ArticleAlgorithmic Underwriting Insurance

Investments in technology: Where is the bang-for-buck for insurers?

29 Nov 2022

Insurers are no different from any other business in looking to optimise their operational expenditure. We're taking a look at how forward-thinking insurers can secure value by working efficiently and reducing waste in their operations.

Investments in technology: Where is the bang-for-buck for insurers?

The state of play

The current commercial and specialty insurance marketplace is fractured and inefficient. Brokers and insurers generate large amounts of unstructured data, employ arduous manual processes and have differing legacy systems, few of which can communicate and share data with one another. This makes participating in the same risks and sharing data with one another difficult.

Data is recorded by all parties in the value chain in differing quantities and formats and is therefore unstructured and inconsistent. This presents a challenge when trying to streamline insurance operations and makes it extremely hard to take advantage of and extract value from the latest technological advancements.

How can insurers reduce their expense ratio?

It's evident that in order to stay competitive, insurers must focus their efforts on reducing their expense ratio. After years of reducing staffing costs, the only approaches left for insurance companies involve leveraging technology. By improving efficiency across operations, insurers can reduce their overheads, increase profit margins, and pass some of these savings onto customers in the form of added value.

The easiest way to reduce expense ratios without impacting value to customers is by reducing the amount of time and money spent on unnecessary admin. By recording consistent, structured data at source and automating appropriately throughout the value chain, the gains made to operational expenditures will become apparent.

Some examples of areas where technology can help insurers to streamline regular processes include:

  • The ingestion and classification of submissions: Software can analyse, assess, and organise data as submissions are received, whether in email format, contracts or spreadsheets, reducing the time insurers have to spend on simple data entry and augmentation.

  • Triaging of submissions: Technology is capable of automatically triaging submissions and prioritising these on any combination of metrics, for example by underwriting appetite, deal size or broker. Depending upon an organisation's appetite for risk, automated triaging can be programmed to automatically accept or reject submissions based on appetite while referring others in the ‘grey area’ to human underwriters for further consideration.

  • Automated underwriting: It's possible to fully or partially automate the underwriting process by using algorithms to assess risk data points and generate a decision based on each risk, whilst also pricing it if necessary. The importance of underwriting automation using an algorithm is that it can be done at scale: it takes an algorithm the same amount of time to assess and price one risk as it does 1,000.

  • Post-bind activities: After binding, insurers can use technology to automatically produce invoices, manage overdue premiums and take care of reconciliation. It can also be used to process and evaluate claims and communicate with customers.

Insurers don't have to fully automate every aspect of all of these activities to make significant savings on their expenses. Instead, insurers can pick and choose which activities they want to automate - and to what degree they want to automate them - as they slowly make the transition into the next generation of insurance.

A variety of approaches

There are at least three distinct approaches that insurers can take to maximise the benefits they reap from investing in technology for the future. It's up to insurers to decide which style of automation is best for their business and which approach their team and clients are ready for.

Light touch automation

The light touch approach to automation usually means implementing just some aspects of automation across an organisation. Insurers might do this by streamlining various aspects of underwriting and focusing on improving workflow efficiency from beginning to end.

Taking this approach involves investing in technology that handles mass data ingestion and focusing on those key data points most relevant to underwriting. Humans work with the captured data, filling in bespoke data points that can't be ingested automatically, before handing it over to an algorithmic underwriting platform whose work can be checked over by a human underwriter before it's signed off.

Insurers who take the light touch automation approach may also implement aspects of automation into post-bind activities such as invoicing and customer communications, as well as using AI-enriched risk data to clarify risk in the claims process.

Heavy touch automation

Insurers who favour a heavier approach to automation will focus more single-mindedly on fully automating key areas of the business. This often means focusing on automation using algorithmic underwriting technology.

To maximise the effectiveness of this approach, insurers will select a number of lines of business, usually based on either ease of automation (simple product lines) or value (highest GWP) and design a product spec that captures all of the data points needed to automate the underwriting process.

Using this approach, the underwriting of specific product lines is almost entirely automated with minimal human intervention at this stage. Post-bind activities are also automated, allowing insurers to significantly increase the rate at which they accept submissions, underwrite policies and price risk for their most lucrative business lines.

Progressive insurers take this approach to streamline their most important operations while offering better value - and more accurately priced premiums - to their customers.

Smart follow entity

Finally, smart follow underwriting offers insurers and reinsurers a new way to decide which risks to 'follow' and which risks to reject. Forward-thinking insurers have the opportunity to create new, fully digital underwriting entities that operate on a smart follow basis.

Typically, the decisions the algorithm makes are more simple in this case. For example, a decision could be: "If the risk is X business line and X insurer is the leader, we will accept the risk".

Get in touch

If you're interested in finding out more about automation technology for insurance and how it could help you to reduce your expense ratios and maximise profits, get in touch with us today.

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