McKinsey explores modernising underwriting during COVID-19
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 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:
- 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.
- 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.
- 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.
- 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.”
Anti-fraud technology firm FRISS raises US$65mn in funding
FRISS, a technology firm specialising in anti-insurance fraud and provider of AI-focused insurance fraud prevention products, has today announced it has raised US$65mn in Series B funding to expand its business and develop new products. Led by private equity firm Accel-KKR, the round was endorsed by investor Aquiline and advised by FT partners.
The company, active in more than 40 countries worldwide, will aim to save insurers around US$2bn in capital obtained from fraudulent activity this year alone. “We’ve been around for 15 years and completed over 200 implementations,” said Jeroen Morrenhof, FRISS CEO and co-founder.
“FRISS is ready to scale exponentially through our Series B, taking our mission of accelerating safe digital transformation throughout the policy lifecycle to the next level,” Morrenhof added.
How does FRISS’ anti-fraud technology work?
The technology used by FRISS to detect fraudulent activity integrates artificial intelligence (AI) to help insurers reduce losses and increase operational efficiency. The company said it offers real-time end-to-end P/C insurance fraud analytics products and services covering the complete lifecycle of the policy, including automated underwriting risk assessment to fraud detection during claims and comprehensive case management.
Alerts are displayed via integrations with core systems such as Guidewire, Duck Creek, Sapiens, and Keylane. In addition, the system can pull additional information from various available data points to create a “holistic view of the risks attached to each policy request, renewal, or claim,” the company said.
Insurance fraud and ghost broking
Leading UK car insurance firm Aviva found more than 12,000 fraudulent claims were made in 2020, totalling more than £113mn. This amounts to 33 claims per day or one every hour. The company expects insurance fraud to increase due to the financial strain brought about by the coronavirus pandemic. It also found that more than 19,000 claims were under investigation for fraud whilst fraudulent policy applications and Ghost Broking grew by 34%. Ghost broking is a type of insurance fraud predominantly affecting the car insurance sector. It involves a fraudster or scammer targeting higher-risk individuals such as newly qualified drivers and elderly people, pretending to be either an insurer or someone who can purchase insurance on a driver’s behalf.
They tend to advertise their services on social media, university campuses, pubs, and students forums, promising cheaper insurance. After claiming to have purchased insurance successfully, they then cancel the insurance and leave the victim with no cover. They may also forge insurance documents or falisfy a driver’s details, invalidating the policy.