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Since its inception, the discipline of life insurance underwriting has evolved. While it may be more readily apparent in recent years due to the digital revolution and the introduction of accelerated and automated issue underwriting programs, the profession has adapted to a dynamic environment. Multiple factors have presented the need for change, from improved medical treatments and new ways of connecting with medical providers, to having a better understanding of co-morbidities and how these factors interact to impact mortality risk. It also includes increasing competition in the industry and enhancements to the type of underwriting requirements being ordered.
Many years ago, insurance companies routinely requested a chest X-ray as a requirement depending on the age of the applicant and the requested face amount of the policy. Today, this requirement is virtually obsolete in the life insurance industry. A more recent example is the medical condition Hepatitis C. Promising research and treatment advancements have improved mortality risk. In the past, these risks were often viewed as uninsurable for life insurance. Fast forward to the present day, most life insurance companies consider this condition to be insurable in some fashion when certain criteria are met. Outside of accelerated or automated underwriting programs, individual cases can present interesting challenges and involve varying amounts of medical or financial complexity. Perhaps equally as important in an underwriter’s day-to-day work is a concept that seems to have been lost, understanding the sale. In short, underwriters have only a snapshot of a client. They have pieces of data that paint a picture of each risk profile. These data points may include the application, medical exam, lab reports, Attending Physician Statements, financial information, and other types of third-party data. Decisions are rendered without ever speaking to the client, seeing them, or getting to know them personally. Financial professionals, on the other hand, may have known the client for years. They could be a friend or family member. An agent may often have collateral knowledge which can assist an underwriter in understanding factors of the case and filling in any potential gaps. Help Us, Help You. When I have the opportunity to speak to agents and Marketing General Agencies, or MGAs, I use the term Help Us, Help You. In a recent case that came across my desk, an agent was requesting $5 million of life insurance coverage for a client. Upon reviewing the stated income on the application and other information on the submitted forms, the face amount did not seem financially justified. The underwriter wisely proceeded to have a conversation with the agent which led to a more complete story. In this case, the proposed insured had been employed at this company for 20+ years, had ownership in the company, and even created its proprietary software system. By taking all of these key factors into consideration – with the previously supplied information – the underwriter was able to approve the case for the full requested face amount. What made this particular case insurable from a face-amount perspective is that the underwriter was able to complete their due diligence in securing additional details from the agent when the submitted case information didn’t make sense on the surface. Had the agent initially addressed upfront the missing pieces like the “goodwill” of the client to the company, percentage of company ownership, and creation of the software program, it would have provided a more holistic understanding of the “why” and “how” the face amount was determined. Case in point: a properly prepared agent cover letter is important to include when a file is being submitted. It helps the underwriter arrive at an informed decision and avoid unnecessary delays. If a cover letter isn’t used, a summary of these missing factors on the application, email, or a phone conversation is also helpful. "As the life insurance industry looks to expand and further refine its underwriting solutions through the use of data, the ability to remain agile is critical." Underwriters need complete information upfront to help assess risk – our primary job. The underwriter’s main objective is to protect their company’s mortality risk and to ensure that coverage amounts are financially justified. Each of us must adhere to our company’s guidelines, underwriting philosophy, and risk tolerance. Therefore, the more we know up front, the greater the chance of the client having a better customer experience throughout the underwriting process. Help us, help you. Understanding accelerated underwriting Most life insurers have either-or options, or they are currently in development. The industry has seen a rapid advancement of these programs over the past two years. Demonstrating responsiveness to the COVID-19 pandemic, qualifying face amount limits were raised and age criteria expanded by many companies. Available third-party data tools were often used in greater measure to help fill in the gaps from some temporarily unavailable traditional underwriting measures. This experience taught us that digital underwriting is here now. And it is here to stay. Accelerated programs are less invasive, and have improved timeliness, service, and overall customer experience. By incorporating other third-party data elements, a proposed insured may not need to complete medical lab requirements or have their medical records reviewed. Often, clients can enjoy a faster turnaround from submission to approval and delivery of the contract. This is a truly a win-win for all involved. Yet challenges still remain when it comes to providing underwriting solutions in the accelerated and simplified space, including: ○ The type and amount of data supplied from third-party resources necessary to make an underwriting offer; ○ Product pricing that is appropriate for the underwriting risk class; ○ The regulatory environment which varies from state to state; ○ New diseases and viruses (i.e. COVID-19) and their potential long-term effects; ○ Anti-selection (i.e. tobacco, build, and income); ○ Data reliability; ○ Communication to the agent when an individual does not qualify for accelerated underwriting. Possible solutions to address these challenges exist, like: ○ Staying up-to-date on state regulation activities and proficiently applying underwriting approaches and tools in the impacted areas; ○ Using vendor tools that help identify any recent diagnosis and hospitalizations; ○ Incorporating behavioral science and third-party ID verifications; ○ Setting expectations with the producer on what circumstances may qualify for accelerated business and why knock-outs to full underwriting may occur. As the life insurance industry looks to expand and further refine its underwriting solutions through the use of data, the ability to remain agile is critical. Over the past several decades, the underwriting landscape has evolved and looks completely different today than in years past. With more refined accuracy, technology and data sources will become critical tools for risk assessment. From a medical perspective, advancements in medical treatments continue to progress with both ongoing research efforts and new medications coming to market. While unknown diseases may evolve, cures may be found for those or other conditions. From a financial perspective, companies will develop new life insurance products and the financial landscape of our economy will continue to change over time. In the midst of great transition, some underwriting factors remain unchanged. Underwriters understand the need to review a risk holistically, appreciate where risk opportunities and threats may lie, and value the importance of maintaining solid relationships with our distribution partners, reinsurers, and vendors. These key elements will always be necessary for successful underwriters no matter what route is chosen – be it automated or traditional business.