Insurance underwriting standards are crucial to balance risk and profitability.
These standards often present challenges that can frustrate underwriters, policyholders, and the business as a whole. Understand and address these pain points to enhance operational efficiency and customer satisfaction.
WaterStreet Company is a provider of P&C Policy Administration Software, supporting insurers with next-generation technology, including underwriting management.
Top Pain Points for Insurance Underwriting Standards
1. Strict Interpretation of Standards
One of the most significant issues in insurance underwriting is the overly strict interpretation of standards. Underwriters are tasked with the goal to minimize risk, but this often leads to a few core problems.
- High Decline Rates: Underwriters may reject applications that fall even slightly outside stringent criteria, leading to a high number of declines.
- Customer Frustration: Prospective policyholders who are denied coverage may become frustrated, leading to negative perceptions of the insurer.
- Lost Business Opportunities: Strict standards can result in missed opportunities to underwrite potentially profitable policies.
2. Lenient Interpretation of Standards
On the other hand, an overly lenient approach can also cause clear issues for the business. This approach may have good intentions, but undesirable outcomes.
- Increased Risk Exposure: Approving policies that don’t meet robust criteria can lead to higher claim frequencies and severities, impacting profitability.
- Moral Hazard: Policyholders might engage in riskier behavior if they perceive that the underwriting standards are not strict, increasing the likelihood of claims.
3. Inconsistent Application of Standards
Inconsistency in applying underwriting standards is another common pain point. This occurs when policies are not reviewed uniformly.
- Underwriter Discretion: Various underwriters might interpret the same standards differently, leading to inconsistent decisions. This variability can confuse and frustrate both agents and policyholders.
- Training and Knowledge Gaps: Inadequate training or differences in experience among underwriters can exacerbate inconsistency issues, leading to varying outcomes for similar cases.
4. Administrative Burdens
Sometimes, the business’s underwriting standards are overly complex. Complex underwriting standards often result in significant administrative burdens.
- Time-Consuming Processes: Detailed and cumbersome criteria require more time and resources to process applications, leading to delays.
- Increased Operational Costs: The need for extensive documentation and manual review can drive up operational costs and reduce efficiency.
- Burnt Out Staff: When underwriting staff feels they’re unable to provide feedback and are trapped in complexity, it can lead to internal frustration and employee turnover. This causes the company deeper issues with the loss of collective knowledge and cohesion.
5 Ways to Solve Underwriting Pain Points
1. Training for Standard Interpretations
To mitigate the issues caused by overly strict or lenient interpretations, insurers should standardize the interpretation of guidelines. This involves creating detailed, standardized guidelines for underwriters to follow, ensuring consistency and clarity in decision-making. Be sure to cite real examples your underwriters have come across in order to help them directly apply the standards and resolve any existing confusion among the team.
Insurers should also implement ongoing training programs to keep underwriters updated on standards and best practices in order to reduce variability in interpretations. Continuous training equips underwriters with the latest knowledge and skills, allowing them to adapt to evolving industry standards and emerging risks effectively.
2. Leverage Technology
There’s no understating how advanced technology can streamline the underwriting process significantly. Automated underwriting systems enhance accuracy and consistency by automating risk assessments based on predefined criteria, reducing human error and speeding up decision-making. Predictive analytics further aids this process by identifying patterns and predicting risks more accurately, allowing for more nuanced and effective underwriting decisions.
By leveraging these technologies, insurers can improve operational efficiency and better manage risk. Technology can free underwriters from routine tasks, enabling them to focus on more complicated and value-added activities. This not only boosts productivity but also enhances the overall quality of underwriting decisions.
3. Enhance Customer Communication
Improve communication with policyholders to address frustrations and enhance satisfaction. By clearly explaining the underwriting criteria and reasons for decisions to applicants, the insurer can foster transparency and trust. Consistent communication is essential to enhancing the customer journey.
Establish channels for applicants to provide feedback and ask questions so that your company demonstrates a commitment to customer service and continuous improvement. This open communication helps build stronger relationships with policyholders, leading to greater loyalty and retention. Listen to feedback to refine the underwriting process and better meet customer needs, ultimately improving the overall experience.
4. Balance Risk and Opportunity
A balanced approach to underwriting standards can help optimize risk by implementing risk-based pricing models and developing flexible underwriting standards.
Risk-based pricing allows for flexible premium adjustments based on individual risk factors, making coverage accessible without compromising profitability. Developing more flexible underwriting standards considers a broader range of factors, enabling more personalized assessments and approvals. In auto insurance, individual risk factors might include driving history, the type and age of the vehicle, the driver’s age and experience, and geographic location.
This approach not only enhances the insurer’s ability to attract a diverse range of policyholders but also improves the precision of risk evaluation. By tailoring policies more closely to individual circumstances, insurers can better align coverage with actual risk, leading to more sustainable and profitable operations.
5. Foster a Culture of Continuous Improvement
Cultivating a culture focused on continuous improvement can help address and mitigate pain points within insurance underwriting. It’s important to note that according to recent risk assessment trends there is an expected surge in retirement among senior underwriting talent, calling for action plans to foster growth among underwriting teams.
Establish internal feedback loops where underwriters can share insights and suggest enhancements to standards and procedures to foster a collaborative environment that promotes innovation and efficiency. This proactive approach not only identifies and resolves issues more effectively but also empowers employees to contribute to the ongoing improvement of the underwriting process, ultimately leading to greater operational success and customer satisfaction.
Third-Party Data for Underwriting
Modern policy administration systems leverage APIs to enhance underwriting knowledge. This approach allows insurers to connect with a broad spectrum of third-party data sources, ensuring the business has the most comprehensive and up-to-date information for risk assessment.
Here are examples of third-party data used in risk assessment and underwriting, made possible by advanced APIs:
- Property Data: Historical data on properties, including construction details, past claims and renovation history.
- Geolocation Data: Precision satellite data for accurate perimeter mapping, essential for determining flood and fire risks.
- Internet of Things (IoT) Data: Real-time data from smart home devices, such as flood sensors, smart locks and thermostats for dynamic risk assessment.
- Weather Data: Current and historical weather data to predict and evaluate risks related to natural disasters.
- Financial Data: Credit scores and financial health indicators to better assess the risk profile of policyholders.
- Crime Data: Local crime rates to adjust underwriting criteria for personal and commercial properties.
The WaterStreet Company API, Open RESTful API Suite, allows insurers to connect seamlessly with third-party data sources, enriching the underwriting process with comprehensive, real-time information.
WaterStreet & Underwriting
WaterStreet Company provides next-generation, cloud-based insurance software. Designed by insurance experts and for insurance experts, our flexible insurance platform meets the underwriting needs of modern insurers.
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