Time to Embrace Digitization Throughout the Life Underwriting Process
The digitization of the life and health insurance business is happening at breathtaking speed. With that, the policy application and underwriting processes are being brought to the attention of people who used to be less concerned with them - such as actuaries, marketing folks and product managers.
Underwriters could be forgiven for feeling that their role is coming under pressure: but many new ideas and approaches are emerging, around decision-making and marketing, that signal a bright new future for the profession.
A good underwriting decision has to adequately reflect the applicant’s individual risk profile. This is only possible if it is based on up-to-date risk research and derived from an unbiased, objective decision-making process. The result is an offer to the applicant that fulfils his/her individual needs to the highest degree possible. Additionally, however negative an underwriting assessment may seem, the applicant would likely find it more acceptable if the reasons for it are made transparent.
Traditional underwriting processes inevitably contain potential for biased decision-making, with individual biases coming into play that do not reflect the actual risk situation. Further automation of the underwriting process could help limit this problem. An algorithm will make decisions in similar cases along the same lines, unbiased by time, place and surroundings. Automated assessments don’t mean that underwriters are redundant. On the contrary, if less time is spent on manual data entry or routine cases, it can be used more meaningfully on complex tasks.
The scope for developments in prognostic and therapeutic technologies in an insurance setting is huge. Much of medical progress today is shaped by apps monitoring behavior, sensors attached to or inserted into the human body, as well as computer-steered surgery. If policyholders could be motivated to use apps to increase therapy compliance in chronic diseases, such as diabetes, the value would be obvious.
Advances in technology will be combined with sophisticated data analytics to enable a quicker adaptation of underwriting guidelines. In a perfectly digital environment, claims experience will be seamlessly worked into underwriting guidelines, allowing for real-time adaptation. While the tradition has been to design underwriting guidelines retrospectively – thus lagging behind reality - predictive analytics and self-learning algorithms will also build on experience, but add to it their predictive power.
Today’s consumers are generally well-informed and mature, and as such are less willing to simply accept the decisions they receive from the insurer. They have better insight (or so they think) into their own health and risks because of internet research or the use of apps and wearables to monitor their lives. They want to see this knowledge reflected in an insurer’s offering. As underwriters are increasingly relieved from some of their routine tasks by automation of the underwriting process, they should have more time for client interaction and for discussing underwriting decisions. This should result in greater customer satisfaction and a better client relationship.
An enjoyable application process, unbiased underwriting decisions, a closer relationship with customers, more flexible product design, offering insurance cover to a wider range of people and quicker adaptation to medical advances - does this really sound so bad?
Some people still think digitization is all hype and hope for it to pass. Some put their trust in regulation to make sure it doesn’t disrupt our industry too much. In such areas as data privacy and e-commerce, regulation may indeed slow down the pace of change, but it will not prevent it. Digitization is here to stay, and ignoring it certainly won’t make it go away.
Insurance companies will have to adapt to digital change swiftly or risk falling behind. Many challenges lie ahead, but they represent new opportunities for tomorrow’s companies.