Insurance Underwriting: Top 3 Impactful Areas to Improve

Why Does Insurance Underwriting Need Improvement?

In the insurance industry, everything is about calculated risks. In the insurance underwriting department, the risks are evaluated to insure people, assets, and establish pricing for the associated risks.

Different types of insurances have different sets of known risks. For instance, in health insurance, there are risk groups for:

Skin Lesion
Respiratory
Digestive system
Family history
Hormonal and metabolic
…and more…

The role of the underwriter is to identify the risks involved in a contract with an individual or entity based on which the premium is calculated. Identifying risks and calculating premium pricing to cover the associated risks are tough calls. There are so many different risks with so many different conditions and criteria. Therefore, pricing is very situational and dependent on the quality of the risk groups associated with an individual or entity.

Decision automation can significantly help insurers to improve their insurance underwriting activities in 3 different ways:

Identifying the right risks in any given complex situation
Implementing ‘underwriting guidebook’ effectively and accurately
Calculate a consistent, explainable, and accurate pricing

Right Questions at the Right Time

At any stage of interaction with a customer, based on the stage, underwriters ask specific questions to identify the associated risks to the customer. This is a very critical task, that in fact, many insurers have written and tested scripts for their underwriters to follow.

To identify the right questions for the right time, the questions must be specific to a situation that allows the applicant to provide very specific answers enabling underwriters to select the right risks.

Therefore, the quality of the chosen risks while underwriting in insurance depends on how the questions are asked, when they are asked, how the answers are interpreted, and so on. Also, this becomes more complex as questions depend on the set of other questions and the provided answers.

As we can see in this set of activities, insurers can significantly benefit from decision automation and can ask the right question at the right time. Insurance underwriters can understand the responses from the applicant and choose the risks associated with the applicant situation accurately.

Underwriting Guidebook

After the questions are answered, underwriters use a guidebook to evaluate the situation of an applicant based on very specific, defined criteria that are explained in an ‘underwriting guidebook’.

The insurance underwriting guidebook is built along with other senior expert underwriters, which helps them understand the risk appetite of the insurer, contractual, and legal responsibility of the insurer, internal and target pricing, and many other factors. The guidebook is a living document and is influenced by regulations, market dynamics, consumer behavior, competition, insurers’ vision, its market share, etc.

Therefore, every single change in the guidebook is documented and tracked. Changes will need to be communicated to operation, marketing, sales, and underwriting teams. And the quality of business operations and profitability of the insurers are highly dependent on how accurate this guidebook is followed at every stage by operations, sales, marketing, underwriting, and claims departments.

Insurers can benefit significantly by making the guidebook a live specification rather than a static document. Automating the decisions in sales, marketing, underwriting, claims, and product development will ensure the guidebook is fully implemented. The rules of the guidebook are followed accurately in the organization. And every decision in organizations can be traced, explained, and understood based on the fully or semi-automated decisions driven by the guidebook.

Premium Price Calculation

Calculating the price based on the identified risks is not straight as it might sound. Because each risk might influence other risks. In different situations, different criteria of risks influence pricing parameters. Therefore, this interrelation between risks factors and groups makes price calculation very complex.

Consistency and accuracy of price are significantly important for insurers in insurance underwriting. Lack of consistency in price can result in the customer missing the best experience, and reputation risk for business. If the price is inaccurate, i.e., if it is high, an insurer will lose to the competition, and if it is low, an insurer will not have the cover in case the policy is claimed.

Insurers can take advantage of decision automation to automate this pricing effort and ensure they are always profitable, they don’t lose to the competition, and they can avoid reputational risks.

Empowering Insurers to Make Quality Underwriting Decisions

Insurance is the business of identifying the risks and ensuring they are minimized and affordable. This heavily relies on the quality of decisions made in insurance underwriting activities by different senior levels of underwriters. Underwriters must make consistent quality, situation-aware, optimized decisions at any stage of the insurance underwriting process.

Decision automation can help insurance providers, in particular, the underwriting department become very productive and efficient. Insurance underwriting is constantly evolving by regulations, market research, consumer behavior, competition landscape, etc. End-to-end decision automation helps to adapt to changes in underwriting effectively and efficiently in many different scenarios.

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Last updated November 9th, 2021 at 11:34 am, Published August 19th, 2021 at 11:34 am

Arash Aghlara

3 Ways to Improve Insurance Underwriting using Decision Automation