, rather than syncing their underwriting automation investments with their strategic focus.
“Life insurers are automated most frequently at the beginning of the new business process,” the researchers stated. “eApplications and automatic third party data ordering, receipt, and follow up are commonly seen across all lines of business. Call center automation is also the norm.”
Although 60 percent of the respondents said they have a workflow system, most tasks are generated manually. While Monks and Risk don’t provide a clear-cut explanation, they posit that the reliance on manual processes may be linked to not fully understanding the capabilities of the workflow.
One of the report’s most interesting findings concerns the reporting process. “Reporting can range from a structured set of data in a predefined format delivered on a scheduled basis to the freeform ability to generate data from within the system as needed based on the entire database of information available,” the report states. “Legacy systems most often provide a predetermined set of standard reports, in contrast to modern systems which make the data available to the user, who can then use BI tools to create their own unique reports.”
Yet, despite the fact that insurers are expert data collectors, Monks and Risk find that they are “woefully ill-equipped” to utilize the data they collect. Fifty percent of survey respondents can only get data from standardized reports on a standing schedule; standard reports are available in real time for just 35 percent of the companies surveyed, and only 15 percent have the capability to deeply analyze their data.
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To read the full report, click here.