One of the core objectives of the P&C industry's digital transformation initiatives is streamlining and automating the underwriting process so that it can support any origination method with a minimum of human intervention. By doing so carriers expect to reduce origination costs and cycle times allowing them to compete effectively as more and more insurance customers transact more of their business online.
This works well for transactions where all the data matches and the customer doesn't make a premium reducing 'mistake'. Unfortunately, it is the remaining ten percent of quote, endorsement, and renewal transactions where costly risks are hidden. Traditional underwriting processes are unable to eliminate most of these problems because individual issues are too small to justify human intervention. But these' rats and mice' are so common that they constitute a significant and largely unmanaged share of carrier underwriting losses. In digital direct channels these hidden risks frequently push losses to 120 percent of premiums.
This wasn't how it was supposed to be.
Carriers assumed that their new systems would use comprehensive 3rd party data to automatically screen out these hidden risks up front allowing 'straight through' processing. Unfortunately, not all up-front fraud risks can be identified using data (for example, pre-existing damage) and both data providers and customers frequently provide inaccurate data, generating large numbers of data mismatches to be resolved. Carriers can’t simply assume that purchased data is correct because even the best datasets typically have errors in ten or more percent of their records.
What carriers need is a way to expose and resolve these concealed risks. This requires that they:
Identify the specific risks concealed in a given quote, endorsement or renewal.
Engage the customer in an automated ‘conversation’ that solves the problem.
Capture images and/or documentation that validate the customer's data claim or modify policy details to mitigate the discovered risk.
And crucially this must happen during the transaction before an insurance commitment is made.
This means that carriers need two quite different automated processes to underwrite new policies: their core systems, designed to efficiently process “clean” transactions and a much more flexible, customer interactive system that resolves costly exceptions before passing them on to the core system.
The evidence is quite clear - based upon our direct experience and conversations with other major carriers who have tried - carriers who sell (or even quote) to consumers online without this capability will fail. Badly.