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Minimizing risks implies investments in automation for next-gen underwriters

Author: Naveen Sankaran, Senior Technology Architect 

One of the main objectives of software is to automate work that would otherwise be done manually. This has multiple benefits including cost reduction over the long term, increase in productivity and profits, and the ability to channel human effort towards more important work.
Like every other industry, automation has immensely benefited the insurance sector as well; and although substantial number of processes are getting automated, there is always scope for more! 

Consider the case of policy management systems. We recently came across an application that manages policies and the entire associated workflow - from submission and quote, to bind and issue, and so on. While a majority of the work gets automated, many processes still require human intervention. For example, when application forms are filled, scanned, and sent by an agent to the application intake team via e-mail, the team has to verify and enter the details in the policy management system manually, before an underwriter takes it forward. This kind of work seems fairly mundane, and hence, can be automated such that the application automatically extracts data from the document and saves it, thereby saving significant time and effort. Similarly, there are various other opportunities for automation in processes.

How much automation is desirable?
Having said that, how far can automation be taken? In underwriting, one of the most critical tasks is the evaluation and pricing of a risk. While it is possible to automate this task through business rules engines, is it really desirable? If yes, what level of automation is desirable?

The answer to that depends on several factors, such as the type and complexity of the insurance, and the availability of data to accurately evaluate the risk.

In certain types of insurance (standard personal lines, for instance), if the processing volume involved is large, and the risk and margin low, complete automation (straight-through processing) using rules engines might be desirable - an actuary may author the rules for evaluating and pricing the risk (for example, the evaluation may be done based on the answers provided by the customer for a series of questions). The key benefits of such automation would include consistent risk assessment and pricing along with quicker turnarounds, resulting in improved customer satisfaction. Additionally, it would also save the time and effort of underwriters and actuaries who can devote resources to evaluating and pricing more complex and higher-value risks. A survey conducted by LIMRA indicates that two in three life insurance companies, in the US and Canada, have already implemented automated underwriting for at least a part of their business, while another 32 percent are in the planning stages.

In the case of more complex risks, while automation is possible, there could be hurdles -- like the unavailability of adequate data for accurate evaluation (for instance, a physical inspection may be required). Adding to the issues, an automated risk assessment is likely to be more conservative, resulting in missed business opportunities. 

Not an all-or-nothing situation
Still, it doesn't have to be an all-or-nothing situation for automation in underwriting. Even for fairly complex risks, automation can still play a role; wherein, although the direct involvement of underwriters in evaluating risk may be required, rules engines could provide additional insights and help underwriters take more informed decisions.

Conclusion
Advances in technology are having major impacts on the underwriting process. While underwriting is being fully automated in high-volume, homogenous lines of business (LOBs) such as standard personal lines, automation is also making rapid inroads into more complex LOBs, where underwriters increasingly rely on guidance provided by modern underwriting systems, models, and analytics to take decisions.
In order to stay ahead of the competition, insurers need to embrace technology in every possible way to improve efficiency and decrease the costs of underwriting. Given the fact that technology is rapidly evolving, insurers also need to keep a constant eye on the changes happening in the landscape. 

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