What Is Automated Underwriting?

If you’ve applied for a loan before, you may be familiar with the process of underwriting. Underwriting is also used by insurance companies to determine if someone qualifies for a policy. But with shifts in technology, underwriting is becoming automated in many situations. In this article, we’ll discuss the automated underwriting system and what happens after underwriting. 

What Is AUS?

When you apply for a loan, an insurance policy, or a mortgage, there’s always an approval process. This process is called underwriting, and historically underwriting was only done by a human underwriter. They would weigh the risks of loaning to an individual and decide if it seemed likely the person would pay the loan back on time. If the probability of on-time payback is good, they approve the loan. If not, they deny the loan. A similar underwriting process occurs when people apply for a mortgage, bank loan, bond issue, or insurance policy. 

An automated underwriting system is a technology-based process for approving individuals who apply for loans and insurance. Instead of a human expert examining the loan application information, an advanced computer program processes the application and weighs the risks of that individual. The automated underwriting system will pull credit history and other relevant information to determine a status on the application and whether the applicant should be approved or denied.

Pros and Cons of Automated Underwriting

Some people may wonder why lenders and life insurance companies use automated underwriting systems to evaluate applications and may prefer the idea of a live person reviewing their entire application. But there are some benefits of automating the underwriting process: 

• Saves time. The most obvious benefit of an automated underwriting system is that it saves time. For example, if you were to apply for a mortgage loan and your application is reviewed manually, the lender may take up to 60 days to review your application and approve or deny it. That would be nearly two months of waiting to hear back on an important financial situation. 
• Reduces human error. One problem with humans reviewing loan applications is that they can make mistakes or lend their own biases to the review. By relying on algorithms, automated underwriting can reduce this problem greatly. There is still potential for error when it comes to inserting information into the application. But the information in the system will be evaluated by algorithms uniformly. 

There are still a few challenges that come with an automated underwriting system. 

• Exaggerated inequalities. Because automated underwriting relies completely on algorithms, if an algorithm is written with a bias, it could amplify the inequalities of who is approved. The computer system can’t tell if it’s exacerbating existing problems or potentially increasing inequalities.
• Lack of judgment. A computer system is unable to make a decision outside of its programming. That means if an individual has extenuating circumstances, the computer system won’t pick up on it. Automated underwriting isn’t able to use human judgment to weigh consequences and circumstances to make a decision. 

Though there are these cons, the pros of an automated underwriting system outweigh them for most insurance companies and lenders. Automated underwriting has become so dependable that most companies use some type of automated underwriting system in addition to live underwriting.

What Happens after Underwriting? 

When an application is finished being processed by the underwriting program, you can expect something similar to these basic results: 

• Approve/Eligible. This means you meet all the guidelines and your application has been approved.
• Refer/Eligible. This means the computer doesn’t have enough information for automated underwriting.  In this case the system will send your application for manual underwriting. 
• Decline/Ineligible. This means your application does not meet the underwriting requirements.  In this case there will be a condition attached to the decline so that you will know the reason for this decision.

One common misconception about automated underwriting is that your application will never see a person. But that isn’t true. Even if you are approved, a human will go over the application and determine that everything looks right. If your application is denied, a person will also comb through the application and make sure everything was correct about the denial. This final check can help avoid false approvals or false denials to some degree. 

Getting a Life Insurance Policy

Start here to learn more about which life insurance policy is right for you.  Automated underwriting is relatively new to life insurance companies, but at McFie Insurancewe work with two companies who are using automated underwriting extensively. We know how to prepare the paperwork to make getting the life insurance policy you need a breeze.