Automated underwriting is a process in the process of applying for a financial account. This includes applying for a payments account, an insurance account, a lending account, and so on. Automated underwriting uses technology and algorithms to evaluate and assess risks associated with insuring a person or entity. This approach has changed financial services industries, making the underwriting process faster, more accurate, and cost-effective.
Using automated underwriting, companies can make quick and accurate decisions on approving or denying applications.
The benefits of automated underwriting are numerous, including:
- Faster Approval Process: Automated underwriting reduces the time it takes for an application to be processed, potentially cutting down the approval process from weeks to just a few days.
- Increased Accuracy: By eliminating human error, automated underwriting ensures more accurate evaluations of risk, leading to fairer premiums for policyholders.
- Cost Savings: Automated underwriting reduces the need for manual labor, resulting in cost savings for insurance companies.
What is Automated Underwriting?
Automated underwriting is the process of using technology and algorithms to evaluate and assess loan applications. It makes the loan approval process more efficient by analyzing large amounts of data, including credit history, income, and debt-to-income ratio. This automated system enables lenders to make quicker and more precise decisions, reducing the likelihood of human error and increasing efficiency.
By utilizing automated underwriting, lenders can easily determine the creditworthiness of borrowers and establish suitable terms and conditions for the loan. This technology has transformed the lending industry, making the loan processing procedure faster, more streamlined, and more unbiased.
How Does Automated Underwriting Work?
Automated underwriting is a process used by insurance companies to evaluate and approve or deny insurance applications. Here are the steps involved in understanding how automated underwriting works:
- Application submission: The applicant submits their application online or through a digital platform.
- Data collection: The system collects and analyzes information from various sources, such as medical records and credit reports.
- Rule-based evaluation: Algorithms and rules are applied to determine the risk level and eligibility of the applicant.
- Decision generation: Based on the evaluation, the system generates an automated decision, either approving or denying the application.
- Final review: The decision is reviewed by human underwriters to ensure accuracy and fairness.
Mary applied for life insurance online and within minutes received an automated approval. The system successfully evaluated her application, taking into account her medical history and lifestyle factors. The process was efficient and convenient, providing Mary with peace of mind knowing that her policy was approved quickly and accurately.
How Under.io Automates Underwriting
At Under, we sell to financial companies that have their customers apply online. With this process, our customers need to make sure they are fighting fraud and focusing on the right applicants. We give them the tools to automate the underwriting process on our platform. Learn more about the automated underwriting tools we offer below.
MultiFactor Authentication (Twilio)
Used to secure our forms so that only the specified signer can access their secure data. Under leverages, Twilio Verify to validate users over SMS.
KYC Bundle (Ekata, Iovation, IDology & IDAnalytics)
With a single click, Under implements a comprehensive workflow that validates identity acrossmultiple data sources & vendors. The result of our workflow provides an Approved, ManualReview, or Decline Result including detailed results on the data collected.
Ekata verifies identity information leveraging over 5B global identity records from telecoms,postal authorities, cable/utilities, directory assistance, and credit bureaus. Under uses attributes for phone and email verification as part of the Best Practices workflow, including
●Email to name match
●Email first seen
●Disposable email domain
Iovation provides device reputation and behavioral insights for fraud detection and consumer authentication from a network of 3 billion known devices and 30 million detailed fraud reports.
IDology ExpectID uses a multi-layered process to access thousands of data sources containing billions of public records to instantly validate an identity while also providing predictive, intelligent information around that identity.
ID Analytics maintains a consortium network of real-time identity events from traditional &alternative financial services institutions (auto, mortgage, bankcard, retail card, DDA, telecom, utilities, specialty finance, and marketplace lending.) ID Score evaluates SSN, Name, Address,Phone, DOB, and email to produce a single, comprehensive assessment of fraud risk at the time of application. The score rank-orders the risk that the applicant is not the owner of the identity on an application using velocity and instances of suspected or confirmed fraud.
Under connects with the MidDesk API to run a KYB check. Middesk provides a complete and accurate view of your customers including entity names, officers, business addresses, TIN verification, and watchlist screening.
MidDesk connects directly to Secretaries of State, County & Municipal Agencies, IndustryRegulatory Bodies (NPI, FMCSA, FDIC, etc), USPTO, & Trademark in order to verify that a business is a real, legal, & legitimate.
Bank Verification (Plaid)
Under digital applications offer your end users the ability to verify via Plaid Link. End users can authorize access to Plaid's Auth, Balance & Transaction services, and the results are displayed in the Under customer record.
Under offers an integration to iSoftPull. To comply with FCRA policies, our clients will need to obtain their own iSoftPull Enterprise Account in order to obtain access to the bureaus. Once integrated, clients can run credit checks within Under, and we will provide a link to iSoftPull to access the FICO score and report.
Benefits of Automated Underwriting
As technology continues to advance, the insurance industry has also evolved with the implementation of automated underwriting. This process utilizes algorithms and data analysis to determine the risk level of an insurance applicant and make a decision on coverage and premiums. In this section, we will discuss the numerous benefits of using automated underwriting, including a faster approval process, increased accuracy in risk assessment, and cost savings for both insurance companies and applicants.
1. Faster Approval Process
Automated underwriting is a technology-driven process that streamlines the approval process for insurance. This is achieved through the following steps:
- Application submission: Applicants provide their information through an online portal or application.
- Data collection: Relevant data such as medical records and credit history is gathered by automated systems.
- Risk assessment: Algorithms analyze the data and compare it to predefined criteria to evaluate the applicant's risk profile.
- Decision making: Based on the risk assessment, the system generates an automated decision on whether to approve, decline, or refer the application for manual review.
- Efficient processing: Since the process is automated, there is no need for human review unless the application is flagged for further investigation.
To further expedite the approval process, applicants can ensure that all required information is provided accurately and promptly. By taking these steps, the time it takes to receive a decision on insurance coverage can be significantly reduced.
2. Increased Accuracy
Increased accuracy is one of the key benefits of automated underwriting. Here are the steps involved in achieving this accuracy:
- Data Collection: Automated underwriting systems collect vast amounts of data from various sources, including medical records, credit reports, and application forms.
- Data Analysis: The system uses advanced algorithms to analyze the collected data, identifying patterns, trends, and potential risks.
- Risk Assessment: Based on the analyzed data, the automated system assesses the risk associated with each applicant accurately, taking into account factors like age, health condition, and lifestyle.
- Consistency: Automated underwriting ensures consistent decision-making by removing human biases and errors.
- Speed: With the ability to process large amounts of data quickly, automated underwriting minimizes the chances of mistakes and improves accuracy.
3. Cost Savings
Automated underwriting offers numerous cost-saving benefits for insurance companies. Here are the steps to achieving cost savings through automated underwriting:
- Efficiency: Automated underwriting streamlines the application and evaluation processes, reducing the need for manual labor and resulting in significant time and resource savings.
- Reduced Errors: By eliminating human error, automated underwriting ensures accurate and consistent evaluations, preventing costly mistakes and potential legal issues.
- Lower Operational Costs: With automated systems in place, insurance companies can reduce administrative costs associated with manual underwriting processes.
- Faster Turnaround: Automated underwriting enables faster policy approval, leading to quicker customer onboarding and generating revenue more quickly.
- Scalability: Insurance companies can handle a larger volume of applications without the need to hire additional staff, resulting in significant cost savings.
Risks of Automated Underwriting
As technology continues to advance, more and more industries are turning to automation to streamline their processes. This is especially true in the world of insurance, where underwriting – the process of evaluating and pricing risks – is being automated. However, with this shift comes potential risks. In this section, we will discuss the potential risks of automated underwriting, including limited human interaction and the potential for bias in decision-making. By understanding these risks, we can better assess the impact of automation on the underwriting process.
1. Limited Human Interaction
Limited human interaction in automated underwriting can present certain challenges. To address and mitigate these challenges, here are some recommended steps:
- Implement robust customer support channels to address any concerns or questions that may arise.
- Offer clear communication channels for customers to seek clarification on underwriting decisions.
- Provide access to knowledgeable experts who can guide customers through the automated process.
- Regularly review and update underwriting algorithms to ensure fairness and accuracy.
- Invest in staff training to enhance their understanding of automated underwriting systems and processes.
By following these steps, insurance companies can strike a balance between the efficiency of automation and the importance of human interaction, ultimately improving customer satisfaction and trust.
2. Potential for Bias
Automated underwriting has the potential for bias due to the reliance on algorithms and data analytics. This can lead to discriminatory outcomes, as human biases may be embedded in the decision-making process. For instance, if certain demographic factors are incorrectly associated with higher risks, individuals from those groups may face unfair treatment.
To prevent bias, it is essential to regularly monitor and update the algorithms, ensuring fairness and transparency. Additionally, incorporating diverse perspectives in the development and testing process can help address potential biases. History has shown instances where biased algorithms have perpetuated discrimination, such as in the case of biased facial recognition software disproportionately affecting people of color.
Different Approaches to Automated Underwriting
When it comes to the process of automated underwriting, there are three main approaches that companies can take. These approaches vary in their methods and level of automation, but all aim to streamline the underwriting process and improve efficiency. In this section, we will delve into the three different approaches of automated underwriting: rules-based, artificial intelligence-based, and the hybrid approach. By understanding the unique characteristics of each approach, we can better understand their potential benefits and limitations.
1. Rules-Based Underwriting
Rules-based underwriting is a traditional approach used in the insurance industry to determine eligibility and premium rates based on predetermined rules and guidelines. The process involves several steps:
- Gather information: Relevant data about the applicant, such as age, health history, and medical records, is collected.
- Assess risk: The applicant's risk profile is evaluated based on the predetermined rules and guidelines.
- Apply rules: Underwriting rules are applied to determine eligibility and premium rates.
- Make a decision: Based on the assessment and rules, a decision is made on whether to accept or reject the application.
- Set premium rates: For accepted applications, premium rates are calculated.
Fact: Despite advancements in technology, the rules-based underwriting approach is still widely used in the insurance industry, especially for simpler and lower-risk policies.
2. Artificial Intelligence-Based Underwriting
Artificial intelligence-based underwriting is a modern approach that utilizes advanced algorithms and machine learning to assess insurance applications. This innovative process involves several key steps:
- Data collection: Gathering relevant information from various sources, including application forms, medical records, and financial data.
- Pattern recognition: Analyzing data patterns to identify correlations and assess risk factors.
- Decision-making: Utilizing AI algorithms to make accurate predictions and determine the insurability of applicants.
- Accuracy evaluation: Continuously refining models based on feedback and performance evaluation.
- Customer interaction: Providing personalized recommendations and assistance to applicants based on their unique needs and circumstances.
3. Hybrid Approach
A hybrid approach to automated underwriting combines the use of both rules-based underwriting and artificial intelligence-based underwriting. This approach offers a more comprehensive assessment of risk by leveraging the strengths of both methods. Here are the steps involved in implementing the Hybrid Approach:
- Develop a set of rules and guidelines for underwriting based on industry standards and regulatory requirements.
- Use artificial intelligence algorithms to analyze large amounts of data and identify patterns and correlations.
- Combine the insights from the AI analysis with the predefined rules to make accurate underwriting decisions.
- Continuously update and refine the rules and AI algorithms based on feedback and new data.
- Regularly monitor and evaluate the performance of the Hybrid Approach to ensure its effectiveness.
What is the Future of Automated Underwriting?
As we move towards a more technologically advanced world, the concept of automated underwriting is becoming increasingly relevant. In this section, we will explore the future of automated underwriting and the potential impact it may have on the insurance industry. We will discuss the continued advancements in technology and how they are shaping the underwriting process. Furthermore, we will examine the integration of big data and analytics in automated underwriting and the potential for disruption in the insurance industry. Let's dive into the future of this rapidly evolving field.
1. Continued Advancements in Technology
Continued advancements in technology are driving the future of automated underwriting, leading to improved efficiency and accuracy. These advancements are outlined in the following steps:
- Enhanced data collection: Utilizing advanced data sources such as wearables and social media to gather more comprehensive information about individuals.
- Machine learning algorithms: Developing sophisticated algorithms that can learn from vast amounts of data and make more accurate underwriting decisions.
- Artificial intelligence integration: Incorporating AI technology to analyze complex patterns and make predictions, enabling faster and more precise underwriting.
- Automation of processes: Automating repetitive tasks to reduce human error and allow underwriters to focus on more complex cases.
- Improved customer experience: Utilizing chatbots, virtual assistants, and online platforms to streamline the underwriting process and provide real-time support.
2. Integration with Big Data and Analytics
Integrating big data and analytics into automated underwriting can greatly improve accuracy and efficiency. The following steps outline how this integration can be achieved:
- Collecting Data: Relevant data from various sources, including customer demographics, medical records, and credit history, must be gathered.
- Data Analysis: The collected data should be analyzed using advanced analytics techniques to identify patterns, trends, and risk factors.
- Model Development: Predictive models should be built using machine learning algorithms to assess risk and determine the likelihood of insurance claims.
- Automated Decision Making: Automated decision-making systems should be implemented, utilizing insights gained from big data and analytics to make underwriting decisions quickly and accurately.
- Continuous Improvement: Regular updates and refinements to the models and systems should be made based on new data and feedback to enhance their performance over time.
Pro-tip: It is important to regularly monitor and validate the accuracy and effectiveness of the integration to ensure optimal results.
3. Potential for Disruption in the Insurance Industry
The potential for disruption in the insurance industry is a significant aspect of automated underwriting. With the continuous advancements in technology and the incorporation of big data and analytics, automated underwriting has the capability to transform the insurance industry. By simplifying the underwriting process and enhancing efficiency, automated underwriting can result in quicker policy approval, reduced costs, and improved accuracy. However, it is important to recognize the risks associated with limited human interaction and potential bias in the decision-making process.
As the future of automated underwriting unfolds, it is crucial for the insurance industry to embrace these developments while also addressing any potential challenges and risks that may arise.
Frequently Asked Questions
What is automated underwriting and how is it changing the mortgage industry?
Automated underwriting is the use of advanced artificial intelligence technology to streamline the mortgage loan application and approval process. It involves using robotic process automation and machine learning to analyze credit reports and make loan approval decisions. This technology has drastically reduced the time it takes for lenders to process an application, from days to just 10 minutes. It has also helped cut costs on manual underwriting labor and improve customer satisfaction. With the rise of fintech startups and alternative lending options, traditional mortgage lenders are turning to automation to retain market share and outmaneuver competitors.
How does automated underwriting technology benefit potential customers?
Automated underwriting technology benefits potential customers by reducing barriers to entry and making the mortgage application process more efficient and user-friendly. With the use of digital devices and advanced systems, customers can easily enter their financial information and receive recommended conditions for loan approval. This technology has also reduced the stress and time-consuming tasks involved in the traditional process, making it a much more streamlined and modern experience for consumers.
How can automated underwriting help insurers improve their efficiency and profitability?
Automated underwriting technology is being used by life insurers to make faster and more accurate underwriting decisions, leading to improved efficiency and profitability. This trend is expected to play a critical role in the future growth and success of the insurance industry. By reducing manual tasks and streamlining the issuing process, insurers can save time and resources, ultimately resulting in cost cuts and improved customer conversion rates.
What are the challenges facing insurers in meeting high customer expectations and how can automated underwriting help?
Customers are increasingly demanding a first-rate digital experience, with only 15% currently satisfied with the digital tools provided by their insurer. This puts pressure on insurers to modernize their process and system and meet the shifting demands of the modern consumer. Automated underwriting tools offer a solution to these challenges by significantly improving process speed and providing a more seamless and digital native experience for customers.
What are some key players in the automated underwriting industry and what advancements have they made?
Fannie Mae introduced automated underwriting over 25 years ago with Desktop Underwriter, and in 2015, Quicken Loans launched Rocket Mortgage, which completely changed the game. Rocket Mortgage allows clients to submit information directly into the underwriting system, eliminating the need for pay stubs or bank statements. This drastically reduces the time it takes for lenders to process an application, from days to just 10 minutes. Other mortgage lenders have also developed their own automated underwriting software, making it a competitive market.
What is the future of automated underwriting and how can it benefit both lenders and customers?
The future of automated underwriting is likely to see continued advancements and refinements, as more lenders and insurers adopt this technology to stay competitive in the market. For lenders, it offers a way to cut costs on manual underwriting labor and improve customer satisfaction. For customers, it streamlines the loan origination process and provides a more efficient and user-friendly experience. Overall, it has the potential to benefit both parties and transform the traditional process of purchasing a premium or securing a loan.