Underwriting Automation: Why Expectations Might Not Match Reality

Posted by The Jacobson Group


The underwriting automation engine has undoubtedly become a popular approach for many insurance organizations seeking to increase efficiencies and augment their workforces. While implementing this technology is likely vital to remain competitive, there is often a disconnect between the expectations and the reality of automation’s impact on underwriting operations.

Automation is not a “magic bullet,” and the technology is not going to generate immediate cost savings. Most associate automation with savings by means of staff reduction. There certainly will be less need for underwriters to evaluate every single insurance application, as insurers are increasingly relying on data and software for this task. However, the impact on headcount may not be as drastic as some expect. Some companies may simply choose not to backfill positions left vacant from retirements and other attrition. Additionally, underwriters will still be needed to personally handle the most risky, complex and time-consuming cases.

Any reductions that do take place may not directly translate to cost savings, contrary to popular belief. To oversee underwriting automation, insurers will require highly skilled “hybrid” underwriters to consistently update, test, validate and maintain their automation engines. Insurers will progressively look for “renaissance employees” for these roles – professionals with a solid underwriting foundation coupled with data analysis and various technology skillsets. They will need those who understand how automation works, as well as those that can offer technical underwriting expertise coupled with a business mindset. As has been observed with the hybridization of other professions, this unique skillset will likely command higher salaries. Therefore, cost savings derived from reducing headcount may be offset by salary pressures.

Automation ignites the redefinition of work and this work calls for skill sets that not all underwriting team members may have. Given that everyone is learning in the moment, leaders will need to be intentional in providing opportunities for underwriters to access their consultative instincts. Assigning projects to expand their business analysis, critical thinking and even research and communication skills will help prepare them for the new work that lies ahead. It is also important to allow front-line professionals to engage with the technology and be part of the process.

Retention during automation efforts can often become challenging. Don’t let employees paint their own picture of their future work reality. Leaders must be transparent, maintaining clear communication with their staffs. Semantics are important. Focus on the people and how they might be feeling. Automation is a modernization project that is going to automate routine tasks to free up valuable resources – them! During times of change, the importance of empathy cannot be overlooked.

Compounding the Knowledge Gap

AdobeStock_63541871The introduction of automation may also inadvertently contribute to the profession’s already widening knowledge gap. Continued low unemployment and a mass exodus of underwriters to retirement continue to drive the war for talent in this area. In fact, the underwriting profession is expected to see a deficit of nearly 35,000 individuals by 2020, according to Deloitte.

This expansive automation trend is challenging the traditional training methods that fostered underwriters for years. New underwriters typically spend about six months to one year undergoing initial training. Those new to the profession learn by handling simple cases, which will now be mostly in the hands of the automation engines. As a result, in the new model, organizations will be challenged to provide emerging underwriters with the same training and experience as in years past; and the talent pool for senior underwriters will be at risk of depleting.

Organizations can learn from the actuarial profession when it comes to professional development. Similar to the actuarial profession, there are two underwriting-specific designations: an associateship and fellowship level, awarded by the Academy of Life Underwriting (ALU). Earning these designations requires a combination of the Life Office Management Association (LOMA) coursework and passing four ALU exams. The ALU exams are only offered once per year, requiring at least a four-year commitment for the Fellow of the Academy of Life Underwriting (FALU) designation. It has become an industry best practice to provide actuaries with paid study time as they pursue their credentials and to offer financial incentives for passing exams. Given that young professionals today rate learning and development opportunities as one of their top priorities, building an underwriting trainee program inclusive of the already available industry education will not only support training, but will also assist in the recruitment and retention of new underwriters.

AdobeStock_175564673The talent implications of automation also provide a chance for insurers to balance effectiveness with efficiency. Organizations may be able to build the most efficient process for today with automation, but they will meet challenges tomorrow if they fail to consider the long-term consequences in parallel. Insurers have the opportunity now to build training programs that will supply their senior underwriting needs for years to come.

For example, organizations may consider leveraging trainees as an additional quality assurance check on the underwriting engine. By having trainees underwrite insurance applications that were already processed via automation, they will gain foundational underwriting knowledge while the organization ensures the accuracy of their underwriting engine. With this approach, insurers can tackle the widening talent gap and have a chance to turn immediate intentional inefficiency to lasting effectiveness.

Insurers must pursue automation with their eyes wide open. Automation engines will be pivotal for the future success of the industry. However, as automation grows, so does its risks. Insurers need to realign their expectations and make serious informed investments into their underwriting operations – and talent – in order to succeed.

How is your organization tackling the human component of automation?