Digital Underwriting is the Future of Insurance

By Katherine Jones
Communications Manager, Coterie

The insurance industry has sometimes been a slow-moving behemoth resistant to change, but times are changing. Even before the COVID-19 pandemic necessitated some changes, the insurance industry began to embrace technology to improve efficiency, enhance service, and expand the market.

This renewed drive to embrace technological innovations is evident in the insurance industry’s move toward digital underwriting vs. traditional underwriting. Where traditional underwriting can be time-consuming and inefficient, digital underwriting presents the opportunity for insurers to quickly assess an applicant’s risk and, if in appetite, immediately issue and bind a policy.

But what factors, specifically, make digital underwriting so much more beneficial for insurers compared to traditional underwriting processes?

New technologies support a pivot to digital underwriting

A 2021 report by Deloitte Insights suggests that underwriters are likely to begin working with new sources of data and technology as a means of making more strategic decisions. Three trends are expected to contribute to the growing acceptance of digital underwriting:

• A need to more actively evaluate clients’ risk factors rather than relying on historical data
• Shifting from judgment-driven decision-making to actively employing some degree of science
• Understanding the effects of risk mitigation and management strategies on the underwriting process

According to 200 insurance executives surveyed by Deloitte, automation, alternative data, and artificial intelligence make up the “foundational elements” of a shift to digital underwriting.

By using technology to automate repetitive and unproductive tasks, such as data compilation and entry, underwriters are freed up to handle more important responsibilities. At the same time, they can take advantage of the speed and depth of information provided by digital tools to make quicker and more informed decisions.

As a result, digitalization and modernization serve as a foundation upon which insurers can improve automation, decision-making, and data collection and analytics.

Improving the process isn’t the only upside borne from digitalization, either. According to McKinsey, digitalization may reduce or altogether eliminate expenses associated with an insurer’s “top 20 to 30 core end-to-end processes.”

Personal information is more easily accessible

One of the crucial elements that support a move toward digital underwriting is the ease with which insurers can access and parse clients’ personal information.

The advent of social media and consumer technology — devices like fitness bands and smartwatches — allows insurers to generate “a more comprehensive and current assessment by tracking predictive data variables,” reports Deloitte.

Digital underwriting allows underwriters to analyze raw data in near-real-time to determine if:

• Risk conditions have changed beyond an accepted tolerance
• Pricing is accurate for a given risk tier
• Parts of an insurer’s portfolio require attention
• Insurers are beginning to take on too much risk

From there, underwriters can make judgments as to whether an applicant is worth taking on. An applicant’s questionable or negative social media history tells more of a story than their application, finances, and claims history do alone. Perhaps they’re just one thoughtless post away from a hefty libel suit that your company would be responsible for covering.

This wealth of information gives underwriters a more comprehensive assessment of any applicant. The result is increased accuracy in classification, rating, and adherence to a company’s risk appetite.

Digital underwriting improves efficiency

The shift to digital underwriting vs. traditional underwriting finds many underwriters taking on responsibilities resembling that of a data scientist.

According to Accenture’s 2018 Future Workforce Survey, 50 percent of an average underwriter’s day is spent on core processing. Such repetitive tasks as data entry eat up the time an underwriter can spend on profitable activities.

The same survey found that only 25 percent of an average underwriter’s day is spent on selling or broker engagement. That means that in an eight-hour workday, only two hours or so are devoted to new business.

Insurers who take advantage of digital underwriting vs. traditional underwriting may use AI, automation, and machine learning to:

• Pull information from multiple data sources using optical character recognition, text analysis, and other tools
• Screen applicants, highlight risk factors and detect fraud
• Analyze customer demand
• Match customer demand with available product offerings
• Classify assets
• Price and rate policies
• Use text to analyze customer personalities and match them with available brokers
• Generate useful reports and visualizations to aid in the decision-making process

Shifting the most repetitive and time-consuming tasks to digital tools allows underwriters to spend more making intelligent decisions so insurers can issue better policies.

Digital underwriting alters the value chain

Technological innovations are disrupting the underwriting value chain in ways traditional underwriting cannot. According to KPMG, these changes will result in underwriters acting more like “custodian[s] of the overall underwriting process” and less like “task performer[s].”

Underwriters who embrace digital underwriting vs. traditional underwriting are more likely to focus on improving cost-effectiveness and profitability. Some strategies may even involve using preventative methods to warn insureds of pending dangers, effectively mitigating likely claims.

Of course, none of this is possible without the technologies introduced and used by digital underwriting. Insurtech partners offer insurers access to specialized tools, systems, and APIs that enhance the underwriting process and better inform underwriters.

At the same time, insurers aren’t responsible for the development and ongoing support of these tools. Insurers may leverage the benefits of such technologies without taking on the added costs.

Additionally, by altering the value chain so substantially through the use of digital underwriting, insurers may improve the customer experience. The ultimate result is improved customer retention and business growth.

Digital Underwriting is More Scalable

The insurance industry is often seen as behind the times when it comes to technological innovation and acceptance. Sales may take place over the phone or in person, customer support may be antiquated and slow, and managing a policy may require back-and-forth correspondence via snail mail.

In addition to allowing insurers to collect and analyze data not previously available, digital underwriting is flexible enough to adapt to customer expectations, such as improved convenience, on-demand self-service, and simplified ease of use.

For example, through partnerships with insurtechs like Coterie, companies can integrate tools to quickly and easily insure entire workforces. Independent agents and brokers may use tools such as Quote Snapshot to provide easy-to-understand quotes to prospective clients, then issue and bind a policy within minutes.

Once a policy is issued, customers then have the ability to self-manage their policy, immediately access policy documents, and get back to the business of running their business.

Partnerships and integrations allow insurers to take advantage of digital underwriting and other tech innovations without any of the downsides. Rather than developing tools in-house or subcontracting the work to outside firms, insurers may seamlessly integrate already-proven systems and processes to better address and meet their customers’ expectations and needs.

Embrace Digital Underwriting

Business is changing and the insurance industry needs to modernize. Traditional underwriting has its uses but doesn’t take into account so many of the details an insurer needs to fully assess an applicant’s risk and provide them the coverage they require.

Additionally, digital underwriting helps agencies and brokers grow and scale in ways traditional underwriting cannot. Partnering with insurtech and analytics firms allows insurers to integrate new systems, technologies, and tools without taking on the cost and risk of development.

Adopting digital underwriting vs. traditional underwriting drives the insurance industry forward into the digital age, simplifying the insurance-buying process and reducing the cost and time investment of unproductive and repetitive tasks.

If you’re interested in being able to quote and bind policies with Coterie, click the button below to get started.

About Coterie

Coterie uses modern technology to make buying small business insurance easy. Business owners, freelancers & contractors deserve an easy insurance purchasing experience. Unfortunately, this process is typically overcomplicated, expensive, and time-consuming. Coterie integrates insurance into platforms and processes that businesses already use, unlocking protection in minutes. Our tech-based approach to business insurance uses data-driven automation, providing accurate, affordable coverage – without the hassle. With Coterie, fast, easy, and reliable coverage reaches businesses where they are, when they need it. It’s truly small business insurance, simplified.