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Automated Underwriting - A glimpse of the future


Automated Underwriting - A glimpse of the future


The operating environment has only become more competitive as premium rates are being revised downwards in the more competitive business classes. The fortunes of insurance companies have been further driven down because of the sub-optimal investment returns on property and equity markets. These factors have been used as a safety net to compensate for underwriting losses. The first insurers, who capitalize on the opportunities that digitization and automation offer, will most likely be the biggest beneficiaries.

Environment and Initiative overview

The Problem:

The insurance sector in Kenya has recorded as much as Sh3.27 billion in underwriting losses, which is the worst in over two decades. Data released by the Association of Kenya Insurers (AKI) shows that the loss was a result of a huge gap between the premiums collected, claims, and expenses from previous year’s Sh1.12 billion.

According to AKI data, underwriting losses from insuring motor vehicles increased by 92.4 percent to Sh7.35 billion, with private vehicle insurance returning losses for the eighth year running.

In Kenya’s insurance sector, motor vehicle insurance is known to be the main growth driver for the general insurance market. However, rising losses are posing a threat to the survival of insurers as well as dragging down the sector that is struggling with fraud and price undercutting.

Out of the 36 companies that underwrote motor commercial last year, 25 companies made losses compared to 21 companies in 2018.

Underwriting losses from insurance covers bought for private vehicles rose by 72 percent (Sh4.67 billion) while losses from commercial vehicles increased by 139 percent (Sh2.66 billion). Also, 30 companies made losses from insuring private vehicles last year, compared to 23 companies in 2019.

Insurers are at the shorter end of the rope, as vehicle owners use their vehicles for purposes different from those insured against, making it difficult to make proper risk profiling. As a result of the underwriting losses by motor insurance, it became the worst performer among the 12 main insurance classes under general covers. The loss incurred overshadowed the industry’s improvement from an underwriting loss of Sh1 billion in medical cover to Sh139.3 million profit.

Other underwriting losses recorded are liability (Sh62.17 million), aviation (Sh79.2 million), and engineering (Sh130.3 million). The motor vehicle insurance losses took the shine off the sector’s improved performance in the fraud-prone medical insurance cover.

Back-office administrative processes such as underwriting, pricing, and claims processing may become faster and easier by using smart contracts’ rules-based systems and automatic verification of terms and conditions. In the case of claims processing, as soon as the services are rendered by a provider and the patient’s updated medical record is uploaded to and verified by the blockchain, smart contracts can initiate payment to the provider. Looking ahead, 2019 will likely see the industry move past basic education and proofs of concept to preparing for the launch of an increasing number of real-world blockchain applications impacting day-to-day operations. For example, in Asia AIA Hong Kong launched a blockchain-enabled bancassurance platform allowing the life insurer and its bank distributors to share policy data and digital documents in real-time, streamlining the onboarding process, improving transparency, and reconciling commissions automatically through smart contracts. In Europe, AXA is offering flight-delay insurance over a blockchain platform with parametric triggers and smart contracts.

Cloud computing in insurance

Many insurers consider Cloud to be a good option for processing and storage of insurance data. For example, insurers can leverage the use of cloud computing to store customer records like policy details and claims history. This will enable all agents to have access to similar information, reducing the time and effort spent in obtaining the same information from the customer when they are being transferred from one agent to the other.

Blockchain in insurance

  • The global market for blockchain in insurance is expected to grow from $64.5 million in 2018 to $1.39 billion by 2023—a compound annual growth rate of 84.9 percent.
  • In the Accenture Technology Vision 2019 survey, more than 80 percent of insurance executives reported that their organizations have adopted distributed ledger technology across one or more business units, or are piloting or planning to pilot the technology.
  • The analysis of two use cases identified between $99 million and $277 million in annual savings for personal auto insurance carriers in the US alone by the third year of use.
  • Providing a single source of truth allows friction in business processes to be drastically reduced, using solutions such as smart contracts to facilitate and automate DLT networks.

Strategic imperatives

Automated underwriting does not accomplish market growth on its own by incorporating e-Underwriting in Growth Strategies. Its value is limited to how well it has been incorporated into comprehensive strategies for creating new products and reaching new markets. While it can be effective in improving the sales processes for existing products, it is most effective when tied to a new product. An insurer’s strategy will determine how automated underwriting can be used to its best competitive advantage, such as translating underwriting cost savings into lower premiums. Many organizations are learning that automated underwriting can be a new market perpetrator. One of the best features of e- Underwriting is its ability to track decisions, evidence data and outcomes. The Management Information (MI) that can be gleaned with the help of ongoing data analysis can yield a wealth of pre-sales knowledge. This knowledge can be used to increase automation, improve decisions, change pricing, launch new products, and more. The data can also be used to build propensity-to-buy or propensity-to-claim models to target future growth and limit future risk.

Better Use of Underwriting Resources Optimizing processes and using existing technologies to reduce resource burden are always smart practices. Implementing e-Underwriting may require cultural and process shifts, but these shifts can reap rewards in flexibility and process optimization. An organization wishing to launch a high-volume product without increasing its underwriting staff will find e-Underwriting as a necessity because it is a resource saver. It is important to note here that e-Underwriting is nearly always viewed as a supplemental resource, not a replacement. Organizations most commonly position e-underwriting in the following ways:

  • Automated underwriting is not designed to replace underwriters. Instead, it seeks to gain efficiencies by allowing straight-through processing for those incidents that do not require underwriting intervention.
  • Even in cases where underwriters still need to touch an application, automated underwriting can alert underwriters about the risk factors, making case review more efficient.
  • Underwriting rules contain an organization’s underwriting philosophy and ensure that they are applied consistently across multiple product lines, distribution lines, and locations.

Business value and impact summary

E-underwriting also pays back insurers through distribution channel shifts. An application that comes through a Web portal costs less to underwrite than one that requires a tele-interview, which costs less than a full in-person medical review with an exam. Automated underwriting can help an insurer save money through direct channels and by automating processes for other channels. It is important to acknowledge, moreover, that the payback of e-Underwriting is especially significant when viewing the long-term benefits. Its greatest underappreciated asset is that it has the potential to reduce risk and lower long-term financial burdens. Automated underwriting, when implemented properly, brings consistency to the underwriting process. Organizations considering e-underwriting should invite their finance, marketing, actuarial and underwriting departments to participate in a forecasting exercise to predict the payback potential, taking all efficiencies and conservative sales goals into account. Building this business case not only allows e-underwriting champions to articulate its possibilities it also gives everyone a preview – a clearer vision of a transformed process.

Futureproofing There is a reason for organizations to get involved in e-underwriting now. What is coming of underwriting is so revolutionary that it will force many insurers into adoption and possibly transform their marketing and business strategies in ways they never imagined. If a complete automated underwriting conversion is in the works, one that looks much more like the world of pre-underwritten credit card offers, then insurers should be doing all they can to bring agility into their organizational toolkit. To capitalize on boom opportunities for growth, the industry will need to reinvent the process and have automated decision-making capabilities at its core. The upside should be a near-constant ability to lower the risk that will help to offset the inability to count on the revenue generated by investments. In other words, the future holds the possibility of real, substantial numbers of good applicants contributing to top-line growth. In an environment where machines and underwriters can work together, it is important to acknowledge that underwriting is both a science and an art.

Big Data’s implications for underwriting

A key priority for life and health insurers is to identify genuine opportunities for Big Data in underwriting to ensure efforts are focused on realistic ventures. Given the pace at which data science is advancing, it is essential for insurers to make sure the path taken aligns with the company’s overall strategy and plan. Also, as with any fast-developing technology, it is important to balance benefits against potential harms.


As digital technology continues to become more nuanced and precise, the number of insurtechs is likely to grow. Insurers that do well in the new digital landscape will be those that adopt the creative solutions being developed by some of these innovative companies. As shown in the short list above, there are plenty of contenders developing creative digital offerings and helping drive the future forward.


“Underwriting Evolution or Revolution?” by Matthew Josefowicz, Insurance Networking News, June 6, 2013 insurancenetworking.com. http://www.insurancenetworking.com/blogs/underwriting-evolution-or-revolutionblog-32439-1.html?ET=insurancenetworking:e4084:23324a:&st=email

“Automated Life Underwriting: Phase 2 Study of Automated Life Insurance Underwriting Report,” Society of Actuaries,/Deloitte, August 2010