Almost a decade ago Life Insurers in the Australian market entered the search for greater efficiencies and faster assessment turnaround times believed to be possible via the mechanism of automated underwriting. Having closely observed the UK market, in particular, leading retail Australian insurers moved quickly to embrace automated underwriting.
Munich Re in Australasia engaged early and worked closely with key clients from 2007 on this topic, in some instances directly involved in resourcing, implementations and electronic underwriting rules development.
With a dedicated Underwriting Development team, Munich Re developed a best-practice methodology in order to conduct reviews of automated underwriting processes, including Underwriting Rules Engines (UREs).
An automated underwriting “User Group” was also initiated and hosted, which allowed the relatively small number of URE developers from multiple insurers the space to share challenges and opportunities in the this then, fledging discipline.
In addition, Munich Re has conducted an industry survey ‘Fulfilling Life’ in four of the past five years, with a focus on benchmarking automated underwriting and its impact. As a result of the proactive engagement and multiple initiatives in this space, Munich Re has a comprehensive understanding, and the ability to track the progress of, automated underwriting offerings in the Australian market.
Although the take-up rate of e-applications has increased from ~40% (2010) to ~70+% at present, it is telling that paper applications still have a place in this market and ‘straight-through-acceptance’ (STA) rates have not shifted dramatically since 2010. Whilst most early-adopters were, primarily, looking for improved underwriting efficiencies, it is Munich Re’s view that the true value of automated underwriting has yet to be realised.
Drivers – for implementation (2011 FL Survey results):
We believe automated underwriting is a prime risk-management tool offering insurers ease of access to insightful information of strategic relevance. The next significant initiatives are likely to come from insurers who both recognise the value of data for overall business performance, and commit to drawing out the insights yet to be discovered.
As a keen observer of global developments in automated underwriting propositions, Munich Re has observed “pockets’ of best-practice.
Based on our observations and discussions with insurers and Munich Re colleagues globally, one of the most consistent factors determining “success” in this space is the role of Senior Management in articulating both the value and strategy, as well as supporting activity with dedicated resources and budget.
Munich Re has identified the following factors as prerequisites to attaining a Best Practice Model.
|Best Practice factors|
|Clear strategy articulation and execution|
|Senior business champion(s) and key decision driver(s)|
|Clarity of ownership with regard to key responsibilities|
|High-levels of communication & collaboration amongst stakeholders (including IT department)|
|Superior data management and regular monitoring|
|Appropriately-skilled dedicated resources (in sufficient number)|
|Allocated budget for ongoing development|
|Automated Underwriting Philosophy Document|
|Documented rule review and management procedure|
Opportunities – Execution is king
The automation tool itself, i.e. URE, can be state-of-the art, but execution will almost always trump tools and/or gadgets. The surrounding resources, processes and long-term goals ultimately determine the quality and scalability of the offering.
To optimise the customer experience and maximise risk management, we believe three key elements are required:
1. Using the data collected
Data analytics continues its ascent in the minds of alert insurance professionals. Few deny the potential impact data-mining could provide insurers and reinsurers. The insights gained via intelligent analytics could lead to new and improved services, plus smarter product design and delivery methods. This is before the use of new ‘external’ data sources – much is already available to insurers/reinsurers if they are willing to look – although this exciting area should be explored in parallel with ‘internal’ data-mining if the insurance industry wants to expand its customer base and compete with the likes of Google, Amazon, et al. Not only do these possible new entrants have a remarkable volume of data, data analysis is at the heart of their respective propositions.
Data collated via automated underwriting is meaningful when considering both detail and respective volume. Smart monitoring of data collated via quote software and UREs (married with policy administration systems) can alert insurers to a number of ‘flags’ warranting attention, e.g. a shift in expected applicant demographics, a spike in ‘non-target’ areas, adviser behaviour, claim outcomes, etc. A couple of local insurers have committed resources to the analysis of URE outcomes, and one has reimagined underwriting auditing – via the use of the URE tool in conjunction with the policy administration system – to identify exceptions to underwriting philosophy/practice. While these examples are commendable, the specialists who work at these insurers know that it is not nearly enough to capitalize on the promise they purchased some years earlier.
As a risk-management tool offering insurers ease of access to insightful information of strategic relevance, the next significant initiatives are likely to come from those insurers who recognise the need for, and value of, data for overall business performance.
The next, incremental phase of development will undoubtedly be capitalizing on access to e-information via e-health services and laboratories. This enhancement could then be complemented by risk portfolio analysis via data-mining, embedded use of analytics tools, predictive modelling and trend analysis – all enabled by the wealth of data already held within insurers’ data warehouses.
However, for most, such improvements appear to remain discussion points rather than planned activities.
2. Defining roles and responsibilities
Investing in developing an experienced solution team with the appropriate mandate to focus on continually improving the automated underwriting offering is likely to result in great returns. The time and resource required to reimagine how the overall underwriting process needs to adjust as both consumer and adviser demands, plus expectations around user experience, and (?) change is significant. To reach business objectives, it is important that there is clarity with regards to specific roles and responsibilities. As such Munich Re have identified the importance of the following roles.
|Rules Designer/ Developer(s)||Plan, design and develop electronic underwriting rules (EURs) in alignment with in-house Underwriting Philosophy
Continual collaboration with URE Reporting Analyst in order to gain insight into EUR performance and design
Establish a feedback mechanism and liaise regularly with underwriters/tele-interviewers and claims assessors to gain insight into EUR performance from both customer-experience and risk management perspectives
|URE Tester(s)||Test all required EUR outcomes and URE enhancements in order to determine whether or not behaviour is consistent with design
Report outcomes to EUR developers in a methodical and structured manner
|URE Reporting Analyst||Report and analyse data to provide insights and identify URE development opportunities, trends, demographics, etc
Provide specified reports and initial analysis to designated managers in order to support business objectives
|URE Release Co-ordinator||Co-ordinate all stages of each release including setting timelines, scheduling all relevant participants, defining and documenting scope/sign-off/development/testing and implementation procedures|
|Underwriting Development Leader||Determine and document overall improvement and optimization strategy
Establish best-practice framework and communicate to stakeholders
Establish and implement continual improvement cycle
In collaboration with above roles define team approach with regard to efficiencies, procedures, enhancements and feedback
3. Improving the underwriting process
When considering acquisition costs it will be unsurprising to learn that we’ve seen evidence of inefficient new business/underwriting processes resulting in far greater upfront expenditure than necessary. Three years ago Munich Re conducted analysis, on behalf of a client, which revealed gross in-efficiencies in particular “buckets”. These findings challenged beliefs about where the obstacles to healthy conversion rates occurred. Interestingly at the time, Munich Re provided recommendations to this insurer as to how it could overcome these obstacles. Only in recent months has the insurer been able to focus on executing this plan because the business had now provided dedicated resource and budget allowing for it.
Giving advisers what they want?
Amongst the myriad of client expectations and compliance requirements, an adviser must be across, his/her need for the insurer to provide a swift assessment outcome via a slick, frictionless process. Adviser satisfaction surveys convey this message loud and clear. Automated underwriting is a key component impacting the customer experience. The additional ability to tailor questions and assessment steps aligned with the customers risk profile will also enhance the customer’s interaction with both the adviser and insurer.
While the point-of-sale interaction is critical, most advisers have a keen interest in well-designed insurance products and meaningful claims services for their customers – hence an attractive insurer is one who can package all of these factors with ease. Our view is that insurers are capable of doing so if they can balance the interaction between data, people, processes really well.
Drivers for improvement – current
|Accessibility||‘Easy’ to do business with|
|Distribution||Meet business needs of existing distribution channel/advisers|
|Risk-management||Strengthen RM approach via monitoring of business mix / customer & adviser behaviour / claims experience|
|Data||Provide e-app data for ongoing analysis|
|Consistency||Ensure consistency of underwriting decisions|
|Speed||Increase speed of application completion time|
|Costs||Reduce underwriting and administration costs|
A decade on, some Australian insurers have strengthened their respective automated underwriting offerings but are yet to uncover the riches enabled by the technology.
An adaptable approach with input from multiple disciplines in order to optimise customer experience and maximise risk management is required.
- inform ourselves via data (new and already collated)
- plan the next steps in a considered way
- establish skilled team(s) to explore
- and execute well,
then major improvements across the value chain are at hand.
Ultimately the vision, focus and execution of insurers and reinsurers in the Australian market will determine the impact of automated underwriting solutions. While great progress has been made in the last decade, the potential remains for so much more.
Research and development in the Life insurance sector with a focus on optimising portfolio-level risk management via strategy, automation, analytics and creative leadership. Design Thinking convert / practitioner.
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