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Automation in Insurance – Does it Increases the Appetite or Increases the Risk

Automation in Insurance – Does it Increases the Appetite or Increases the Risk
November 20, 2018

The Need for Robotic Process Automation in Insurance

Automation – Initially the thought process started in the Insurance Industry to explore the desirable reduction in OPEX (Operational Expenses). The key business processes were determined and automation techniques were implemented. The following are some of them:

  1. Policy processing – Using OCRs and other technologies for automatic data capture and policy issuance
  2. Underwriting – Decision-making through pre-defined rules for various LOBs
  3. Customer service – Introduction of chatbots to provide 24x7 assistance
  4. Claims settlement - Straight-through processing (STP) of claims if it satisfies with the predefined evaluation criteria

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As a result, RPA in insurance has expanded its wings to a broader extent. Insurers are increasingly looking for automation possibilities to improve their key business metrics. For example, the increase in the percentage of STP claims is expected to have a positive impact on customer retention or customer churn metrics.

The next level of evolution in insurance has prompted the insurers to look for automation possibilities beyond the key processes of the insurance value chain, i.e., even before customers’ entry into the insurance fold. Here are a few examples of it:

  1. Product development suggestions – With automated data collection mechanism alongside market data capture to customize product development options
  2. Digital marketing – Based on the data collected from myriad sources (both internal and external), automated marketing to each individual prospect with a high degree of customization and personalization
  3. Renewal notifications – Push messages through all possible communication channels to all prospects

The Automation Roadmap in the Insurance Sector

The 2018 Global Digital Suite of reports from We Are Social and Hootsuite reveals that there are more than four billion internet users. According to a study by Statista, the number of connected smart devices enabled by IoT will rise from 20+ billion in 2018 to 75+ Billion in 2025. From smart watches to the connected manufacturing machinery, IoT is already dominating the market.

The 2018 State of Chat Bots Report by Drift found that 15% of the consumers have used chatbots to communicate with businesses in the past 12 months. Now, there is no doubt that this 15% will drastically increase due to the increase in digital-native customers in the upcoming years.

The statistics not only mandate insurers to collect data from myriad sources for informed decision-making, but also pushes them to come up with strategically effective digital transformation and AI insurance road map with automation as a core focus area.

The Increase in Insurers’ Appetite Due to Automation

Though the Regulatory Compliance Constraints will put pressure on the Insurers towards what degree of Automation could be achieved as a maximum in each of the Business processes, Automation in the below two Core Business Processes will produce direct impact to the Insurer’s Appetite.


Sample Use Cases Depicting the Result of Automation

  • Intelligent managing general agents or managing general underwriters (MGA/MGU) business process automation, which will cost a few thousands of dollars, will result in multi-million revenue enhancement for the insurers for several years to come.
  • Providing an insurance-intensified intelligent chatbot for 24x7 customer support will enormously improve the customer retention ratio, resulting in millions of dollars in revenue increase.

The Role of Regulatory Requirements and the Increase of Margin Pressure

The ever-growing margin pressure (due to the competitive premiums and services offered in the market) has resulted in insurers focusing primarily on revenue improvement through automation. On the other hand, the agitation is also growing on as to what extent automation can be implemented in any business process with the existing strict regulatory requirements? To find the answer for this question and to explore the maximum possibility for automation, insurers are starting with pilot projects as the initial step in their specific LOB. Based on the learnings from the pilot project, the implementation is extended to other personal LOBs and, to a certain degree, to the commercial LOBs as well.

The Increase in Risk Due to Automation

There are myriad benefits of automating the processes, but no technological innovation exists in any industry with zero risks. Of course, there are concerns about automation in the insurance industry too. A few of them are as stated below:

  1. Automation of processes allows insurers to re-skill and re-allocate the designated resources to various different tasks. But the automated tasks remain at the risk of no human intervention or monitoring when required.
  2. The pre-defined and rule-based automation of processes increases the efficiency and productivity, but also increases the concentration of risks (if a large number of identical risks that satisfy all rules are received) for the insurer with no control over risk tolerance level.
  3. There is another process risk associated with automation, i.e., in case of failure (which makes up 30% - 40% of all automation projects), the end customers are mostly not provided with any alternate services.

The Solution to Automation Risks


Unlike any other software project, risk identification and chalking out a strict mitigation plan are at a higher priority when it comes to automation strategy. The thought process for automation possibilities should not be limited to the key business processes or aligning with the insurer’s key business metrics. It should also be aligned with other business objectives of the insurer, such as the agreed level of risk appetite in any of the given LOB, expected claims in a specific LOB based on the historical insights, and so on. Apart from these, the automated business processes should be well equipped with exception/failure handling along with self-learning capabilities. These two characteristics will make the automation technique as meaningful to the insurers to reduce the number of failures and increase the ROI.