Experts in the field state that by 2030, underwriting as we know it today will cease to exist. It is therefore of utmost importance for executives of insurance companies to ensure that they align their business operations with the technological advancements pertaining to underwriting which includes artificial intelligence (AI) and machine learning (ML). Moving forward, companies that do not align with the technological advancements in the industry may find it challenging to keep up with their competitors. Insurance executives can take a proactive approach by choosing to use a future ready policy administration system that ISB Optimus can help you with to quickly adapt your business to align to modern ways of working and keep up with doing underwriting more efficiently to benefit your company and keep your customers highly satisfied with your offerings. 

Artificial Intelligence and Machine Learning’s impact on Underwriting & Pricing 

According to a McKinsey & Company article entitled Insurance 2030-The impact of AI on the future of insurance, dated March 12, 2021, by authors Ramnath Balasubramanian, Ari Libarikian and Doug McElhaney, it is mentioned that the process of underwriting would be reduced to a few seconds as most of the underwriting is automated and supported by a combination of machine and deep learning models built within the technology stack. With the business landscape changing it is therefore especially important that insurance executives must have a clear understanding of how AI and machine learning will reshape claims, distribution, underwriting and pricing. 

Distribution 

Enough information is known about client behaviour from AI algorithms for the creation of risk profiles so that cycle times for completing the purchase of an auto, commercial, or life policy will be reduced to minutes or even seconds. Smart contracts enabled by blockchain instantaneously authorize payments from a customer’s financial account. Meanwhile, contract processing and payment verification are eliminated or streamlined, reducing customer acquisition costs for insurers. The purchase of commercial insurance is similarly expedited as the combination of drones, IoT, and other available data provides sufficient information for AI-based cognitive models to proactively generate a bindable quote. 

Underwriting & Pricing 

Underwriting is an essential part of the insurance process which helps insurers to assess risk and to determine the correct level of premiums to accept the relevant risk. Generally evaluating risks and the pricing process takes vast amount of research time to work on the risk profiles of customers. Artificial intelligence (AI) has changed the length of time it takes for underwriting and risk pricing processing is done. This is good news for insurance executives. 

Traditionally underwriting relies on accumulating and researching historical data to develop rules for risk assessment and it involves manual labour to collect substantial amounts of data from multiple sources, extracting information from data received and researched, as well as, organising the data to make a final decision. With so much of human intervention there is a risk of possible error in the information accumulated and the cost of manually collecting new data continuously is costly. Underwriters are faced with the option of taking the risk of not having all the data to process submissions or to do the data processing in detail which takes more time and then run the risk of losing customers due to higher pricing of products offered.  

With underwriting being supported by a combination of machine and deep learning models which are powered by internal data as well as a broad set of external data accessed through application programming interfaces and outside data and analytics providers. This would enable insurers to create product offerings to suite a client’s risk profile within a short time that would cover the needs of the client. 

Artificial Intelligence (AI) certainly offers insurers the option of quicker turnaround time for submission processing which frees up more time for more productive tasks to be tackled. AI allows for various steps in the underwriting process to be automated. Underwriters can automate data collection, data extraction, filing forms and other tedious tasks. AI is able to extract vital information through unstructured data with the use of optical character recognition (OCR) and natural language processing (NPL). This helps underwriters to capture and classify useful information more quickly and with more accuracy. This will help speed up the underwriting and pricing process. 

Pricing is always key factor in influencing the client’s decision to except a product. Pricing is available in real time based on usage and a dynamic, data-rich assessment of risk, empowering consumers to make decisions about how their actions influence coverage, insurability, and pricing. 

Going forward the turnaround time for resolution of many claims is measured in minutes rather than days or weeks. claims where human interaction and negotiation are empowered by analytics and data-driven insights, claims linked to systemic issues and risks created by new technology. More than half of the claim’s activities would be replaced by automation. 

ISB Optimus can offer you a Policy Administration System that will help you keep up with your competition by expediting digital transformation, improving your company’s operational efficiency, and to adapt the system to fit your company’s needs. It also simplifies claims management, mitigate business risks with the use of analytics for business insights and help keep your customers content with an enhanced customer experience. 

New Data from Connected Devices 

The infiltration of the existing devices like such as cars, fitness trackers, home assistants, smartphones, home appliances and medical devices, etc. It is imperative that there will be an avalanche of new data created by these devices which would result in new products categories, more personalised pricing to suit their customers and the need for real-time delivery. Experts estimate that there will be around one trillion connected devices by 2025. 

Prevalence of Physical Robotics 

With more vehicles having autonomous features within the next few years, carriers would need to understand its impact on the insurance industry as customer expectations change, risk-pools shift and allow for the introduction of new products and channels. Advanced technologies and data are already affecting distribution and underwriting, with policies being priced, purchased, and bound in near real-time. An in-depth examination at what insurance may look like in 2030 highlights dramatic changes across the insurance value chain. 

Improved Risk assessment 

By insurers using data from internal and external sources such as third parties, Internet of Things (loT) claims histories, location, or historical data of business occupancy for property risk assessment, these models can learn from past records and predict the risk profile of new submissions. A significant amount of time is saved by underwriters in analysing data to help them make informed decisions. The models used to analyse data is more efficient than humans in recognising patterns in large data resulting in information gained being more accurate. 

Fair & Better Pricing  

According to an updated AI Multiple article titled AI in Underwriting: Data-driven Insurance Operations in 2023 by Cem Dilmegani of Artificial Intelligence, Insurtech, dated January 10, 2023, it is mentioned that with underwriters have a better understanding of their clients’ risk profiles it enables them to decide on more profitable and fair pricing for the products offered to their clients. With the use of machine learning models insurance companies can price risk more competitively. AI-driven systems enable real-time data-based dynamic pricing. These can increase profitability through improved workflows, pricing strategy, reduce time-to-market and ensure customer satisfaction and retention.  

Reduction in Fraud 

Fraudulent claims can be detected using machine learning models, helping insurance companies save money and to also maintain profitability whilst protecting the interests of the policyholders.  

According to the updated article (AI Underwriting: Efficient & Data-driven Insurance Operations) by Cem Dilmegani of AI Multiple dated January 10, 2023, he also mentions the following:  

• 56% of insurance executives believe that AI would improve operational efficiency. 
• 47% state that their investment in AI would accelerate over the next year. 

According to an article by SUSCO dated May 24, 2023, on Ways AI and Machine Learning are Revolutionizing the Insurance Industry, it states as per McKinsey research, “AI, and ML -powered automation will replace over half the current claims activities by 2030, resulting in faster and more accurate claims processing. ML models will streamline the end-to-end technical adjudication of simple claims and reduced human judgement based. Algorithms will handle claims routing and make data-driven decisions in critical areas like damage and coverage assessment, increasing claims efficiency.” 

Conclusion 

Efficiency is of immense importance to all industries, including the insurance industry. AI and machine learning are found to be greatly beneficial to insurance underwriting and claims processing by improving accuracy, enhancing efficiency, reducing fraud, allowing for better risk assessment, data quality and availability.  

ISB Optimus can help companies achieve more efficiency in their underwriting and to also help streamline their back office to empower their workforce with an insurance system that is cloud based and works efficiently and seamlessly. Claims processing and premium billing is simplified. It also allows for insurance processes to be automated on a digital platform and helps insurance companies gain efficiency by managing their pricing and billing. ISB Optimus can also help you meet global regulatory requirements by taking a strategic approach to IFRS 17 compliance.  

How can ISB Optimus (Pty) Ltd. help get your Business Aligned with AI technology? 

With ISB Optimus, you gain more than just having an AI system in place —you gain a strategic partner committed to helping your company stay at the forefront of technology and best practices in the industry. 

Author
Synthie Enoch, Content Administrator