Leveraging External Data to Optimize Your Life Insurance Underwriting Process

As of 2019, life insurance industry revenues rose as high as $44.7 billion dollars, more than an 18% gain from the previous year. The volume of life and disability insurance products being underwritten has remained stable over the last decade, with higher performance in emerging markets doing significant work to offset poor performance in more established markets. Big data analytics is at the forefront of the industry’s positive momentum, attenuating a decade of sporadic growth and setbacks with an ever increasing amount of actionable information. As of 2020, the industry has invested more than $2.4 billion into expanding its use of data, with no signs of that trend slowing anytime soon.

The Insurance Underwriting Process: Harnessing External Data for Enhanced Accuracy

Using External Data

Big data analytics, or “external data,” is a general term for the wealth of information now available to policy underwriters. In the early days, underwriters were dependent on internal data in order to assess the applicant’s risk. That data included accident and claims history, as well as simple demographic information such as age, sex, and the location of a person’s home. This simple data was useful for painting a picture of the applicant in broad strokes.Internal data sets alone are no longer sufficient to stay competitive, however. The diverse amount of data being used industry wide has increased exponentially over the last decade. As time has gone by, insurance professionals have gained access to an increasing amount of higher-value data. External data comes from a variety of sources including social media accounts, declared data from online sources, cached information gleaned from the Internet of Things (IoT), and third party vendors who sell curated batches of information.

With such a wide range of additional data at their fingertips, underwriting professionals have much more leeway for assessing risk. Using external data, they are able to create much more in-depth customer profiles filled with actionable data. With access to their customers’ purchasing history, social habits, and even personal opinions underwriters are better equipped to understand the full extent of the applicant’s risk.

The Current State of the Industry

The life insurance industry is currently engaged in a metaphorical tug of war between old methodologies and new modalities. Insurance companies struggle to break free from a process that required direct interaction between agent and applicant. There is a twist though: the current state of the world has made face-to-face contact problematic. Integrating external to your company’s approach is critical.

Insurance companies who embrace digital application solutions are better positioned for future success. Successfully streamlining the application process requires access to big data analytics in order to gain a full sense of applicant risk that isn’t apparent from behind a keyboard. According to McKinsey, companies who offer an expedient, datadriven approach to selling life insurance products experienced a 14% increase in sales volume by doing so. But expedience is not the only advantage. Data analytics also increases the accuracy of underwriting activities, giving you a fuller, more comprehensive view of risk scoring.

External data radically expands the information available to underwriters, but it also presents a challenge. Much of the incoming data is what’s known as unstructured data. Unlike traditional data sets, which are gathered in a routine and systematic way, unstructured data comes from a broad range of sources and requires add time and attention to put to good use. If the industry intends to move forward, deciphering external, unstructured data is well worth the effort.

Three-year Outlook

Using external data to create a more efficient and profitable underwriting process has quickly become par for the course, but where does the industry go from here?Demand, coupled with the strength of emerging markets, should propel the life insurance industry’s growth to a new high going into a new decade.

According to McKinsey, new and emerging markets have accounted for 84% of the life insurance industry’s growth over the past few years. Markets around the world can expect to see a radical increase in demand due to the COVID-19 pandemic. The Coronavirus has reminded people of their mortality. Insurance companies should prioritize their marketing to meet customers in the current moment. In specific, COVID19 has made traditional assessments, like a physical from a doctor’s office, problematic. Traveling nurses and telemedicine can toe the line to some extent, but third party data that focuses on a person’s overall lifestyle becomes a much more valuable data point for properly assessing risk.

We can also expect to see the underwriting process itself change as insurance companies learn to better utilize the external data available to them. Rather than focusing on medical information as the key metric for assessing risk, underwriters will begin to employ more holistic data sets by utilizing lifestyle and demographic information to form a more complete picture of an applicant’s overall risk

Finally, we can expect to see insurance companies offer life policies that are a much better value. According to YFS Magazine, using external data allows insurance companies to give a much wider range of applicants access to their products at a radically-reduced cost.

Harnessing External Data in Your Underwriting Process

Big data analytics has become a crucial component of the modern day underwriting process. Companies that learn to leverage that data efficiently not only mitigate risk more effectively, they also stand to increase the volume of the policies that they sell. Through the power of external data, underwriters are able to more accurately gauge an applicant’s risk and extend the right policy offer for all parties involved.

Pilotbird’s lifestyle analytics platform can help you sift through the ocean of data available to you and better utilize it in your underwriting process. For more information, please schedule a call with one of our representatives to learn how Pilotbird can help you navigate the industry dynamics.