Determining risk is an important part of all of our daily lives. Each of us makes countless decisions, big and small, with the intention of avoiding danger and insulating ourselves from negative outcomes: watch your step on the escalator, wear sunscreen at the beach, steer clear of dark alleys. Some of those decisions are simple and intuitive. Some take a lifetime of learning. Others require even more complex calculations.
Insurance underwriting is, at its core, the business of determining risk – and it has arguably never been more complex. But with the benefit of new technologies, particularly artificial intelligence, insurers now have the ability to optimize the underwriting process, including supercharging the turnaround time for a client quote. Certain complications will always come with the task, but today’s insurance underwriters have the tools to quickly process data while reducing their margin for error – key building blocks for a profitable, stable agency.
Insurance Underwriting Challenges and Limitations
No matter how skilled, experienced or well-equipped they may be, producers aren’t fortune tellers. For every insurance business, the needs of both covering potential risk and delivering competitive client quotes are in constant tension. Traditionally, agencies have used a fairly standardized set of data to calculate risk and measure their own coverage liability against policyholders’ premiums. But there are two main obstacles to optimizing this process.
First is the rapid pace of change in our modern world. Policy and regulatory fluctuations, an unpredictable economy and climate change are just a few of the factors that can influence the underwriting process, which necessarily must be adapted, over and over, to a shifting landscape. For instance, some agencies will no longer cover homes for fire damage in California or hurricane damage in Florida. The perceived risk has become too great, with increasing devastation in hyper-localized areas creating enormous liability levels that essentially price out potential clients.
There is also the colossal amount of data now on hand to insurers, which is not only available but required to pinpoint risk with reliable accuracy. Although no predictions are fool-proof, there is enough definitive, accessible data for insurers to intelligently hedge their risk, as well as the technology to process all of it. Climate change, economic upheaval and other forces that move the needle for insurers are here to stay. The agencies that are most likely to thrive in the future will use the most advanced technological tools to process all available appropriate data, accurately mitigate risk and serve customers with the most competitive quotes.
How Technology Streamlines the Underwriting Process
The traditional, outdated ways of underwriting are no longer useful in a modern and ultra-competitive insurance market. Without the benefit of AI-driven tools, producers might as well be using an abacus and slide rule to calculate their quotes.
These new technologies empower insurers to not only crunch numbers at a rate previously impossible to imagine, but they also allow for the automation of processing data sets that help producers respond almost in real time to changes that would otherwise be imperceptible to human senses. By leveraging artificial intelligence, insurers improve the accuracy and efficiency of the underwriting process, while making it – and this is a critical distinction – far faster. Rather than waiting days to hear back from an agent, clients can now get a quote in minutes.
Better yet, these new tools free up producers to spend more time and attention on their clients. Customer interactions are no longer a formality leading up to the hard work of underwriting, but instead, they are the essential business touchpoint. Producers are able to focus on the needs of their clients while letting the tech do the heavy lifting of data processing. The result: more accurate quotes, smarter coverage and a more satisfying customer experience.
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