Will technology kill the job of an underwriter?

With the introduction of supercomputers such as IBM’s Watson and the SymbioSys underwriting engine, some in the insurance sector fear that underwriters will be replaced by off-the-shelf software. This article aims to discuss all aspects of underwriting, including but not limited to job description, prerequisites, and possibilities in technology advancements. Furthermore, how companies are updating and automating the systems that they already have in place, how technology has affected the insurance industry, how it is used in the industry, and whether or not it is feasible to believe that humans will be replaced by computer programs.

Underwriting is a job that has existed for as long as there has been a need for insurance. It’s the process of issuing insurance policies. Underwriters look at the risk vs. the reward and decide whether or not issuing a policy for an individual or a business is going to be costly for the insurer. In doing so, an insurer uses the investment capital from shareholders on behalf of corporations and governments that are issuing securities to generate a return on risk based capital for those shareholders.

Millions of dollars can be at stake, so underwriters must have an eye for detail. If an underwriter’s appraisals seem too liberal or too rigid, then customers may look elsewhere to find a policy that seems adaptable. Because of this, an underwriter must make sure that the information given to them is accurate and that the quotes that they give the prospective policyholder truly meets their needs.

Not everyone can be an underwriter. Typically underwriters are university graduates with business degrees or have taken some finance courses or courses in accounting. A company may decide to hire someone with a background in another field if they see potential or a deep domain specialism (i.e. a Builder for Construction insurance) in that candidate.

Productivity of underwriters is increasing. One thing that is helping is the fact that technology is there to make their jobs manageable. As technology changes, new underwriting processes and software is always debuting. Today, strong computer and communication skills are a must for underwriters.

Underwriters spend a good portion of their time talking to potential clients and brokers. Although they will spend their time behind a computer, they must possess the ability to speak to people as well – meaning they must be excellent “people persons”. Furthermore, underwriters must have good judgment. They sometimes have to make decisions at the drop of a hat.

Underwriting and Technology

Some say that the future of underwriting is being put in jeopardy by the introduction of supercomputers to the industry. IBM has invested billions of dollars creating a Watson supercomputer. Just like a human, it “learns” from whatever data that you feed it via a method called “machine learning”. Unlike humans, the data is never forgotten and is utilised efficiently. Watson is able to analyse and perform the deepest research and development, returning it to the user in a simple and understandable language.

The best thing about using Watson would be that the knowledge set of the program can be set based on the most knowledgeable people in the industry. Also, when using Watson, your results come back unbiased whereas at times, people get emotional and may offer adjustments to the information based on need.

IBM’s insurance industry representative, Jamie Bisker discusses the possibilities about using Watson when underwriting:

So you could have, say, information for Indiana, Ohio, and Kentucky listed. Most of the insurance regulations are probably similar, but there are differences,” Bisker said. “So a question and answering system such as Watson could be queried about, ‘I want to sell a life policy in Kentucky, could I use the same forms that I developed in Ohio?’ A Watson type system could answer that question. “I could actually envision an agent or an executive literally referring to the system in the presence of the client, saying, ‘Hey, I don’t know this. I’m not positive about that. Let’s ask Watson. ‘Hey, Watson. What do you think? [You can imagine that, when a company… would be building their data set or their database that would be used by a question-and-answering system, they would say, ‘you know what? We need to get our best agents in here. We need Barbara from Indiana and we need Jane from Pennsylvania. We’ve got to get Joe from Texas. Tell us your stories.’ So they could literally be asked questions, ‘what was your toughest sale? How did you handle this? What are the questions people forget to ask

So, ideally, software will become more complicated and complex but will still serve as a compliment to the actual user/underwriter.

SymbioSys Underwriting Engine is an insurance specific piece of software that has changed underwriting. Per information at SymbioSys:

the engine provides learning from the past decisions and empowers the underwriter to refine underwriting rules and hence reduces dependency on an IT department. SymbioSys Underwriting Engine is based on a robust technology framework whose components incorporates the most appropriate technologies for today’s business complexities with the flexibility to seamlessly integrate with the exiting IT applications.

As technology advances, many industries are finding positions being phased out by automated processes. Some believe that technology will replace the position of an underwriter. However, I do not believe that this will ever be the case. Bob Shine, New York-based chief underwriting officer for North American property/casualty at XL Insurance, stated:

The technology is the biggest story and the biggest change on the underwriting side. From an underwriting perspective, (the computer) wasn’t that dynamic. It was more about processing business. The emergence and prominence of mobile telephones “fundamentally… changed underwriting,” as insurance professionals suddenly had 24-hour accessibility

A new classification of underwriting has come into existence. It is called e-underwriting. E-underwriting is very similar to underwriting. However, almost all of the information gathered and the process are done online. Typically a referral to an underwriter is not needed and companies can deal with brokers and partners direct. The most popular risks that are processed using e-underwriting are life, auto, personal property, and commercial based. According to the Wall Street Journal, E-Underwriting is becoming quite popular:

The insurer says it is so confident in the ability of its proprietary “decision engine” to piece together a picture of a buyer’s health that it has eliminated the option of conventional underwriting for all buyers of term-life policies between the ages of 18 and 40 who want a term-life policy of as much as $500,000. All buyers who fit that criteria are going through Rapid E-Underwriting.

Many companies like MetLife and Prudential Insurance opt for using e-underwriting for many of their policies:

A more-streamlined process will generally result in higher rates,” Kent Sluyter, a Prudential senior actuary, stated “From a customer perspective, the incremental cost can be viewed as an offset for the convenience of not having to go through the full underwriting end-to-end process. The old process gave people multiple opportunities to drop out” because it took so much time, says William Mullaney, president of MetLife’s U.S. operations. “We believe e-underwriting will dramatically improve the number of people who actually complete the process from application to payment.

Jerel Titus, Underwriting Manager at Unitrin Direct says

Our plan was to engage in an enterprise-wide digital organisation of our corporate information. Our vision was to expedite our business process by using automated workflow. We wanted to find a way to horizontally align disparate silos of information stored within a variety of departments. Our ultimate goal was to use digital workflow to connect multiple technologies in underwriting, claims, and customer service applications, tapping into web-based electronic forms, imaging, bar code reading and indexing, our automated call service, and more.

One aspect where technology is changing underwriting is in the medical insurance field. Fuzzy logic is being used to determine the mortality rate of patients with diabetes mellitus. Fuzzy logic means that the algorithms using IF and THEN are used to comprise a result. For example, when determining a patient’s risk factor, IF a patient’s blood sugar level is low and they have low HBA1 levels, then they are not at high risk for having diabetes mellitus and a health insurance policy can be issued.

Mobile Apps and Underwriting

The auto industry is paving the way for use of mobile applications (tablets and phones) to gather information from prospective and established clients. Insurance companies are allowing for customers to use their Smartphones and tablets to supply them with information to perform virtual inspections on their vehicles, which also leads to them having the ability to process applications and have responses back to clients sooner.

Not only can using mobile apps be convenient for clients, but also it has made the underwriting process easier for employees. Having access to remote information in a quick manner, and in real time has made waiting for reviews, comments and approvals by both parties minimal. The software that is used for mobile applications must be comparable to that which is used in the underwriter’s offices. Therefore, the integrity of the information taken is never compromised and the portability of the information to the office is at an excellent rate. Also, the ability to have team collaborations and increase office efficiency are doubled because (typically) everyone that is assigned to the account can see updates on it in real time, make changes if necessary, and complete any open tasks that need to be completed.

Most mobile apps that are used for underwriting have secure access and data. The same protection that is used in the office is found in tablets and smart phones. SSL encryption and data is stored on servers instead of on the device. Most underwriting software that has been adapted for mobile use has been integrated with the Sunrise Exchange in Australia and various broker management systems to ensure that all users have the best experience using the applications.

Many of the new mobile innovations that are being introduced will be done at the annual Mobile World Congress in Barcelona, which next year commences on March 5. Many of the world’s biggest companies will be displaying various new gadgets, hardware and software that will be helpful for the continuous improvement of underwriting processes.

Underwriting has been and will always be a job that is necessary. A supercomputer is only as good as its best underwriter. If it is fed information that is useless or not relevant to finding the best options for a client, then it should not even be used at all. As more companies opt to use supercomputers and give their customers the choice of e-underwriting, particularly for commoditised business, there will always be the need for someone to operate them and serve should there ever be a referral or a need to provide advice (complex business). We often fear a new technology will eliminate one type of job without imagining the many new types of jobs it will create.

Due to the fact that the use of supercomputers is fairly new, I suggest that further research is done over the next three to five years. It is too soon to see any direct affects or correlations between technology and employment within the insurance sector. I would recommend cross-referencing employment data with that of software used for various firms.

Technology is ever changing, as is our industry. One of the best ways to see whether these changes are beneficial is to survey people within the industry, see how these changes have affected their job performance, and seek out recommendations from these users. This would include everyone from management to someone just starting out in underwriting as well as customer satisfaction surveys. Having mobile first applications and software such as Watson is beneficial, however, we need to see whether using these programs negatively affects our client interactions.

About the author

Grant Pattison is the senior manager for marketing & sales technology for Insurance Australia Group (IAG) which owns brands such as CGU, NRMA Insurance and Lumley. Grant’s role is to establish and drive the technology vision for marketing & sales across IAG’s Commercial division and, facilitate technology enabled marketing and sales solutions that generate value outcomes for customers, partners and employees.

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