• Automated insurance underwriting is helping insurance companies streamline the process. 
  • We took a look at how some companies are benefiting from insurance automation.
  • Do you work in the Fintech industry? Get business insights on the latest tech innovations, market trends, and your competitors with data-driven research.

Whether they’re in the market for car, renters, or property insurance, consumers look for providers that can quickly and efficiently offer them the most affordable policy.

Insurance companies that leverage advanced technology to automate the policy underwriting and risk assessment process will likely remain atop the list of their competitors. The process of streamlining insurance underwriting is known simply as: automated insurance underwriting.

We’ve broken down how this process works, while noting how some companies are already reaping the benefits throughout the insurance value chain. 

What is automated insurance underwriting?

Automated insurance underwriting is the process where robotic process automation (RPA) and artificial intelligence (AI) software underwrites the risk of potential clients. The advanced tech uses AI and machine learning (ML) to evaluate risk, decide how much coverage the client should receive, and how much they should pay for it. 

Automated insurance underwriting utilizes advanced AI and ML technology in tandem with the insurance company’s underwriting guidelines to determine whether or not to accept the risk presented by the client. This, in turn, allows providers to generate a profit from underwriting and enhance customer satisfaction through more personalized policies.

Automated vs manual insurance underwriting

While automated insurance underwriting is completed quickly using advanced algorithms and software to analyze a client’s finances or health history, manual underwriting is the exact opposite. Manual insurance underwriting takes much longer to complete, and risks the chance of human errors, as it depends on a person to assess a client’s financial history. 

Human underwriters require a great deal of paperwork, like bank statements, tax returns, proof of employment, medical history, demographic profile, and more. Once the client is able to obtain and provide the underwriter with this information, the underwriter then needs to assess the potential risk in providing insurance to the client.

While manual underwriting can be an attractive option for clients with a unique financial situation — such as being new to building credit or having previous financial problems — but for providers, it’s a drain on time and resources.

Automated insurance underwriting systems & benefits in 2022

Insurtech and insurance automation are broad terms to describe all technology that helps streamline the efficiency and operations of an insurance company — such as the insurance underwriting process. Insurtech startups use automated underwriting to analyze client data as well as flag errors and verify accuracy of work completed by human underwriters.

Insurtech Distruptors_4x3

Seeing a lucrative opportunity in an industry filled with legacy players, full-stack insurtechs — insurtech carriers that operate using their own insurance license — are cropping up and poised to steal incumbent insurers’ revenue and market share.

Since they don’t work with incumbents at all, these companies are able to retain the entire profit pool and have full control of policy creation and pricing. Some full-stack insurtechs, such as Clover Health, are even growing their customer numbers at a significantly faster pace than the industry average. 

Comparatively, insurtechs operating as managing general agents (MGAs) share profits with their insurance partners. MGAs team up with licensed insurers and leverage their authorization to sell policies, while insurance partners handle the underwriting process. Thus, full-stack insurtechs are able to better control the overall user experience.

Automated life insurance underwriting

Life insurance underwriting is the process of collecting personal, health-focused information on a client and using it to decide how much coverage to provide. Personal data details could include: occupation, health disorders, height/weight, whether or not the client smokes, family medical history, etc. Underwriters take all of these factors and classify the potential “risk” a client brings to their company in providing life insurance. 

Many of the top life insurance companies now use automated underwriting to accelerate the purchasing journey. For example, Prudential is taking advantage of digitally enabled, data-driven underwriting.

Prudential encourages clients to use PruFast Track, its underwriting process for individual life insurance applicants. PruFast Track leverages Prudential’s Risk Assessment Mortality Model (RAMM), which was built using machine learning and is able to take a massive volume of data, apply statistical analysis, and draw a level of insight. PruFast is able to determine within days whether or not a client qualifies for an accelerated underwriting path, or if they need to go through the traditional underwriting process.

Automated property insurance underwriting

Property insurance is an umbrella term encompassing homeowners insurance, renters insurance, and auto insurance. Root and Lemonade are two insurtechs making tremendous advancements with their automated underwriting systems for property insurance.

Usage based auto insurance _4X3

Focusing on auto insurance, Root’s underwriting system analyzes individual users’ driving behavior to give clients a fair price reflecting personalized risk — saving good drivers as much as 52% on their car insurance. What’s unique to Root’s automated underwriting system is that it continuously assesses a client’s risk, meaning that if the system determines that a person has become a safer driver, Root may update their policy with discounts.

Comparatively, Lemonade offers renters and homeowners insurance, and boasts its ability to collect 100 times more data per user than conventional insurers. Additionally, because Lemonade uses bots that have underwriting algorithms in place during its onboarding process, most users can get coverage instantly. 

While mortgage and property insurance underwriting may seem homogenous, the stark differentiator for automated insurance underwriting is the lack of a down payment and home value assessment. With mortgage underwriting, the insurer needs to analyze the value of the home and/or property a client is buying. This calls for the need of an appraiser, property survey, title insurance, and down payment — and due to the amount of people and steps involved with mortgage underwriting, insurance underwriting tends to be completed much quicker.

Future of automated insurance underwriting 

As the insurtech industry continues to swell and companies implement ML and AI technology, automated insurance underwriting will become increasingly popular. According to Insider Intelligence’s Insurtech Disruptors Report, as insurtechs gather more data on their users, they’ll be better equipped to assess risk and more accurately price their policies than incumbents — allowing them to generate a profit from underwriting.

Global insurtech funding reached $7.12 billion in 2020
Global insurtech funding reached $7.12 billion in 2020. 

Over time, incumbent insurers’ data advantage will disappear and there will be a more level playing field when it comes to underwriting policies. And with 55% of tech-savvy and 43% of non tech-savvy customers saying that personalized products and services influence their decision to stay with their insurer, automated underwriting will be key for any insurer looking to remain competitive in the industry.