Underwriting’s Changing Landscape Underwriting’s Changing Landscape
The prevailing winds of technology change that will affect insurers’ policy administration systems are also setting in motion substantive changes in the underwriting function across all lines of business. Thanks to mobile technologies and the Internet of Things, much of this change has to do with data—lots of data—now flowing into a carrier’s stores. Carriers are under tremendous pressure to properly cleanse and analyze both structured and unstructured data in order to create more efficient processing for actuaries and underwriters, and in real time.
The platform required for real-time underwriting—one that allows for data aggregation--is no longer a thing of the past: Full deployment of real-time underwriting is a logical next step in the wave of automated underwriting and integration with the Internet of Things, notes research and consulting firm Celent in its report, “What’s Next in P&C Policy Administration.” Stating that the uses are infinite, Celent says volumes of available data will be generated from everything from large commercial equipment with additional real-time sensors to driverless cars.
“We’ll see big data, structured and unstructured, in real-time, which will be transformed into underwriting business processes in the form of scores,” notes Light. “The underwriter does not want to watch 8 hours of parking lot tape; he/she wants
to see the score. This will create a great opportunity for third-party companies in a position to provide this type of data analytics service.” Underwriting life and health business is a different story, notes Tom Scales, research director at Celent. Noting that the nature of life and health insurance underwriting requires obtaining much more information from the policyholder than does
P&C, “realistically on life side it comes down to cycle time,” he says. “For example, in our competitive life market, right now the cycle time is the 37 to 38 days. The insurer does not want the policyholder to change their minds during this time, so improved cycle time because the differentiator.” There are several ways to create efficiencies in the underwriting process, chief among them Straight-Through
Processing (STP), which enables an entire transaction process to be automated--conducted electronically without the need for input or manual intervention. STP is now a high priority for insurers in North America, EMEA and Asia, says Light (see Figure 1).
With more than 70% of the largest carriers now realizing the benefits of this type of automation, STP promises more than efficiencies; it’s actually changing the underwriting function. For example, the U.S. Bureau of Labor statistics estimates that employment in underwriting across financial services will shrink 12% between 2014 and 2024.
“There are fewer underwriters now, or more specialized in the field
(with producers and agents), or they become portfolio managers,” notes Light, explaining that they think more
about their book of business rather than individual transactions, and are held accountable for business performance. “They are being evaluated on the aggregate for all business on the books, rather than how many underwriting decisions were made in a day,” Light adds. For life and health, the underwriting function is more static. “We are seeing investment in new business, but funded in a way that underwriting has not really changed,” notes Scales. “Even companies at the forefront using direct-to-consumer apps are still asking hundreds of questions before the app is processed.
We are hoping a carrier will break that mold and create a 5-page life insurance app.”