Three Underwriting Predictions for 2021 and Past
While 2020 was a year that changed the way we live and work, our predictions for 2020 proved remarkably accurate. As we predicted, life insurers that have modernized their new core business and policy management systems have accelerated their digital transformations. Thanks to their new digital capabilities, including cloud, analytics, automation and ecosystems, these insurers have been able to drive profitable new business.
An April 2020 LIMRA survey found that 24 percent of U.S. companies accepting online / mobile applications saw an increase and more than a quarter had expanded their automated subscription practices. Similarly, the November MIB Life Index shows that total life use activity increased 4.1 percent (YTD November 2020) from 0.7 percent in 2019 (annually) – an upward trend that started after the pandemic and mostly from younger applicants under 45 years of age.
Even with the economic fallout from COVID-19, these insurers were better equipped to enjoy a fully digital insurance buying experience, which proved to be a huge benefit for customers confined to their homes during the pandemic. They were also better positioned to grow their business beyond the pandemic, as shopping online is likely to remain a fact of life – and life insurance – for the foreseeable future.
For 2021, our underwriting projections focus on accelerating digital insurance. They assume that US interest rates will remain low and that premiums will decline, which will lead to additional pressure on margins. Insurers who have not yet modernized their core systems need to do so quickly and reinvest their old maintenance savings in digital drawing technologies. Companies that do this are well positioned to take advantage of new opportunities. For example:
1. Technology investments that change the cost curve allow insurers to invest in technical innovation and achieve greater value
Operational efficiency will dominate in the short term. In the long term, however, insurance managers are preparing for the post-pandemic world and using cloud, automation and AI to optimize the underwriting function and enable faster and more accurate underwriting decisions.
According to the LIMRA study “How Covid-19 Affects Life Insurance in the US and Canada” (April 2020), more than 25 percent of US life insurers have expanded automated underwriting. COVID-19 taught us an important lesson in the importance of contactless transactions, and underwriting was no exception. Whenever possible, insurers have adapted their risk models to include alternative sources of evidence to reduce or eliminate fluids and / or paramedical exams and the associated costs. Expect wider use of contactless underwriting in the near future and beyond as additional alternative sources of evidence such as health and wellness data become increasingly available.
2. End-to-end customer experiences will dominate the life insurance buying process and drive underwriting innovation
Insurers can differentiate themselves through the experiences they offer their clients, and underwriting can be a powerful differentiator. Technologies such as AI, analytics and alternative risk engines connected through well-developed APIs can provide consumers with seamless, fully digital experiences that make quick and accurate drawing decisions while communicating the status of applications throughout the process.
These same technologies will help insurers offer the right products at competitive prices and deliver them through optimized distribution channels to reach the more than 60 million uninsured and underinsured consumers that LIMRA estimates live in the United States.
Research from Accenture found that more than three-quarters of consumers surveyed are willing to share personal information for benefits such as personalized offers, more efficient and intuitive services, and more competitive prices. The concept of “pay as you live” is becoming increasingly relevant for insurers as consumers increasingly conduct their important life transactions online and on mobile devices.
3. Increasing competition will increase the importance of brand loyalty and trust.
Brand loyalty and trust are becoming even more important to attract and retain policyholders. New technologies will help insurers focus their organizations on the customer and empower their employees to innovate products and processes that attract and promote customer loyalty.
Underwriting plays a role here. It’s not just about building trust in the transport company’s solvency. It’s about underwriting that supports personalized and relevant experiences – a living system – to deliver new products and services based on real-time data, predictive models and an ongoing risk assessment.
Underwriting will break out of a back office role to a strategic role influencing front office functions like marketing, sales and sales. Insurers can anticipate customer needs with tailored products that the consumer is already pre-qualified and ready to buy. This is the end result of intelligently prepared data and insights that enable insurers to make consistent and accurate decisions.
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The insurance industry has switched to a digital business model for the immediate future. Beyond the COVID-19 pandemic, however, living companies will emerge that integrate physical and digital worlds. Insurers can prepare for that future now by implementing a flexible core platform for insurance technologies. This allows them to innovate and grow sustainably by using underwriting as the foundation for a digital customer experience that generates profitable revenue.