,,By Craig Bedell, Global Insurance Industry Executive, IBM
Technology has begun to transform many functions within the insurance industry including accelerated underwriting. A lot of this has to do with the shift from paper-based documents to electronic processes and new risk-modeling techniques, but it’s also due to the availability of new insightful data sources that shortcut the historical standard approaches to life underwriting solutions. Rather than assessing risk based solely on the historical data of an individual, all underwriters will likely have real-time evidence of an individual’s risk characteristics in the near future– some already do.
But, as much as modern technology promises, an engine only runs as smoothly as the quality of the fuel that goes through it, which in this case is the data and insights obtained. There’s no getting around the fact that technology, as exciting as it may be, is not magic and still requires fundamentals of data, people, and processes to be efficient and effective. Before implementing any new technology that claims to increase efficiency, current underwriting processes need to be straightened out so that they make the most sense for the actual decision-makers—the underwriters.
I’m not suggesting a total “back to basics” approach to underwriting, but rather a “basics still matter” approach. This mindset is extremely valuable when implementing any new technology, but especially ones like accelerated underwriting that holds such promise and is so integral to the industry. Let’s explore a few of the fundamentals that every insurance provider should keep in mind in order to execute a successful accelerated underwriting solution.
1st Fundamental of Accelerated Underwriting: Understand the Process
Since any underwriting technological implementation is futile unless it creates additional insights or process improvements, it’s critical to examine, understand, and optimize your underwriters’ decision-making processes first. Insurance companies have had the same processes and have made decisions the same way for a very long time, including the steps they take in the underwriting process. Additionally, these lengthy processes are often undocumented. This has caused the true purpose of the processes themselves to become murky, and many insurance providers are noticing that maybe they don’t know why they complete tasks the way that they do. The purpose of underwriting and current issues the underwriter faces on a daily basis probably aren’t being taken into account when processes are carried out.
This is why, before you implement an accelerated underwriting solution, you should take a step back and see what changes can be made to processes before you look into new technology. If you start with technology, you might just accelerate the process of making poor decisions. For example, insurance companies with legacy systems that support the “old” way of making decisions are inflexible and cannot be updated with the new insights, so starting with technology before processes could make the process more complicated to the system and the underwriter. In order to obtain a higher ROI with new technologies, the decision-making process first has to be flexible and modern to be able to apply those new insights.
2nd Fundamental of Accelerated Underwriting: Keep it Clean
To keep your processes as clean and simple as possible, for every new step or technology you add, you should strive to retire 3 or more steps so you’re not burdening the underwriters even more with another step in the process. If not, those steps better be absolutely crucial to the underwriter. Additionally, it’s critical that management designs the processes with the underwriters’ purpose and current issues in mind. It’s not just that the decision-making process needs to be reexamined, but those improvements have to be coordinated with the decision-makers themselves.
Once it is determined how decisions are regularly made by the underwriters, management can explore new and better processes as well as what technologies could aid the underwriters in following the redesigned process. This examination allows for smarter implementation of automation like artificial intelligence, rules, and management software to make the new process even more efficient. With the right process in place first, certain technologies can fill in gaps to aid the underwriter in their decisions rather than attempting to implement technologies that will make these decisions for them– that’s just not realistic. This way, the underwriter can apply his or her expertise based on insights that the technology pulled as opposed to struggling to find all the details necessary to accurately assess risk.
An example of a technology that fills the gap in an efficient accelerated underwriting process is cognitive systems. Many life underwriters spend the majority of their time pouring through medical records searching for existing conditions and understanding them before making a decision. Cognitive systems on the other hand, like data capture and cognitive computing, are able to find those conditions and find the reports that support those. This way, rather than spending all their time looking for information, the underwriter can quickly and more accurately make their decision. But again, don’t expect these systems and technologies to improve your underwriting process if your process doesn’t make sense in the first place.
3rd Fundamental of Accelerated Underwriting: Procurement, Validation, and Management
Rather than focusing on the technology itself when optimizing processes, instead you should prioritize efficient data procurement, validation, and management– especially from non-traditional sources. Look for ways to automatically uncover new insights that could replace legacy underwriting criteria. For example, the way that houses are assessed for fire risk has completely changed in the recent years. The way the risk used to be assessed was by determining the distance from the building to a fire hydrant or fire station as well as how effective the equipment at the station was.
Now, they look at the infrastructure of the home and the probability that the fire will be suppressed and detected by the house itself, which is much more accurate, consistent, and valid. This is a perfect example of how it’s important to uncover new ways of finding information that will help the underwriter evaluate risk. It’s not enough to assume that old processes will continue to benefit the company and the client; insurance providers must prioritize how data is curated, stored and, used.
One of my favorite expressions that so many have heard me state is “what’s technically possible is not always business practical or regulatorily allowable in the highly-regulated business of insurance.” When it comes to underwriting and pricing, insurers still need to hold to acceptable principles of fairness and the law of large numbers. Still, there are fantastic technological capabilities available to enhance business processes, increase the reliability of basic data, and improve decision-making efficiency and consistency, all of which result in better service, underwriting results, and customer satisfaction. What will ultimately alleviate inefficiencies in underwriting are clean processes that make sense for your decision-makers. Insurers just need to think of these technological possibilities as tools for an accelerated underwriting solution, not a magic fix.
For a deeper dive into the fundamentals of accelerated underwriting, check out our white paper, Accelerated Underwriting: Foundational Pieces for Success.
Former Global Insurance Industry Executive, IBM
About the Author: Craig Bedell, a published author, writer, public speaker, mentor and consultant, is recognized as an expert insurance expert with deep insights into the optimization of people, process and technology.
Craig is formerly Global Insurance Industry Executive within IBM’s Insurance Industry Executive Leadership Team. His efforts have been focused heavily on the application of cognitive computing in transforming the insurance industry.
Craig’s experience also includes over 30 years as an underwriter, branch manager, broker and home office executive. Additionally, he has over 12 years in the technology industry leading worldwide insurance solutions for business analytics, business redesign and innovation.