The Future of Life Underwriting

Hank George, FALU, CLU, FLMI

For much of this underwriter’s 30 years of practice, he had to endure being denounced as head of “the sales prevention department” by angry producers who tired of waiting weeks (if not months) for a “thumbs up” on new business.

Those days will soon be gone…forever.

Gone, that is, if life insurers take the plunge and embrace a new model for risk appraisal that radically transforms the process.

The model is known as TELEUNDERWRITING.

Its roots go deep. Back to the late 1970s – two decades before this phenomenon surfaced in its present form.

The first step that would culminate in TELEUNDERWRITING began when a few enterprising insurers first offered nonsmoker premiums to persons who abstained from cigarettes. “Non-cigarette” begot “non-smoking” which begot “non-tobacco,” so that by the late 1980s this had evolved into its present form.

The second major innovation setting the stage for TELEUNDERWRITING is PREFERRED RISK, a direct outgrowth of SMOKER/NONSMOKER.
PREFERRED RISK offered insurance seekers who led healthier lives lower premium rates than those who either did not follow the advice of their doctors or made bad health decisions.

PREFERRED RISK took off like a rocket, begetting SUPER PREFERRED and SMOKER PREFERRED. Fact is, one company is alleged to have developed 10 levels of PREFERRED, (some of which no carbon-based life form could possibly qualify for!).

As an industry, we learned a valuable lesson from SMOKER/NONSMOKER and PREFERRED RISK: “build it and they will come.” Which translates to the fact that consumers found these concepts so attractive that they rewarded companies who embraced them with a larger share of the better business in the marketplace.

The lesson – fortunately – was not lost on alert carriers.

With that, TELEUNDERWRITING was born.

What Is Teleunderwriting?

Simply stated, TELEUNDERWRITING is a new approach to life (and health and DI) underwriting that forsakes the past in favor of driving the risk selection process by the telephone, not by “snail mail.”

The core underwriting document of the 20th century was the non-medical, executed by the producer at point of sale, or the paramedical completed by a phlebotomist, or the MD examination (a costly exercise in futility poised to disappear forever). This document was aided and abetted by the attending physicians statement, the “mother” (to steal a bit of jargon from the ex-dictator of Iraq) of all tedious and costly selection tools.

These basic requirements, fortified by a generous dose of medical studies, assured that all but the cleanest cases would ascend into purgatorial orbit around the home office underwriter’s cubicle, while the applicant wondered where the policy was and the producer tried to keep a lid on his anger!

With TELEUNDERWRITING, we still have paramedicals, but they concentrate on physical measurements and fluid collections. Application completion and history taking is done over the telephone, by a “pleasant female voice” (to quote an article from Mayo Clinic, where a similar concept was adopted for a medical function). The producer gathers essential facts needed to complete the telephone interview or assuage demands of state regulators. Then, the teleinterviewer takes over.

The telephone interview of the TELEUNDERWRITING era expands on all YES answers to risk-related questions (medical history, avocations, driving record and so on). In doing so, it creates a virtual portrait of the proposed insured. A portrait the home office underwriter will use to make as many underwriting decisions as possible, as quickly as possible, without resorting to further requirements.

This part of the process is called TELEUNDERWRITING TRIAGE. This underwriter just wrote at length about the concept in the August issue of BEST’S REVIEW.

The key part where the teleinterviewer “drills down” all YES answers to risk-related questions. In doing so, she may ask anywhere from five to fifteen questions about a medical impairment or risky avocation undertaken by the insured. These questions empower the underwriter to see the issue at hand from a much-enhanced perspective. Not all cases of “colitis” require an MD report. Not all cases of “hepatitis” must evoke a request for blood tests. And so on, across a spectrum of risk scenarios that once brought underwriting to a halt for weeks if not months.

The producer, once a de facto “gopher” chasing down information, is liberated from 90%+ of such non-selling activities and may turn his/her attention toward their first order of business. This has profound implications for producer and insurer alike and has played a major role in driving the embrace of TELEUNDERWRITING across the industry.

The same may be said of the allure of reducing business acquisition costs, a major agenda item for most CEOs. With TELEUNDERWRITING, the most costly resources (MD reports, ECGs, stress tests, chest x-rays and the like) are either greatly minimized or disappear completely. They are replaced by comparatively inexpensive teleinterviews. The impact of this can be huge.

But in the final analysis, the biggest payoff from teleunderwriting is the profound reduction in what underwriting managers call “cycle time.” This is the time from application consummation to policy issue. What used to take 21 days now takes, on average, 3 or 5 days.

Challenges to Implementing this Transformation

That TELEUNDERWRITING would be a major step forward for most if not all life, health and even disability insurers is a fait accompli.

Why, then, do some companies hesitate or even look away from this adventure in progress?

The answer is more complicated than one might think.

First, there are in house detractors who lavish “snake oil” on this issue, clouding reality with the indefensible argument that “…any departure from the ways of the past is fraught with danger!” This intimidates some actuaries (who are not, for the most part, cut from the cloth of “risk takers” by their nature). Thus, progressive chief underwriters and their allies in Sales and Marketing may be outflanked for a time.

Second, converting to TELEUNDERWRITING is not without cost. A careful plan must be laid out, with input from many (God willing, including producers) and with the help of consultants who know the shortcuts and the pitfalls. The need for new hardware and expanded systems support will arise. Staff may need to be hired or contracted for on an outsourced basis. Some existing personnel – mainly those who refuse to go along with these essential changes – may have to be dealt with. All of which means there is expense and stress related with embracing TELEUNDERWRITING, just as there is with any progressive remodeling of an outdated way of doing business.

Third, there are key decisions to be made. One is to keep in-house or outsource the teleinterviews. Both approaches have pros and cons. In-house means more expense (staff, equipment, workspace, training) but more control over the process. Outsource means faster implementation, at risk that the product will not be what is desired.

Fourth, there is the perceived “problem” of winning over the reinsurers. This has been less of a struggle than anticipated. Reinsurers want the best risk information as much as direct writers. If we can show, as one major carrier has done recently, that the telephone interview has more value, dollar for dollar, than the MD report, then it should be no surprise that so many reinsurers are now advocates of TELEUNDERWRITING.

Finally, producers need to see that the notion that they may lose some degree of “control” over their clients is a mythical construct. They need to perceive the clear advantages of faster turnaround time and fewer demands for needle sticks and exposure to ionizing radiation! This underwriter, as consultant to insurers embarking on TELEUNDERWRITING, argues passionately for involving representatives of all distribution systems in every phase of the design and implementation of TELEUNDERWRITING.

At this writing, perhaps 10-15% of life companies have adopted TELEUNDERWRITING to the point of installing at least some of its aspects. A smaller number, including a number in the TOP TEN, have TELEUNDERWRITING up and running. A much larger share of insurers are said to be studying this process with intent to implement in the near future. The remainder still languish on the periphery, in denial or being “bewitched” by nay sayers whose transparent motive is usually to protect jobs not even in jeopardy!

TELEUNDERWRITING is the future of life, health and DI risk management. Its advantages are too compelling; its drawbacks largely illusory.

Are the companies you do business with part of the future?

If not, isn’t it about time that they start down this road to success?

This article was published in the October/November 2003 issue of Insurance Marketing, a bimonthly directed at life agents/brokers and home office personnel who work with them – reproduced here with permission of this publication.