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By Linda Koco
Changes under way in the life insurance underwriting processes relating to data analytics also have an impact on agents who sell life insurance products.
The impact on agents is largely positive, according to Todd Eyler, research director in the insurance practice at Aite Group. The Boston research firm recently published results of a study that looks into these changes.
“The agents are seeing faster turnaround,” he said. “They also have more control of the process, can get paid more quickly, and can sell more effectively to prospects in Generations X and Y who want a transactional experience.”
The change in approach
The underwriting changes do not relate only to downplaying the use of paper applications and attending physician statements (APS), which is a trend that has been underway for at least 10 years. They don’t relate only with the now more customary use of online applications, paramedical exams, blood tests, and follow-ups by tele-underwriters, who call the applicant to ask those sometimes embarrassing or sensitive medical questions.
And they are not just “simplified issue” programs that use e-applications, Web access to pharmaceutical databases, motor vehicle reports (MVR) and Medical Information Bureau (MIB) reports but charge 30 percent to 40 percent more for the coverage compared to fully underwritten coverage.
Instead, the new approaches assess various types of data in combination with one another using proprietary risk-scoring systems. This underwriting is done in lieu of APS and paramedical exams. One carrier is underwriting life insurance cases with face amounts of up to $1 million this way, Eyler said. There is no markup on price.
The Aite report said the data may include not only pharmaceutical data history, MVR and MIB reports, but other information from life underwriting technologies supplied by third-party vendors. Some of these technologies pull in data gathered from public records that carriers have not traditionally incorporated before. These may include criminal histories, liens and bankruptcies, properties owned, and professional licenses.
Others might include historical blood and lab data and diagnoses that are available in electronic health records, subject to the applicant grants permission to obtain this data.
It’s not that the more established methods — particularly paramedic exams (including blood samples) and APS — are out the door. These carriers still use them to assess a person’s health and rate classification in selective instances, Eyler said. These might be cases where the data has raised question marks, the applicants are in the older ages or the requests are for large face amounts.
With the data approach — which Aite terms “risk-scoring underwriting” — the carrier can offer a turnaround time of two weeks or less for policy issue, he said. That compares to 30 to 60 days or more for the more traditional approaches.
The speed comes from underwriters not having to wait for the APS or the paramedical test results. The data arrive immediately, he said.
This approach reduces underwriting costs too. That’s because data cost significantly less than reports involving human interaction, according to the Aite study. For example, the researchers found that the cost per applicant of an APS, paramedical exam and blood/urine analysis from a lab is $100, $55 and $55, respectively. But the cost of a MVR, MIB report and pharmaceutical data base report is $5, $2 and $10, respectively.
The companies keep the savings they generate this way to provide a cushion for the increased risk they take by not using full underwriting, Eyler said.
Impact on agents
Eyler sees benefits for agents and customers when these programs are put in place. Faster turnaround is one.
For example, Principal, which sells life insurance through captive agents and independent insurance agents, started an “accelerated underwriting program” in 2014, according to the Aite study. This program examines data applicable to healthy preferred and super-preferred applicants between ages 18 and 60 who are seeking retail individual life insurance valued at $50,000 to $1 million.
“Fifty percent or more of those cases are being underwritten without use of paramedical exams, APS or other intrusive medical requirements,” Eyler said. The underwriting decisions come within 24 hours, and policy issue averages eight days (including time for sending the paper policies to customers through the mail).
To achieve this fast turnaround, he said Principal uses proprietary risk-scoring to identify applicants in the target risk category, a proprietary rules engine and its own tele-underwriters plus data (pharmaceutical, MVR and MIB, for example).
For applicants who don’t make the first cut, the company looks at the data to see what can be done with reduced medical requirements and APS.
What about the impact on agents? Prices are the same across all distribution channels, Eyler said, and rates for regular retail life insurance products have not been adjusted. In addition, he said, “commission rates for distributors have remained the same.”
The turnaround speed is “very good” for the agent, he contended. “Often life insurance is the foundation of a client’s planning in the mass market and the mass affluent market. The customers want it to protect the family. At the higher face amounts, it is used for estate planning and investment purposes.”
Either way, the customer and the agent want to have that insurance in place so they can move on to other things, he said. When this happens quickly, that reduces the possibility that the customer may lose interest and simply back out, he said.
Also, if there is no medical intrusiveness, the agent has less concern about the customer having a “negative experience” that might harm other parts of the business relationship, he added. “Altogether, there are fewer surprises” than with more traditionally underwritten cases.
And because the cases close faster, the agent gets paid more quickly.
Another advantage is that the process enables producers to reach out to younger consumers whom the Aite report says tend to prefer a more transactional experience. “Most Gen X, Gen Y and younger boomer consumers do not want to be sold to — they want to be educated and effectively marketed to,” the researcher found.
The no APS/no paramedic approach to life underwriting makes it easier for the agent to respond to that preference, Eyler said.
Yet another advantage that he sees for agents is that the process enables them to have more control over their own work.
“This makes it easier for the agent or advisor to do what it is they should be doing, which is working on putting solutions in place.” That is as opposed to keeping up with the various stages in the underwriting process, calling to get status, being sure the paramedic report arrived, etc.
Not all or even most carriers are approaching life underwriting this way, Eyler said. Some prefer to wait to see how things are working out for the innovators. But this is what a few carriers are doing to reach the younger generations and to making the process go faster and easier for the agent, who will have more time to focus on client education and development of solutions.
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at [email protected].
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