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Robo Underwriters May Need Tough Bodyguards: Moody's Analysts

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Life insurers’ new, automated underwriting processes could make customers happier, speed up sales and cut costs — but one risk is that cyber crooks could come after the underwriting data streams.

Kripa Thapa and other analysts at Moody’s Investors Service talk about the rating implications of automated underwriting processes in a new U.S. life insurance sector commentary.

(Related: Congress Has Questions About Medical Bill Collector Hack)

About 40% of the world’s life and health insurers are now using “predictive analytics” systems, or statistical forecasting systems, in the underwriting process, up from 14% in 2013, according to Reinsurance Group of America Inc. survey data cited in the Moody’s commentary.

Moody’s and other rating agencies give ratings, or grades, that provide a rough indication of how likely a large borrower is to be able to pay off its debts, and how likely an insurer is to be able to meet its life insurance policy and annuity obligations.

The new robo underwriting commentary is a general look at the risks and rewards of increased use of automated underwriting, not an official rating document.

The Possible Rewards

The Moody’s analysts say the new underwriting systems should be good for life insurers’ credit ratings.

Consumers want quicker, simpler transactions, and automated underwriting systems should help, the analysts write.

“Being able to successfully integrate such technology will give insurers a competitive advantage over their peers and improve brand recognition,” the analysts say. “Underwriters will be able to focus on strategy, portfolio analysis and more complex cases instead of a large volume of standard cases.”

If the new underwriting systems make the life insurance sales process more efficient, that could help life insurers sell more different types of products to the same customer, the analysts write.


The Moody’s analysts assert that it’s too early to know whether automated underwriting strategies will produce different results from what traditional strategies produce.

The analysts say the new underwriting data collection processes do raise privacy, regulatory and cybersecurity concerns.

They cite new privacy and data security rules set by policymaking bodies in the European Union, California, New York state and elsewhere in the world.

“The collection of vast pools of data used in automated underwriting also creates new targets for cybercriminals,” the analysts say.

That means insurers will have to spend more to protect applicant information, the analysts predict.

“Most insurance companies buy cyber risk insurance, which is expensive, as a part of risk management,” the analysts say. “Cyber risks are challenging to deal with because of the rapid transformation evident in the digital space.”

In addition to having to take obvious cyber safety precautions, and buy cyber risk insurance, U.S. life insurers may have to cope with facing different cybercrime prevention and response rules in different states, the analysts say.

State-to-state differences in cybercrime rules could make doing business more difficult and increase life insurers’ costs, the analysts warn.


A copy of the Moody’s robo underwriters report is available, behind a paywall, here.

— Read Hacked in the U.S.A.: China’s Not-So-Hidden Infiltration Op, on ThinkAdvisor.

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