What has accelerated underwriting done for life insurers?

By Katherine McLaughlin and Vicky Gardner

Life insurance underwriting has long been evolving to improve insurer efficiency and the customer journey. As life insurers and reinsurers continued to wrestle with this, the COVID-19 pandemic came along as a new catalyst for reinvention.

When in-person meetings were not available and few applicants were comfortable having a medical exam or giving blood and urine for testing during the pandemic, many insurers already had a counteraction measure for life insurance sales under threat: accelerated underwriting programs. The constraints of the pandemic drove expansion of existing accelerated underwriting programs and creation of new ones.

Carriers who had used accelerated underwriting for policies with lower face amounts expanded their programs to policies with higher amounts as well as older issue ages. While once limited, accelerated underwriting grew during the pandemic to encompass significantly more applicants.

The time-saving benefits of accelerated underwriting came front and center to good effect: Offering a customer a policy more easily means the customer is more likely to accept it. Carriers with a lengthy application process risk that the customer will give up or go to a different insurer.

Accelerated underwriting hurdle

The definition of accelerated underwriting differs, with some insurers seeing it as a fluid-less process and others designating it as straight-through application processing. Becoming comfortable with accelerated underwriting risk assessments was one hurdle for insurers, as both carriers and reinsurers asked: Are we still measuring risk well?

Digitization began to improve processes throughout the applicant journey. Where business was once traditionally done face to face, the pandemic replaced those in-person interactions with virtual ones. Online meetings and phone calls with agents and paramedics became the standard. Insurers increasingly called upon digital data sources used prior to the pandemic, such as clinical lab histories and electronic health records, to assess risk.

Reinsurers, intending to grow comfortable with an insurer’s accelerated underwriting aims, developed staff to support carriers’ initiatives, thereby ensuring alignment with an insurer’s risk approach and establishing program risk monitoring.

Even as business partners were trying to figure out the dynamic market, the life insurance industry posted a significant sales gain in the first half of 2021, buoyed by greater consumer awareness of mortality and increased interest in the benefits of life insurance. The in-person customer journey and required fluids testing that had been the hallmarks of the insurance buying experience may have been limited by the pandemic, but the industry carried on successfully. Carriers were maintaining their risk assessment capabilities and taking on new business responsibly in terms of application population, age distribution, risk class distribution and manageable anti-selection.

A new role for behavioral science

Convergence of these factors cleared the path for the life insurance industry to apply behavioral science and predictive modeling more frequently to improve digital transactions. The traditional application process validated application data by medical testing and other information. New approaches help applicants more accurately and completely disclose information, which in many cases, could no longer be validated by traditional tests.

Application of behavioral science principles called for a shift from an industry-first mindset to an applicant-first mindset. Behavioral science encourages insurers to meet customers where they are — to understand their product preferences, discover their preferred policy features and focus on the application process in a fresh way.

A traditional application question may ask, “Do you smoke or use other forms of tobacco?” with a choice between “yes” or “no.” That question with a behavioral science perspective might ask, “When was the last time you smoked or used tobacco?” with various, more granular answer choices such as “in the past month,” “3-9 months ago,” “more than a year ago,” and so on. Rather than evading “yes,” the applicant may choose among the responses for the one that feels most aligned to their reality.

An application informed by behavioral science is designed to make questions easier to understand, yielding more accurate disclosure. In this way, behavioral science supports insurers in finding a balance between traditional medical evidence and an accelerated underwriting approach.

Overall, accelerated underwriting can deliver a less intrusive experience for the consumer while maintaining a robust underwriting process. Of course, risks persist in anti-selection and slippage, in expected mortality. However, we expect that predictive models will be increasingly used in identifying and assessing these risks.

The good news is that after the pandemic, more consumers enjoy an improved life insurance purchasing experience. A greater focus on the customer’s perspective, broader use of accelerated underwriting, benefits from predictive modeling and greater digitization and streamlining of the life insurance buying process are significant positive forces pushing the industry post-pandemic.

Katherine McLaughlin is head of Americas data analytics at reinsurer SCOR, based in Kansas City, Mo. Contact her at [email protected].

Vicky Gardner is head of data analytics for life and health at SCOR, based in London, England. Contact her at [email protected].

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