The insurance industry has been around for a long time and shall continue to do so. The processes have not changed much over time. Underwriting plays a critical role in this insurance industry.
The purpose of underwriting is to accept liability for possible losses to the customers of the insurance business. The process aims at estimating the risk involved with insuring a potential policyholder. It consists of reviewing applications for new or renewing policyholders and calculating the risks with insuring a person or an asset, along with the premium payable for the coverage sought.
As underwriting has to ascertain the risk involved for the insurance, it has a very significant role to play. It serves an essential function of assessing the degree of risk, helping investor decisions, calculating the appropriate premium amount, ensuring proper coverage, and a lot more.
Depending on the industry and the type of financial contract, the kind of underwriting involved may vary. It can be either: Insurance Underwriting, Mortgage Underwriting, Loan Underwriting, Securities Underwriting, or Equity Underwriting.
With the advancement in information technology in the past few years, the underwriting process has improved considerably.
Let us take a closer look at three ways an insurance business can bring massive improvements in its underwriting process:
1. Data Quality Check
Location-based technology like IoT, AI, ML, and medical technology help collect real-time data. This data, in turn, helps analyze and calculate the premium a potential customer needs to pay.
Depending on the demand, the insurer needs to frame the data or aggregate it. However, the collected data and real-time data are non-identical, sometimes. The customer’s data like occupation, address, education may vary across several documents. Any lag in data updates will further accentuate the problem.
Without the right technology, the data processing, sorting, sequencing, and validation will become a mammoth task, leading to underwriting data overload, a concern for underwriters.
Appropriate modern technologies will make it very easy to procure, process, and validate the customer’s data. It will be a big step towards maintaining Data Quality.
2. Analytical Consistency
For the insurance industry, data holds significant importance. To make the right decision, the sorting and structuring of data are imperative. The structuring of data and judgment vary and depend upon the underwriters’ capabilities. Non-similar sets of outputs can create disputes.
The more accurate the customer data formatting is, the better it assists in identifying the loopholes and making better decisions.
To avoid human-based errors, many underwriters prefer managing data digitally. When the system is filled with data, it gives the output that helps decision-making. A system provides the same output as its data as input. Consistency is vital for the insurer to maintain consistency with the customer’s data.
The data needs consistency with the workflow for the insurance business, more than any other business. Such workflows need to integrate into the process to allow seamless underwriting.
3. Use of Digital Platforms
For formulating underwriting and limiting fraud, businesses try to collect data from all possible resources. Underwriting decision-making involves the study of physical factors and non-physical factors.
Physical factors include age, gender, habits, hobbies, occupation, health history, and travel history. These data can receive through form filling and document verification, and it is simple to collect.
Non-physical factors include moral hazard, financial information, and other insurance data. It takes a bit of effort to assemble.
The underwriter uses advanced technology like artificial intelligence, machine learning, the internet of things, drones, satellites, sensors, cell phones, and other convenient devices. The platforms like social media, e-commerce, and social forums add more data and a broad outlook.
The boundless availability of resources and technological advancement gives underwriters the freedom to not depend on backward-facing data.
Underwriters can utilize a dynamic process that relies upon real-time data.
Underwriting is an indispensable part of the insurance business. Structural hierarchy, analytical consistency, and digital platforms can help insurers survive the increasingly competitive environment by making the underwriting process faster, more efficient, and more relevant to their customers.