Moving life insurance underwriting from art to science

Underwriting is art, not science. This is what I was told when I started as an underwriter, and this sentiment continues today. Over the past 10 years, the notion that underwriting is art has moderated, and in some cases, has totally transformed into the perception that underwriting is, indeed, a science. At least, that has often been the case for personal automobile underwriting. But for many insurers, when it comes to underwriting life insurance, it’s still all about the art!

Several things make the hard-liner stance for underwriting as an art form untenable. The three most prominent are customer expectations, rapidly evolving distribution channels, and emerging technology.

Bringing underwriting science to customer experience

There is a $16 trillion coverage gap in U.S. life insurance coverage, according to LIMRA. No matter how you slice it, that is a huge number. And an amazing opportunity!

While there are several segments that historically remain uninsured, like the U.S.-based Asian and Hispanic populations for example, the majority of individuals without life insurance coverage are middle-income Americans who see life insurance as complex, hard to understand, and time-consuming to obtain.

Requiring life insurance applicants to complete pages and pages of paper documents in order to get a quote is simply in conflict with today’s digital-everything world.

Some life insurers recognize the necessity of providing digital applications. While this is a good first step, it’s what happens next that can drive off a potential customer. In some instances, life insurers can provide a target, but not underwritten, quote. This is where the disconnect happens. When individuals learn they must provide additional information, as well as submit both medical exams and blood work, they typically abandon the process. Especially if they are healthy and seeking coverage of $1 million or less.

It’s too complex and too time consuming.

Life insurers serious about converting a portion of the $16 trillion uninsured population must focus on acquiring real-time, external data from sources such as the Medical Information Bureau, in addition to MVR data and credit-based data, so that underwriting happens behind the scenes, utilizing modern analytics tools. Applicant-provided data and external data then becomes the electronic underwriting file and a portion of the policy administration system. Underwriting is not just a new business process. It is also part of customer service as financial needs grow over time and new products are needed.

Rapidly shifting distribution channels

Life insurers are accustomed to dealing with multiple distribution channels: tied agents, contact center sales, broker/dealers, and independent agents. These channels are historically managed separately, and coordination across channels is a challenge. In today’s highly competitive sales environment, where speed of execution is mandatory, channel coordination should not be a barrier.

Communications and collaboration with the various distributors must be compliant with internal and external governance and regulatory requirements. Underwriters also need to communicate and share information across the channels. Digital information sharing and decision communication requires modern capabilities. Repurposed legacy technology and automated versions of old paper forms will not meet expectations and will fail agility tests.

A new underwriting reality is rapidly approaching in the form of InsureTech organizations targeting life insurance sales, generally as MGAs. These organizations approach sales with simple UIs, limited questions, and near-instant decisions.

As these MGAs grow in popularity and ramp up product breadth, underwriters need adapt. It will not be a case of the MGAs adapting to meet the complexities of underwriting, but rather the reverse: life insurers finding ways to accomplish underwriting goals using modern technology.

Emerging technology to the rescue

Underwriting is at the core of life insurance financial success. It would be foolish to assert that life insurers should stop underwriting. However, it is all about how underwriting transformation will be accomplished. Emerging technology will significantly impact how insurers meet customer expectations for a seamless, real-time experience, as well as stepping up to a shifting distribution landscape.

Specifically, artificial intelligence, machine learning, and robotic process automation will change the way underwriting is done.

The science of underwriting must coexist with the art of underwriting. The science will handle the less complex product decisions. The art will handle those that are more complex. And the definitions of “simple” and “complex” will change over time due to technology. But underpinning all these decisions will always be the content, documents, and necessary process management to make it all work – an enterprise content management foundation.

Karen Pauli

Karen Pauli, Principal at SMA, has comprehensive knowledge about how technology can drive improved results, innovation, and transformation within insurance operations. Pauli has worked extensively with insurers and technology providers to reimagine processes and procedures to change business outcomes and support evolving business models. Her areas of focus include underwriting, claims, business intelligence and analytics, data sources, agency distribution, and customer management. Pauli’s real-world experience with digital transformation projects has given her unique insight into the changing customer and distributor experience in the digital age. In her more than 30 years at insurance companies, and in the technology research and advisory space, Pauli has developed her talent for aligning business goals and perspectives with technology roadmaps to create competitive advantage. Before joining SMA, Pauli was a Research Director in the insurance practice at CEB TowerGroup, where she utilized her extensive insurance company experience to translate technology into business value. Prior to that, Pauli held management and executive positions at several insurance companies. As an Assistant Vice President at Commercial Union/OneBeacon, Pauli sponsored technology initiatives involving analytics, straight-through processing, and automated underwriting. Pauli is regularly quoted in leading insurance periodicals. She is a frequent speaker at conferences such as IASA, ACORD, and ACE as well as customer events. Pauli graduated from Bradley University, Peoria, Illinois with a B.S. in history.

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