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Everywhere in the modern Internet you see the sentence "In today's competitive landscape [put your industry here]".
And in many cases this sentence is exaggerated. But not when it comes to insurance.
Insurance industry is by far one of the toughest industries to pursue career in. The average Customer Acquisiton Cost reaches $593.
In 2022, the insurance sector saw 449 M&A deals globally, the highest number in a decade. This indicates intense competition and consolidation efforts within the industry.
So even the slightest competitive edge may mean the difference between making or losing billions of dollars.
And business rules engines might give you the edge you need.
BREs enable insurers to swiftly adapt to market fluctuations, refine risk assessment procedures, and optimize claims processing. Higson.io, a cutting-edge provider of rules engine technology, equips insurance companies with the tools to harness BREs' full potential.
Business Rules Engines in Modern Insurance
Business rules engines are the brain of modern insurance. They execute business rules, applying logic to large datasets and scenarios. By separating business logic from application code, BREs give insurers, especially business users, the ability to change their decision-making criteria without having to go through IT.
The flexibility of BREs is key in the ever-changing insurance world. Underwriters can change risk assessment parameters quickly, claims managers can change processing rules, compliance officers can add new regulatory requirements. This allows insurers to respond to market changes, customer demands and regulatory changes.
Also BREs help to standardize decision-making across an organization, reducing errors and human bias, while also making business outcomes more predictable. Partial business process automation frees up human expertise for more complex cases and resource allocation and overall operational efficiency.
Fast Product Innovation and Launch
We already said, how important fast time-to-market is in insurance.
Business rules engines allow insurers to create and iterate on new products quickly by providing a framework to define and change business rules. This allows companies to respond to market opportunities and customer needs quickly.
Business rules engine (BRE) allow for quick implementation of complex pricing models and coverages, so insurers can launch new products like usage based insurance or parametric policies. The ability to change rules and parameters allows for rapid prototyping and testing of new product ideas.
It can be especially useful in regards of natural catastrophes, that influenced the insurance market heavily in 2023. In 2023, natural catastrophes resulted in insured losses of USD 108 billion, above the previous 10-year average of USD 89 billion. This marked the fourth consecutive year that insured losses from natural disasters have exceeded $100 billion.
Also BREs enable scaling of successful products across different markets or customer segments. By centralizing business logic, insurers can adapt products to local regulations or market requirements quickly. This reduces time-to-market for new products and gives a significant competitive advantage in an industry where innovation and adaptation is key to success.
Fraud Detection and Prevention
According to a survey mentioned in the Deloitte report, 60% of respondents said they aim to slightly increase investments in fraud prevention and response over the next 12 months. 40% of respondents indicated that their investments in fraud prevention are likely to remain the same.
Business rules engines use complex algorithms to analyze claims data in real-time, identifying suspicious patterns and anomalies that may indicate fraud. By adding machine learning, BREs refine their fraud detection rules over time to new and evolving fraud schemes.
BREs allow insurers to implement multi-layered fraud detection, using multiple data points such as claim history, policyholder information and external databases to flag potential fraudulent claims. This approach reduces fraud identification accuracy and false positives, improving business outcomes.
Also BREs allow for automated fraud scoring so claims adjusters can prioritize high risk cases for further investigation. This targeted approach optimizes resource allocation and speeds up the claims process for legitimate cases, reducing operational costs and customer satisfaction.
Underwriting
McKinsey points out: "Insurers are experiencing challenges such as increased pressure on expense and loss ratios in the face of premium pressure, claim losses, and declining coverage demand in core areas such as small commercial and liability. The result: weak combined ratios (CRs)". . Better underwriting is one of the eight blocks they proposed for improving insurers combined ratios.
And if we take into account that an average underwriter spends 70% of their work time performing non-underwriting tasks, we've got something to work on. Imagine 70% of your underwriters payroll going down the drain. We're talking about significant cost savings.
It is why business rule engines help underwriters by partially automating risk assessment and policy pricing. They analyze vast amounts of data, applicant information, claim history and external risk factors to generate risk profiles and premium calculations.
BREs ensure consistency in underwriting decisions by applying the same rules to all applications, removing subjective variations that occur with manual underwriting. This standardization improves risk assessment and regulatory compliance.
The automation provided by BREs reduces time-to-quote significantly so insurers can respond to policy applications quickly. This improves customer experience and converts more leads into policyholders.
Also BREs enable dynamic underwriting, so insurers can change risk models and pricing strategies in real-time based on emerging trends or new data. This means underwriting is aligned to the company’s risk appetite and market conditions.
Claims Processing: Enhancing Efficiency and Competitive Advantage
Smooth claims handling is crucial for maintaining customer satisfaction and achieving a competitive edge in the insurance industry.
According to a study by J.D. Power, insurance companies that provide an outstanding claims experience see nearly 30% higher customer retention rates compared to those with poor claims handling. According to McKinsey's study, automation can reduce the cost of a claims journey by as much as 30%.
For example, Allstate implemented a mobile app called QuickFoto Claim, allowing customers to submit photos of vehicle damage for faster claims processing. It resulted in 60% reduction in claim cycle times, 50% decrease in customer calls about claim status, and increased customer satisfaction scores.
Business Rules Engines streamline operations in claims processing by:
- Automating routine decisions
- Ensuring consistency in claims handling
- Speeding up claims assessment
- Enhancing fraud detection
- Improving compliance management
- Enabling personalized customer experiences
- Reducing operational costs
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- Increasing scalability during peak times
- Allowing easy updates to business rules
- Integrating with other systems.
Feeding BREs with data from IoT, telematics, Big Data, and Machine Learning makes for a dangerous mix.
Dangerous for your competitors.
Integrating BREs with Legacy Systems
Integrating business rules engines with existing legacy systems is a challenge and an opportunity for insurers. The biggest hurdle is getting data to flow smoothly between old, inflexible systems and new BREs. This requires careful planning and execution to avoid disruption to business as usual.
Successful integration strategies involve creating middleware layers that act as an intermediary between legacy systems and BREs. These layers translate data formats and protocols so data can flow between different systems. This way you can maintain your business process model, as implementation empowers business users to manage rules and make vital changes without having to learn programming.
Despite the challenges, integrating BREs with legacy systems is a big win. It revitalizes old infrastructure, extends its life and introduces modern decision-making capabilities. Insurers can leverage their existing investments while gradually modernizing their tech stack to remain competitive.
Also BRE integration can be a trigger for broader digital transformation initiatives, paving the way for more comprehensive system upgrades in the future. This incremental modernization approach minimizes risk and disruption and delivers tangible operational efficiency gains.
