Harnessing AI to streamline insurance processes: a game changer for underwriters

Picture this: underwriters meticulously sifting through mountains of information, painstakingly gathering, scrutinizing, and analyzing colossal volumes of data from diverse sources like financial statements, credit reports, and application forms. That picture isn’t far from reality—according to a 2021 study by Accenture, underwriters spend up to 40% of their time on non-core and administrative activities like data collection, which can create bottlenecks in the underwriting workflow. As the insurance industry grows and customer demands evolve, these manual underwriting processes make it difficult to keep up with the increasing workload, leading to delays and resource constraints.

The problems with manual data collection inunderwriting aren’t limited to speed alone. Underwriters often lack access to real-time data that can be critical to effective decision-making and are forced to rely on historical records and paper-based documents. They use predetermined risk assessment models with fixed criteria that may not adequately capture the complexity and nuances of individual cases or respond effectively to emerging risks or changing market conditions. As a result, underwriters may overlook factors that could impact policy pricing or coverage. Last but not least, underwriting can be subjective because each underwriter interprets risk factors differently. This lack of standardization can undermine the accuracy and fairness of underwriting practices, and even expose insurers to the risk of litigation for discrimination. 

AI and automation can change that—streamlining and enhancing the underwriting process. By leveraging advanced algorithms, data analytics, and machine learning, insurers can address challenges and improve the efficiency, accuracy, and consistency of their underwriting operations.

Understanding AI in underwriting

There is more data available today than ever before. The challenge in all industries, insurance included, is how to effectively process the growing amounts of data to create actionable insights and improve decision-making. That’s where AI comes in—advanced algorithms can analyze vast amounts of data from various sources, far more than any human underwriter could ever cover. The algorithms can identify patterns, correlations, and hidden insights within the data, which in underwriting, can help make more accurate assessments. AI can even be used to automate routine underwriting decisions, allowing underwriters to focus on complex cases.

Machine learning models can also be trained to identify risk factors and develop predictive models that evaluate the likelihood of specific events, such as claims, defaults, or fraudulent activities, based on relevant variables. By incorporating predictive analytics into underwriting, insurers can assess risks more accurately, set appropriate premium rates, and improve overall profitability. Since they consider a wide range of factors, such as demographics, behavior, and risk profiles, machine learning models can also tailor insurance policies to meet the needs of specific customers. This personalization improves customer satisfaction, increases policy adoption rates, and enhances customer retention.

How AI can enhance underwriting?

Let's look at some of the ways in which AI can enhance underwriting. 

Automating data analysis

Underwriting involves analyzing vast amounts of data to accurately assess risk and make informed decisions. AI can automate this process using machine learning algorithms to quickly and accurately analyze various data sources, such as financial records, credit scores, and market trends. By automating manual data analysis, underwriters are freed up to focus on complex cases that require human expertise.

Enhancing risk assessment

AI can be used to analyze historical data and identify patterns and correlations that may not be apparent to human underwriters. By referencing a wide range of factors and data points, AI systems can provide more accurate risk assessments, enabling insurers to make more informed decisions and set the most accurate premium rate for every customer.

Faster decision making

It takes time for underwriters to manually review large volumes of data. AI-powered underwriting systems can significantly expedite the processes and provide real-time insights, which in turn leads to quicker response times for customers. 

Improved fraud detection

AI algorithms can be trained to detect fraudulent activities by analyzing historical data, identifying patterns, and recognizing anomalies. By continuously learning from new data and adapting to evolving fraud techniques, AI systems can improve fraud detection accuracy. This helps insurers identify potential fraud cases at an early stage and prevent losses.

Personalization

AI can enable personalized underwriting by analyzing individual customer data and tailoring insurance policies to meet specific needs. By considering factors like demographics, personal habits, and risk profiles, AI algorithms can offer customized coverage options and pricing structures. This level of personalization can enhance customer satisfaction, increase policy adoption rates, and improve customer retention.

Ethical considerations   

Underwriting is bound by various regulatory and compliance obligations aimed at safeguarding consumers and ensuring fair and ethical operations by insurers. For instance, underwriters must adhere to principles of fairness and non-discrimination, prohibiting the use of race, gender, or ethnicity as factors in determining eligibility or rates. They must also align with multiple data privacy regulations like GDPR and CCPA, which means that they have to obtain policyholders' consent for collecting and utilizing their personal information as well as implement robust data security measures. 

Complying with these regulatory factors and requirements is crucial for insurers to retain their operating licenses, avoid legal consequences and fines, and maintain their reputation and customer trust.

The right platform can help insurers meet these strict and constantly evolving regulatory requirements and maintain high ethical standards. For instance, advanced technology can be used to protect customer data, while also maintaining transparency about processes and procedures. It can also flag issues that may be problematic so that the insurer can address them right away. 

Case studies of insurers leveraging AI in underwriting

Many insurers are already utilizing AI in underwriting. For example, John Hancock Life Insurance created an end-to-end digital process that leverages AI to make instant decisions for some customers. Clearcover Insurance gives customers the option to complete a brief questionnaire and then receive AI-generated quotations. 

The disruptive InsurTech industry has also pioneered the use of AI in underwriting. Insurtech star Lemonade uses tech like wearables and IoT to collect more data points about each customer. That data is than analyzed by an AI-powered bot using underwriting algorithms to make automated decisions that enable most customers to get insured immediately. That frees up the Lemonade underwriters to provide personalized advice and support and handle complex cases. 

The future of underwriting

Although AI brings many benefits to underwriting, human expertise remains essential. Underwriters continue to play a crucial role in setting guidelines, interpreting complex cases, and addressing ethical considerations. The ideal approach to underwriting in the current market is a collaboration between AI and human underwriters, leveraging the strengths of both to achieve more accurate, efficient, and customer-centric underwriting processes. When that happens, the sky is the limit.