How life insurers can leverage digital field underwriting

By Bob Gaydos

There’s no denying that the digital revolution has dramatically transformed our approach to daily life. We can see this in how we do almost everything online, whether it’s ordering a taxi, catching up with old friends or purchasing life insurance. The last point bears a closer examination as it’s only in the last couple of years that we’ve seen life insurance become an increasingly digitized experience from end to end.

Industry insiders will know what I’m talking about when I say that this is an evolution that was long overdue. Moreover, it’s an evolution that must happen at a faster pace if the life insurance industry is to survive a time of declining market penetration and falling sales. In short, digitization will be the key to survival in the coming years and any efforts in that direction should start by taking a data-driven approach to customer acquisition and retention.

Yet for all the benefits of a data-driven approach to life insurance, it’s clear that most carriers still don’t understand how to fully use all the consumer data that is available to them. For a start, most insurers are obtaining consumer data only after consumers actually apply for coverage, when instead they could and should obtain it from the first point of engagement. To understand why, it may be helpful for life insurers to look back at the age-old practice of field underwriting and see how it can be applied in the digital age.

The decline of traditional field underwriting

Older readers may remember a time when door-to-door life insurance agents were practically everywhere, knocking on people's doors, sitting down at the kitchen table and talking people through the importance of acquiring life insurance. For most people, this was their introduction to life insurance and was the primary means by which most policies were sold. And the key to that success was the use of field underwriting techniques.

In short, field underwriting is the practice of gathering meaningful information about a prospect’s insurability before the formal underwriting process begins. Agents would start this process almost from the moment they started walking up to a prospect’s door, noting their neighborhood, housing type, how many cars they had in the lot, etc. They would then gather additional information by questioning the prospect on their occupation, income and general health, allowing the agent to further narrow down the insurance offering that the prospect was mostly likely to qualify for. It was a good system, and it benefited everyone.

However, beginning in the mid-1990s, tougher government regulations forced carriers to increase their spending on training and compliance. As a result, it became financially unfeasible to employ large sales armies, leading to the disappearance of both door-to-door insurance salespeople and the practice of field underwriting.

To clarify, I’m not saying that these practices have disappeared entirely. Even today, you can still find carriers that send their agents “into the field.” The difference though is that these agents only focus on prospecting wealthy people, as the profit margins on typical households are just too low.

Personally, I would ascribe the ongoing industry-wide decline in individual life insurance sales to the disappearance of field underwriting. Carriers are not taking any time to get to know a prospect before offering them a policy, so is it really a surprise when 46 percent of millennials cite confusion and lack of interest when asked why they don’t have life insurance. There is a solution, though, and it doesn’t require bringing back the all-but-obsolete practice of going door to door.

Field underwriting in the digital age

The modern business world is a data-driven one, and a whole industry has sprung up to provide organizations with all the data they need. For insurance carriers, the most critical data for underwriting an applicant remains the same, that being household data (where they live, the occupants of the house, their ages), financial data (salaries, occupations, household income, mortgage data) and medical data. Apart from the last one, all this data is available from numerous public sources and can be purchased through data brokers.

Yet what I’ve observed is that most carriers are buying this data only after they’ve gotten a customer to make a policy application. This might make sense from a logistical standpoint as it means you can gather all the data you need at once, including the medical data, which can only be sourced once an application has been made. However, waiting this long also means you can’t be certain that the applicant has been placed in the right product class. Unsurprisingly, this results in a lot of coverage rejections and frustrated applicants.

Instead, carriers should purchase all the data they can on a prospect from the moment of initial engagement. Although this won’t include any medical data, it will include most of the household and financial data that a field underwriter would typically collect. By having access to this data earlier in the process, carriers can instantly assign applicants to appropriate product classes, as well as make a provisional decision on whether they can offer coverage. This is digital field underwriting.

Carriers have two options in setting up such a system. First, they can set up an in-house data collection and storage system for processing the enormous amounts of data that they’ll need. This option will give you direct control and oversight of your entire data system. However, at a time when data needs are growing by the day, this can be a huge undertaking that can quickly become too much for an in-house team to handle.

The second option is to partner with a third-party intermediary that already has an extensive data storage system in place. This will come at a cost, but it will give you the most flexibility for expanding your data needs. Ultimately, whatever option you decide on will depend on your experience with managing large volumes of data.

Even as we look to the future of the life insurance industry, it’s also worth looking back to see how it has changed and evolved over the years. The disappearance of door-to-door sales agents may have been a foregone conclusion, but there’s no reason to think we can’t reimagine some aging practices for a new era. Field underwriting is one such example of an industry practice that needs to come back in a new format.

Bob Gaydos is the founder and CEO of Pendella. He may be contacted at [email protected].