Underwriting is at the core of the insurance industry. The processes of selecting and pricing risk and the additional operational processes necessary to deliver a policy and provide ongoing services are essential to the overall profitability of a carrier. Over the last few years, carriers have been heavily engaged in replacing core policy admin systems and increasing the automation of their underwriting processes.
Automation of underwriting processes carries the promise of improved results, but can come at a significant cost — both the hard costs (purchasing technology, implementing technology, and changing processes) and the soft costs. Change can be hard on both underwriting staff inside a carrier and on the agents who receive the output of the underwriting process.
So when does it make sense to invest in automation — or, put another way, are there pieces of the underwriting process that when automated are more likely to result in improved results? We thought it would be interesting to investigate these questions to provide guidance to carriers that are trying to prioritize their efforts.
Our goal was to understand the actual state of underwriting automation in the insurance industry. Are carriers living up to the hype in the media that implies that virtually every carrier out there has automated every step of the process? Or is the progress slower? Are carriers with older systems at a disadvantage against those who have replaced their systems with modern solutions? Do high levels of automation actually result in better financial results?
The process of underwriting was broken into 26 logical components of work. For each component, three levels were defined — ranging from little automation used to significant levels of automation. Carriers can use this report as a self-diagnostic tool by comparing their scores to the benchmarks that follow in this report. To understand what top carriers are doing in this area, Celent conducted a survey around this topic looking to answer these key research questions.
- What are the different components of underwriting that can be automated?
- Where are carriers utilizing automation in underwriting?
- Are high levels of automation in underwriting correlated with improved metrics?
Our key findings were:
- Average levels of automation vary dramatically by line of business, even within the same company.
- Personal lines carriers are more likely to be applying high level of automation in the front end processes related to automated quote, issue, and renewals — including automated communications with policyholders.
- Commercial lines carriers tend to apply higher levels of automation for the back end including workflow, product management, rating, and reporting/analytics.
- Workers compensation and specialty carriers tend to have slightly lower levels of automation in all aspects of underwriting but can achieve significantly better results when applying automation to processes related to analytics and service.
- Carriers with newer systems are using high levels of automation in more of the processes. Those who have had their systems for over 15 years have had a lot of time to customize their solutions and have slightly more highly automated processes than those whose systems are between 10 and 15 years old.
- Personal lines carriers are the most likely to benefit from high levels of automation, especially automation related to process efficiency and underwriting insights.
- Commercial and specialty carriers benefited most from high levels of automation in processes related to underwriting insights. Generally, the best combined ratios were found in those carriers with a medium level of automation — processes that were supported by technology, but had some level of human intervention as well.
- Workers comp carriers are most likely to benefit from high levels of automation in processes related to driving underwriting insights.
Here’s a link to the report. You can download it if you’re a customer. If you’re not a client, ping me and we can chat.
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