Whether in the auto, renter or property insurance market, consumers look for providers who can provide them with the most affordable policy quickly and efficiently.
Insurance companies that use advanced technology to automate the policy underwriting and risk assessment process are likely to remain at the top of their competitors’ list. The process of streamlining insurance underwriting is known as: automated insurance underwriting.
We’ve broken down how this process works, noting how some companies are already reaping the benefits across the insurance value chain.
What is automated insurance?
Automated insurance underwriting is the process by which: robotic process automation (RPA) and artificial intelligence (AI) software underwrites the risk of potential customers. The advanced technology uses AI and machine learning (ML) to evaluate risk, decide how much coverage the customer should get and how much they should pay for it.
Automated insurance underwriting uses advanced AI and ML technology in conjunction with the insurance company’s underwriting guidelines to determine whether or not to accept the risk presented by the customer. This in turn enables providers to profit from adoption and increase customer satisfaction through more personalized policies.
Automated vs Manual Insurance Underwriting
While automated insurance underwriting is completed quickly using advanced algorithms and software to analyze a customer’s finances or health history, manual underwriting is quite the opposite. Manually taking out insurance takes much longer and carries the potential for human error as it relies on a person to review a customer’s financial history.
Human insurers require a lot of paperwork such as bank statements, tax returns, proof of employment, medical history, demographic profile and more. Once the customer is able to obtain this information and provide it to the insurer, the insurer must estimate the potential risk in providing insurance to the customer.
While manual underwriting can be an attractive option for customers with a unique financial situation, such as building credit or previous financial difficulties, it is a drain on time and resources for providers.
Automated insurance underwriting systems and benefits in 2021
Insurtech and insurance automation are broad terms to describe any technology that helps streamline the efficiency and operations of an insurance company, such as the insurance underwriting process. Insurtech startups use automated underwriting to analyze customer data, flag errors and verify the accuracy of work performed by human insurers.
Seeing a lucrative opportunity in an industry filled with legacy players, full-stack insurtechs — insurtech carriers operating with their own insurance license — are emerging and poised to steal the revenue and market share of the incumbent insurers.
Because they don’t work with incumbents at all, these companies can keep the entire profit pool and have full control over policy formulation and pricing. In fact, some full-stack insurtechs, such as Clover Health, are growing at a rate significantly faster than the industry average.
In comparison, insurtechs operating as general managers (MGAs) share the profits with their insurance partners. MGAs work with licensed insurers and use their authorization to sell policies while insurance partners handle the underwriting process. This allows full-stack insurtechs to better control the overall user experience.
Automated life insurance policy
Purchasing life insurance is the process of collecting personal, health-oriented information about a customer and using it to decide how much coverage to provide. Personal data may include occupation, health problems, height/weight, whether the customer smokes or not, family medical history, etc. Insurers take all these factors into account and classify the potential “risk” a customer poses to their business when providing of life insurance.
Many of the best life insurance companies now use automated underwriting to speed up the purchase process. For example, Prudential benefits from digitally-enabled, data-driven adoption.
Prudential encourages customers to use PruFast Track, the underwriting process for individual life insurance applicants. PruFast Track uses Prudential’s Risk Assessment Mortality Model (RAMM), which is built using machine learning and is capable of ingesting a huge amount of data, applying statistical analysis and gaining a level of insight. PruFast can determine within days whether or not a customer is eligible for an accelerated acceptance process, or whether they have to go through the traditional acceptance process.
Automated home insurance
Property insurance is an umbrella term that includes homeowners insurance, renters insurance and
. Root and Lemonade are two insurtechs that are making huge strides with their automated property insurance underwriting systems.
Root’s underwriting system, which focuses on auto insurance, analyzes the driving behavior of individual users to give customers a fair price that reflects personal risk.
. What is unique about Root’s automated underwriting system is that it continuously assesses a customer’s risk, meaning if the system determines that a person has become a safer driver, Root can update their policies with discounts.
In comparison, Lemonade offers renters and homeowners insurance and boasts the ability to collect 100 times more data per user than conventional insurers. In addition, since Lemonade uses bots that have adoption algorithms in place during the onboarding process, most users can get immediate coverage.
While mortgage and property insurance seems homogeneous, the big differentiator for automated insurance underwriting is the lack of a down payment and home value assessment. When taking out mortgages, the insurer must analyze the value of the home and/or real estate a customer is buying. This requires the need for an appraiser, property survey, property insurance and down payment – and because of the number of people and steps involved in taking out mortgages, insurance is often completed much faster.
Future of automated insurance
As the insurtech industry continues to grow and companies implement ML and AI technology, automated insurance underwriting will become more and more popular. According to Insider Intelligence’s Insurtech Disruptors Report, as insurtechs collect more data about their users, they will be better equipped to assess risk and more accurately price their policies than incumbents, allowing them to profit from underwriting.
Over time, the data advantage of incumbent insurers will disappear and there will be a more level playing field when it comes to insurance policies. And with 55% of tech-savvy and 43% of non-tech-savvy customers saying personalized products and services influence their decision to stay with their insurer, automated underwriting will be critical for any insurer looking to stay competitive in the insurance industry. sector.
Interested in learning more?
In addition to automated underwriting in insurance, Insider Intelligence publishes a wealth of research reports, charts, forecasts and analysis of the fintech industry. You can find out more about accessing all of this content by clicking here.
And here’s a related one fintech report that may interest you:
The Insurtech Disruptors Report: Insider Intelligence examines why full-stack insurtechs pose a threat to incumbents and how this threat will grow over time. In addition, the report profiles five full-stack insurtechs — Metromile, Root, Oscar Health, Lemonade and Next Insurance — and evaluates their offerings and provides insight into what the future holds for the insurance industry.
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