Development has been gradual and piecemeal, although insurers and brokers have made great strides in modernising underwriting and improving customer experience on a meaningful scale in recent years.

The ongoing COVID-19 pandemic has highlighted the need to reassess underwriting practices and procedures. Processes must still migrate toward more remote, data-driven models, and distribution needs to shift from in-person encounters to online interactions.

Insurance businesses must hasten the development of digitally enabled, data-augmented purchasing journeys to remain relevant in the marketplace and offer the very best experience. In many cases, that involves algorithmic underwriting.

This post talks in more detail about precisely what algorithmic underwriting is, but in this article, we shall look at how it helps to improve the overall customer experience - and why you need to implement it in your insurance business.

How algorithmic underwriting benefits customers and improves their experience

Reducing the risk of human error

Humans make mistakes. It is inevitable. Even the most thorough and accurate people can accidentally hit the wrong letter on a keyboard or have a bad day and make an error. It can have devastating effects when it comes to insurance - especially commercial and business insurance.

Not only is this a massive problem for the customers, but it can also be difficult for the employees of the insurance business, who find themselves under immense pressure to get it right.

However, artificial intelligence, which is behind algorithmic underwriting, does not make mistakes (as long as it is configured correctly). The use of algorithms lowers the time and number of errors as information is transferred from one source to another. It is possible to reduce the quantity of manual data entering and redefinition by logging into a portal and uploading a document.

Increasing the accuracy of coverage

It is just as crucial to close the gap between the insured and the insurer to reduce mistakes. Customers and insurers both gain from better data because insurers can build better products based on more accurate evaluations, and customers can pay only for their required coverage.

With algorithmic underwriting, insurers will be able to do an even better job of giving the consumer advice as to the best products for them - and they can do it automatically. As a result of what they are told about the business and what the insurers and algorithms have learned from other firms in the same industry, the insurer can tell the customer what they think is a suitable level of coverage for their needs. 

The burden is thus shifted away from agents and customers and instead placed on the data to provide the necessary guidance and advice.

Enabling easier detection of fraud

Fraud is a significant source of concern for insurance firms, and algorithmic underwriting is a critical watchdog in the fight against false claims. Detecting patterns that could otherwise go undetected by human cognition is vital.

This impacts the customer and the insurance firms because they are often the ones that have to pay higher premiums for their business insurance coverage as a result of other fraudulent claims.

More accurate risk assessments

Underwriters have traditionally used information provided on applications to assess the risks associated with a potential client. So, naturally, the problem is that applicants may be dishonest or make mistakes, leading to the accuracy of these risk evaluations being compromised.

Insurance companies can comb over more abstract sources of information and put relevant data together to analyse the insurance company's possible risk more effectively.

Increased accuracy in risk assessments results in more appropriate premiums for consumers. Having a better, more personalised exposure model might significantly impact a market where the most crucial difference between insurance firms is not their products but their premiums.

The ability to automatically consume and analyse more data will also lead to greater personalisation, and clients will benefit from paying for the coverage they require.

Consistency in decisions

Underwriting standards for insurance that are automatically implemented ensure uniformity in the decision-making process within a framework that promotes the insurer's underwriting philosophy.

The automated system generates rules that serve as the foundation for the insurer's standards and enforces the rules by sending out alerts and initiating escalation actions when exceptions are made.

For example, an algorithmic underwriting system can record exceptions, which may be used to determine whether or not specific rules need to be refined. Additionally, consistency will assist in decreasing uncertainty among agents regarding specific underwriting decisions.

Overall improved customer service

Most of the time, checking on the status of a case requires numerous phone calls, with valuable time wasted on both ends while the application is being located. Instead, a slice of real-time case status data can be made available through the insurer's online portal or agency management software using visible tracking and dashboards.

This feature decreases the number of calls made to and from the clients and delivers a more favourable buying experience for both agents and customers alike.

Algorithmic underwriting offers a slew of limitless possibilities in the insurance sector, and the potential benefits to both insurance firms and their customers cannot be understated. If you want to know more about how your insurance business and clients can benefit from the introduction of algorithmic underwriting software and what products you need, why not get in touch?