The insurance industry has always been slow to grasp the different facets of technology. The reason lies in the fact that the industry is reliant on historical data. They are therefore understandably averse to risk.
The insurance industry is thus being put under pressure by technology. Customers want to pay an individualised insurance premium which reflects the actual risk taken by the insurance company.
The cyber security market is growing at an alarming rate. There is also pressure to incorporate and manage the risk more effectively. Traditional insurers are however reluctant to make plausible offers to vulnerable clients.
Huge amounts of data are provided by technology. In addition, insurers spend vast amounts of money on claim processing as well as fraud detection. New algorithms are able to predict risk. They allow for vast automation in the underwriting process. Furthermore, contracts can be managed more efficiently. Examples are wearables for healthcare and GPS trackers for cars.
Only about a fifth of insurers claim that they want to fully automate the process. Nearly 80% of insurers say they are struggling or just getting started with automation.
Between eight and fifteen factors are taken into account when an underwriter issues a policy. This may be a motor, home or life policy. As many as 60 answers may be required from a life insurance applicant. A sophisticated automated system could supply vast amounts of data.
Policy writers are wary of underwriting risk based on technology which supplies no justification for pricing. Furthermore, staffing will be reduced with increased use of underwriting automation. Risk assessment algorithms will become more reliable. Executives will have increasing confidence in them. Low-level underwriting will become cheaper and more consistent.