Will AI Replace Underwriters Jobs? The Future Of Insurance Software

Piotr Biedacha
February 23, 2024

We could answer this question with a quote from Boston Consulting Group: "AI will not take over the job of an underwriter, but the underwriter that leverages AI to do the job better will."

But we know where the concern is coming from. 

Goldman Sachs estimated that AI will take over 300 million jobs. Also, a report by McKinsey & Company says that by 2030 at least 14% of workers could be affected by AI and need a work change. Another report from McKinsey states, that in the future 60-70% of workload will be automated.

According to Intelligent Insurer, 70% of underwriters are afraid AI will reduce the number of underwriters in the insurance industry, while 82% of them are worried that technology will impact them negatively.

Will AI replace Underwriters too? Is AI capable of understanding the intricacies of estimating the risk? Is it going to replace underwriters altogether, or merely become another tool in their arsenal? We took a closer look at it.

A Day In The Life Of An Insurance Underwriter

Insurance underwriters have a crucial role in the insurance industry, focusing on assessing risks and determining the terms and conditions of insurance policies. Their responsibilities include evaluating applications, analyzing risk factors (like age, health, and occupation), and setting premium rates to balance profitability with competitive pricing​.

The insurance underwriting process is comprehensive, involving steps like risk assessment, coverage determination, pricing, policy issuance, and follow-up. Initially, underwriters review applications to decide on coverage and conditions. They then determine pricing based on risk analysis, issue policies, and manage any subsequent adjustments or follow-ups​​. 

This process is supported by a mix of manual evaluation and automated insurance systems, utilizing tools such as medical history summaries, blood tests, and paramedical exams to assess an applicant's risk profile.

Will AI Replace Underwriters?

The notion that AI could replace underwriters overlooks the nuanced expertise these professionals contribute. While AI excels in processing vast datasets and identifying patterns, it lacks the human capacity for judgment and empathy crucial for risk assessment. 

The integration of AI in insurance aims to augment, not replace, the human element. It streamlines mundane tasks, freeing underwriters to focus on complex cases where their expertise is indispensable. This symbiotic relationship underscores that, despite technological advancements, the human touch remains central to underwriting's future.

Lloyd's Of London did listing top traits of a good underwriter:

  • Profit Consistency: Top underwriters consistently generate profits over time.
  • Responsive Pricing: They quickly adjust rates in response to market changes.
  • Steady Pricing Strategy: Leading underwriters maintain a consistent approach to pricing.
  • Portfolio Insight: They have a deep understanding of their portfolios.
  • Active Management: Top performers use innovative underwriting and relationships to stay profitable.
  • Strategic Cycle Management: They manage their business cycles proactively to retain profitable lines.
  • Profit-Driven Adjustments: Successful underwriters effectively re-underwrite unprofitable businesses.
  • Market Engagement: High performers are recognized for their engagement and understanding of market needs.

We can clearly see that AI technologies can help with most of these activities, as it can:

  • determine common traits and patterns of the most profitable customers,
  • help make more accurate risk assessments and manage risk better,
  • adjust pricing strategies quickly based on analyzing vast amounts of data in a matter of minutes,
  • find unprofitable business quicker and predict, which business is at risk of becoming unprofitable in the future,
  • determine market needs by "seeing" patterns in customer inquiries, giving data-driven insights.

If anything was predictable, we wouldn't need insurance company at all.

The consensus is that AI, machine learning, and business rules engines will help, but not replace underwriters. The traditional underwriting methods will evolve, and underwriters will move to a more strategic role, rather than pure risk management. AI will do the heavy lifting like automate routine tasks, like data entry and , while human underwriters will act when a human intervention is needed, which is more of a risk monitoring.

AI-enhanced underwriting will be less prone to human error, as AI is not affected by fatigue or stress. It makes the same "decision" no matter the time pressure.

A skilled underwriter will do more quality work rather than lose it entirely. It will benefit both the insurer and the policyholder, as speeding up underwriting processes will work towards a positive customer experience.

Insurance organizations that will learn how to leverage AI in their business strategy will thrive.

How Technology Assists Underwriters in Daily Work?

In 2021, Berkshire Hathaway Homestate Companies introduced Z-FIRE, an AI tool for assessing wildfire risk, utilizing a vast dataset and learning from past wildfire incidents to offer precise property risk scores. This technology has enabled better policy pricing accuracy and is used across 12 wildfire-prone states. 

Technological advancements, particularly in insurance software solutions like our partner SEND - Flexible Commercial Insurance Software for Agile Businesses, significantly enhance the efficiency and effectiveness of underwriters. This software streamlines the data analysis process, allowing underwriters to access comprehensive risk assessments with just a few clicks. 

Read more: Decerto is expanding collaboration with Send Technology

It integrates real-time data, predictive analytics, and automation to reduce manual tasks, enabling underwriters to focus more on strategic decision-making and personalized customer service. Such tools exemplify how technology supports rather than supplants the nuanced role of underwriters, ensuring they can deliver more accurate, tailored insurance solutions.

Conclusion - Embracing New Technologies

When cars replaced horses as a mean of locomotion, all the people were happy with how fast and clean the journey can be. But cars tend to break, and they require a repair. They also require parts and fuel.

As for the technology, back in the day the only way to create a website was pure HTML code. Then code editors like Dreamweaver emerged. After that came CMS like Wordpress and Joomla, and one-click solutions like Wix or SquareSpace. Now, we have Chat GPT writing simple code. Did it replace web developers? Not. But it made their work easier and smoother. 

It is the same with underwriters. 

There is no need to be afraid of artificial intelligence. Quite the opposite, underwriters should make friends with AI, as it will speed up the insurance underwriting process, and make it more efficient.

The main difference is that AI can do some work for us, humans, freeing up capacity for us to do something, AI cannot do. And it doesn't work the other way around. 

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