Why the Legacy Process of Insurance Underwriting Is Broken
The insurance industry is a complicated one. There are many different types of policies that cover a wide range of things, from car insurance to life insurance. But the legacy process for obtaining coverage has been broken for decades now, and new approaches have been slow in coming.
Insurtech startups are beginning to change this, whether launched internally by insurance companies as part of their research and development (R&D) labs or by independent incumbents. The problem with the legacy process is that it's slow, expensive, and doesn't take into account modern customer needs. Nevertheless, the industry as a whole is still playing catch up.
It's time for legacy insurance firms to get with the times and embrace this new wave of technology
The old way of doing things relies on human underwriters who make decisions based on their own experience and gut feelings. The process is slow, with each decision taking anywhere from days to months depending on the type of coverage being sought. Not only are old-style underwriters expensive to hire and maintain, but they're also prone to mistakes due to their reliance on intuition rather than fact-based evidence about their customers.
Accordingly, new companies are bringing new technologies to the table that enable more efficient underwriting, such as advanced analytics and machine learning. As a result of these advances in technology, decisions on whether or not an application for coverage is approved can be made much faster than ever before—and with greater accuracy too.
Steve Prymas, Chief Insurance Officer at Embroker, said, "The complexity of commercial insurance is rooted in legacy systems and processes that have become unsustainably inefficient in a modern and largely data-driven world. Over the past couple of years, a new era of risk has emerged that involves enhanced cybercrime threats, increased employee risk created by a hybrid workplace and a dispersed workforce, and due consideration of the evolving needs of the digital consumer. So a legacy industry needs to embrace this new era of risk and take a new, better approach to risk management."
Insurers may gain an edge from adopting a digital-first strategy
The importance of a digital-first approach cannot be understated. Consumers are more tech-savvy than ever before, and they expect their insurance providers to keep up with the times too.
Big data, artificial intelligence (AI), and the Internet of Things (IoT) are all part of what's powering this new wave in insurtech. The insurance industry is no different from other sectors, such as finance or media, that technology companies have already disrupted.
There's an opportunity to improve by using analytics. Even though being experienced is vital for people underwriting for a long time based on judgement, it's essential to be fact focused. Analytics can enable real-time insights, allowing for a more efficient, cost-effective process that works in the interest of insurers and the insured.
"It's time to break down the complexity and rethink the idea of commercial insurance. That means rebuilding commercial insurance from the ground up, allowing for a digital-first perspective that radically simplifies the way businesses get insurance. Digital-first platforms for digital insurance products designed and packaged for specific business needs combined with data-driven underwriting models will better assess risk and result in better products to protect companies against that risk," added Steve.
In summary, the legacy process of insurance underwriting is broken. It's slow, expensive, and doesn't take into account real-time customer needs. Insurance companies need to embrace new technologies in order to improve the process. A digital-first strategy is essential for insurers looking to stay competitive in today's market and make fact-based decisions.
