Efficiency in the life insurance underwriting process thanks to automation

Author: Jonas Wagner

The market for life insurance is in a state of flux. Due to the low interest rate situation and the increased cost pressure, Swiss insurers have to adapt their product range in order to be competitive. In particular, they must also successfully compete with new providers such as frankly. However, through the targeted improvement of the customer experience and a transparent and automated underwriting process, they can gain a decisive advantage.
Compared to insurances such as home contents or motor vehicles, the life insurance segment tends to have a more complex underwriting process. This is justified, as there are usually large amounts of money at stake and policy terms tend to be long (potentially 47 years for 3a). Due to the high complexity of underwriting, many insurers do not dare to take the step from a manual to an automated process.  However, it is underestimated that exactly this is an excellent starting point to differentiate through customer experience with the help of automation and thus to exploit a great potential.

Challenges

Let us imagine the following situation: A customer wants to take out a 3a insurance policy including premium waiver, death and disability:

1. In order for him to submit an application to the insurance company, he must first fill out an elaborate health questionnaire. 
2. Once completed, the application is sent to the insurance company by mail and arrives on the desk of an underwriter.
3. This person notices that there is an additional risk and the rate on the application needs to be adjusted. 
4. This generates a new application (counterproposal), which is again sent to the customer by letter post. 
5. Now the customer is already not so happy. Finally, the price increases do not please him and in addition, he has to sign the application again and send it again by mail to the insurance company. 
6. When it arrives at the insurance company, the contract lands on the desk of another underwriter, who may notice an additional risk.
7. ...and the process starts all over again.

Our experience with leading Swiss insurers shows that certain underwriting processes run the risk of trapping customers in an endless loop of applications. Not only does this result in a poor customer experience, it is also extremely inefficient and therefore very costly.

Proposed solution

What can be done in such a situation? One possible solution to the described challenges is quite obvious: In many places, such complex underwriting processes can be completely automated. The decision criteria for underwriting are standardized and quantified for almost all cases. As an example, let's take the smoker yes/no criterion. If yes, the potential policyholder receives a smoker surcharge. However, the amount of the surcharge is not assigned arbitrarily, but follows a certain logic (e.g., How often does he smoke?). Ergo, a rule engine can be used as the core of the automation, which maps and manages the underwriting questions and rules. This speeds up the process and manual intervention is no longer required. Rule engines are already in use in many places, but either not in life insurance or not fully integrated into an automated underwriting process.

The figure above shows an example of a possible automation: 

• Health questions should no longer be answered on paper, but integrated in the offer application. The consultant can provide support in this process.
• The questions are then passed on to an underwriting engine (a rule engine configured for underwriting), which can decide within seconds whether a customer is accepted or rejected directly. 
• If the customer is accepted (traffic light green), he can sign (digitally) the same evening and the contract is concluded directly.
• If there are additional risk surcharges (traffic light orange), this is not a problem. The underwriting engine will calculate such surcharges transparently from the beginning. If there are any special cases, they will be sorted out by the engine to find an individual solution with the customer. 
• If the customer is rejected directly based on an answer (traffic light red), this helps the customer as well as the consultant. No further time is invested in a contract that cannot be concluded.

Why the solution works...

The main advantage is certainly that costs can be saved thanks to automation. One of our customers has estimated that at least 60% of all applications could be processed automatically, very likely even more than 90%. Currently, they have not started with automation yet... Another advantage is that the advisor can do the underwriting together with the customer on the spot and thus reach a conclusion during a single meeting. Moreover, thanks to the transparent underwriting process, the customer experience is much more pleasant and (over)meets the customer's expectations.   

Recommendation for action

• Analyze potential: We recommend to carefully analyze the potential for automation. It may be that the process is complex, but nevertheless already standardized. If this is the case, automation can save massive costs.
• Standard software vs. in-house development: If the potential has been captured, we recommend implementing automation with purchased software. This problem has already been solved many times, so that an in-house development is in most cases more expensive than a standard software.
• Configuration & integration: If a rule engine is already in use, we recommend configuring it and integrating it into the offer process analogously to our proposed solution (see Figure 2).