McKinsey explores modernising underwriting during COVID-19

By William Girling
In a recent report, consultancy firm McKinsey & Co explored how digital and AI-based underwriting processes are vital in the post-COVID-19 industry...

In a recent report, consultancy firm McKinsey & Co explored how digital and AI-based underwriting processes are vital in the post-COVID-19 industry.

While legacy underwriting standards and protocols were already problematic for customers prior to the pandemic, the increasingly complicated logistics affecting many aspects of insurance means that digital solutions are becoming a necessity. 

“More than ever, insurance companies must address customer and agent frustration with the still lengthy, high-touch, manual process,” said McKinsey. Indeed, with medical examinations complicated and risk assessments sometimes confined to remote working models, practically all methods of working have in some way been disrupted.

Addressing a lack of ambition

The primary cause for concern, the report posits, is that insurance companies, excepting InsurTechs which thrive on utilising innovative new technology, have fallen behind in adequately adapting for the digital era through hesitancy. 

Instead of choosing to completely reimagine their underwriting frameworks or construct a new vision of the process, some companies make small or superficial improvements that have no direct benefit to the customer. 

“Especially given the changes brought on by the COVID-19 environment, insurers can no longer afford to be so cautious,” McKinsey continues. It gives the positive example of John Hancock’s eApp platform as evidence that increased ambition can pay dividends:

“[eApp] enables an end-to-end digital process across policies of all face values. The company provides instant decisions for applicants up to 60 years old for some products with up to USD$3mn in face value.”

Furthermore, in a sample of eight insurers measured by sales volumes over a two-year period, it was found that a 14% median increase resulted among those who opted to incorporate an optimised digital underwriting process.

Four steps for underwriting modernisation

With the necessity and benefits of modernisation efforts clearly established, McKinsey provides a four-step guide for insurers to base their new underwriting roadmap on:

  1. Understand and incorporate digital systems: from streamlining data collection to augmenting the decision process, the digitisation of records and the creation of faster product R&D timelines, systems underpin the insurance industry and the proper sequencing of these aspects can produce markedly greater results.
  2. Eliminate team silos: a team comprised of digitally-equipped talent is not best deployed within rigid departmental structures. Instead, greater flexibility and collaboration should be encouraged to make use of diverse skill sets.
  3. Aim high: digital transformation isn’t easy and often isn’t cheap either. However, by intelligently planning the journey beforehand and then committing to it wholeheartedly, insurers can expect to see better ROI. 
  4. Keep up the pace: rather than planning marathons on long-term goals, companies should opt for sprint-like short-term objectives which then link together to form larger overall targets. This ensures employee morale is kept high through a sense of achievement while the transformation itself quantifiably expands regularly.

Although McKinsey expects companies who follow its advice to reap tangible benefits from doing so, it also emphasises that “this is only the beginning. Many current efforts to modernise underwriting are only digitally enabling yesterday’s products. Today’s consumers have different preferences and needs than they did several decades ago.

“Streamlined underwriting is the first foundational step that will lead to the broader reinvention the industry needs.”


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