9/09/15

Not Through the Barrel of a Gun, but Change Comes to Life Insurance Underwriting

glacier-before-and-after2Mao Tse-Tung wrote, “Change must come through the barrel of a gun.” What he meant of course, was that violent revolution was needed to bring about societal change. However, one could interpret the statement to mean that people and organizations do not generally change unless there is a serious threat to the status quo. While there has been little threat to life insurance underwriting departments for the last 30 years, peril is looming. The weapon is being loaded, and chief underwriters are taking notice.

The weapon to which I refer is the confluence of several trends conspiring to take down life insurers if they don’t respond. These threats include:

Long underwriting cycles: Currently, full underwriting takes too long, making it difficult to court new distribution partners and increase sales.

Existing distribution is missing significant consumer segments: Agents are aging and agencies are failing to successfully reach millennials and other consumer blocks, which erodes sales growth.

Consumers have more tools than ever to manage their physical ailments but often don’t choose to: Disease management, occupational and environmental risks, diet, and exercise are all affecting non-cancer mortality. Those consumers willing and able to take preventive action can increase longevity if they make better lifestyle choices will increase longevity. Many, however, choose not to, putting strain on traditional life insurance financial models.

While these threats might seem frightening, it’s also true that these changes are producing new opportunities. Throughout the most recent Society of Actuaries Underwriting Innovations Conference, speakers talked not only about threats to traditional underwriting, but also about these growing opportunities for life underwriting departments. Substantive changes are beginning to take hold to give life insurers options for dealing with these threats. These include:

Electronic health records: Documents are increasingly available to underwriters in their full, actionable data summaries, and full summary forms. Electronic health records can be quickly obtained and can provide significant protective value to insurers.

Data surrogate exploration: Data analysis is beginning to reveal that demographic, financial, behavioral, and other traditionally non-underwriting data is providing protective value to life insurers. Early results suggest that much of the lengthy requirement gathering process may be avoided by using data that can provide information about health risks.

Emphasis on wellness: Wearables, self-diagnosis, gamification, mobile treatment equipment, remote health monitoring, and other strategies are giving consumers more information and control over their diseases. Higher income consumers, in particular, are monitoring their exercise, sleep, diet, blood sugar, and other health characteristics in order to improve health. This data over time will give insurers a better understanding of the patterns of a person’s health rather than simply a snapshot of it.

Faster data: Pharmaceutical data, credit data, and other data surrogates are giving underwriters protective value without as many expensive, time consuming, or invasive measures. Faster data is shortening time frames for fully underwritten products and it is specifically making it less risky to underwrite simplified issue products.

The bottom line is that underwriting will change dramatically over the next decade. As a part of this change, we will see a variety of underwriting styles across carriers, wider variations in non-medical limits, and diversity in product underwriting styles. It would not be surprising if we even dipped our toe into the pool of some variations of ongoing underwriting, or sending consumers offers to increase coverage, or add riders post issue without full underwriting.