Automated underwriting – reducing costs through simplification and efficiency

Since its introduction as a back-end system solution to the expense and inefficiencies of manual underwriting in the 1980s, automated underwriting has developed into an essential tool for the life insurance industry to maximise efficiency and to reduce costs. Consumerism has also driven the need for simplicity, not only in life insurance products but also in processes. Automated underwriting has provided this simplicity by reducing the reliance on complex, expensive and time-consuming manual underwriting processes previously required on the majority of policy applications.

Automated underwriting enables around 80% of policies to be underwritten on standard terms, allowing the industry’s skilled underwriters to focus on the remaining 20% of cases, which are more complex. This has effectively increased the local life industry’s scope for growth and has offered insurers the ability to increase their distribution channel and product offering capacity.

“The proliferation of technology, specifically broadband and Internet services, throughout South Africa is also opening up opportunities for insurers and financial service providers to reach non-traditional markets, with automated underwriting driving the efficiency of insuring these markets,” says Conrad Backeberg (pictured right), Managing Director, RGA Reinsurance Company of South Africa Limited. “However, while the trend of automated online sales has been successful internationally, there are still some hurdles to ensuring the local success of this distribution channel.

“The biggest hurdle to attaining instantaneous life insurance quotations generated online in South Africa is HIV/AIDS,” continues Backeberg. “The underwriting process currently requires delays, pending an HIV test on any life policy. Nevertheless, automated underwriting drastically reduces the time traditionally required to generate the same quote.”

This reduction of time between application and the issuing of the policy, by having moved underwriting to the front end of the application process, ensures that sales rates are increased, which is important for business in what is becoming a volume-driven market. The automation also results in a higher conversion rate, with automated processes allowing 75-80% of life cover to be accepted within one to five days, without further medical evidence or underwriting. This is an increase of 45-50% from the traditional market application process. Internationally automated underwriting has resulted in a 99% success rate when issuing policies at a given premium.

“Automated underwriting is also offering insurers a solution to the reduced number of skilled underwriters in the market, by handling the majority of policy applications automatically,” comments Backebrg. “Brokers and intermediaries are also benefiting from the speed of policy applications and the certainty offered by the increased number of policies that are accepted through the use of automated underwriting technology. The technology will, however, never replace the need for skilled underwriters, as not all complex cases are the same and many may require differing exclusions and policy requirements on a case-by-case basis.”

The fact that this automated underwriting technology is also more easily accessible, as ‘off-the-shelf’ solutions, such as the Automated Underwriting and Risk Analysis (AURA) software developed by RGA Technology Partners (RTP), means that insurers can utilise and benefit from this technology without the hassles and issues commonly associated with the development and roll-out of bespoke automated underwriting software packages.

“Automated underwriting is central to ensuring growth within the life insurance industry, as it offers a platform to reach new markets, reach deeper into established markets and enables the competition for these markets to be driven by price rather than complexity,” says Backeberg. “Automated underwriting also simplifies the usual stumbling block that the underwriting process can be, allowing insurers to improve customer service, risk selection and the pricing for these risks,” he concludes.