The Origins and Evolution of Teleunderwriting

Hank George, FALU, CLU, FLMI
March, 2007 • Teleunderwriting Essay 2

“It all started in a little 5,000 watt station in Fresno.”

- Ted Baxter

For those of you who remember the Mary Tyler Moore TV show from the 1970s, the name Ted Baxter should recall to mind that pompous evening news anchorman who was forever incurring the wrath of station manager Lou Grant!

Best as this underwriter can determine, teleunderwriting – unlike Ted’s mythical career as a bumbling TV personality – did not begin in a radio station or in Fresno, California…nor did Ted have anything to do with it (which is just as well for the sake of this incredible process which is changing the face of mortality and morbidity risk assessment forever!).

What preceded (and led us to) teleunderwriting?

Prior to 1980 – and here I am speaking only of the United States underwriting community – we gathered all of our risk information via 3 main modes:

• Non-medicals, completed by the agent/ intermediary at the time the application for insurance was taken
• Paramedicals, where the medical portion of the risk history was taken by the (then) nurse prior to or following a series of physical measurements
• Medicals, where a physician performed a (typically cursory) medical examination and recorded the medical history (hopefully) as given by the applicant

These approaches were deemed adequate in the age of paper applications, when insurers had relatively fewer constraints on how much they spent on risk appraisal and when turnaround time – in an era when “financial services” was not a concept used with life insurance – did not much matter.

In conjunction with all 3 of these modes of history-taking, most US insurers also ordered an “inspection report;” which was a consumer investigative report performed by an “inspector” retained by a service provider. This inspector typically visited with the proposed insured and asked a list of questions consistent with and also expanding upon what was asked in the aforementioned modes. This included making certain visual assessments of the insurance seeker, the circumstances in which he resided and so on. Indeed, these inspectors often spoke to neighbors as well, gathering sometimes highly questionable comments related to personal habits and behaviors of the individual in question!

With the advent of the Fair Credit Reporting Act at the end of the 1960’s, the amount of information inspectors could collect was rightly reined in considerably. These reports were also relatively slow and, in this underwriter’s experience at least, contained little content of real risk appraisal value that was not redundant to what was already in hand on the application, etc.

Because of the rising costs and limited value of inspection report content, progressive insurers began to experiment with a telephone-mediated alternative. This was known by many names from company to company, but the name by which it is best recognized is PHI – for “personal history interview.”

PHIs became quite prevalent in the decade of the 1980’s and vestiges of this now-obsolete entity remain to this day.

The value of the PHI was largely centered on the fact that it was (1) faster and (2) less costly than the traditional inspection report. Even though it was almost wholly redundant to what was already known from the application, it was deemed to confer enough marginal protective value in those days to justify using it in lieu of inspection reports on smaller amounts of coverage.

For then-jumbo policies (and especially where financial information was desired from “independent” sources), the traditional inspection was retained. The inspection report also had another advantage over the PHI: court records could be checked and they, of course, sometimes turned up very interesting undisclosed information bearing on insurability!

Today, inspection reports are still on the scene. Indeed, where essential financial information is needed, they are a huge asset on large amount applications and will likely continue to play a major adjuvant role in life underwriting. Because PHI’s are, by their nature, less likely to contribute much in the way of worthwhile additional financial information, they are in fact less relevant today than financially-focused inspection reports.

The value realized from PHI’s caught the attention of some forward-thinking life carriers. They asked themselves, “if we can get this much additional protective value from simply re-asking what has already been covered on the application, could we not get even further value by embellishing that information through further probing of elements of particular risk appraisal significance.”

Indeed, they could…and did…and teleunderwriting was born.

When and where did teleunderwriting actually start?

We will define the onset of teleunderwriting as the first time insurers enhanced the PHI questioning process in an attempt to get more information than just that which would confirm what was given on the application.

That said, it is impossible for me or anyone else to state with certainty the month or even for absolute certainly the year when this first occurred.

Why?

Because little was reported on such early experiments at industry meetings or in published materials of that era.

Those who launched these early attempts kept their findings to themselves…lest they give “aid and comfort” to competitors who were also beginning to experience the first pushback from senior management on business acquisition costs, turnaround time and ease of doing business for all parties to the transaction.

Having launched On The Risk in 1985 and being fairly well “connected” with the North American industry by the mid-to-late 1980’s, I was able to glean a bit of largely anecdotal information on these early experiments from chief underwriters in companies where they had been cautiously undertaken. Suffice to say that only a handful of companies were actually trying an early form of teleunderwriting back then.

One, in particular, with whom I was connected by virtue of a close friendship with the CUO (chief underwriting officer – a term that is overdue in the lexicon of the industry, don’t you agree?), told me of nascent but very promising efforts in her company, in the Midwest of the US, between 1986 and 1990. As this was also the earliest confirmed report of such goings on, I will postulate that teleunderwriting did begin more or less at that time.

One of the early innovators was the Prudential of America, a fact now well known to most of my peers. The chief underwriter there was a visionary proponent of the concept and he worked with a major consulting firm to get this project up and running efficiently.

What was the nature of teleinterviews in those early years?

First off, they were far less expansive in depth of content than they are today. Nevertheless, attempts were made to “drilldown” medical histories and thereby gain further insight into the nature of prevalent impairments, with an eye toward being able to make more decisions without resorting to gathering in medical records.

The urgency of doing so was clear as such reports were far more slowly received than they are, on average, today. This was because we did not have service firms acting as intermediaries in the process as yet and equally so because the vast majority of physicians were in small private practices where efficiency in handling such inquires was something less than well-organized!

In many cases these early teleinterviews were not scripted and callers could and would be rather free-wheeling, so to speak, in what (and how) they would ask. This, of course, raised certain questions about transcending the bounds of what could be perceived as appropriate if and when such cases came under scrutiny by regulatory bodies or in the context of contested claims.

Early attempts at teleinterviewing were largely undertaken with the case underwriter as the caller. As one might expect, this was less than warmly received by most veteran underwriters who did not nestle into our profession because of an abiding desire to have conversations with insurance seekers!

In fact, considerable attrition was the order of the day in at least some companies that forced this function on their underwriters. Because teleunderwriting was new, these displeased underwriters could readily find positions with more conservative carriers who did not impose this accountability.

A few of the companies quickly went to recording teleinterviews. The potential value of this aspect was easily appreciated and by the early 1990’s we already had (again, anecdotal) evidence that recorded interviews had been used with success in contest death claim scenarios. This, of course, spurred other carriers on to begin investigating the merits of an undertaking that might help to make contests less onerous and prone to failure if they reached the courts.

Keep in mind that in these early years we did not have any service firms that were actively promoting themselves as providers of outsourced teleunderwriting interviews. This would come later in the decade of the 1990’s and play a crucial role in transforming the process.

Why was outsourcing of interviews such a high impact feature that propelled teleunderwriting forward?

Because in-house calling programs were very expensive to set up…

They required a rather substantial up-front invest of time and money…with few assurances – again, back then – of ultimate success to justify the outlay. Chief underwriters do not always like to be seen as the persons who advanced risky propositions that might cost money and then flounder.

The reality of these costs and the inherent delays as well is best evidenced by the fact that well over 90% of all companies commencing teleunderwriting today do all or the vast majority of their teleinterviews on an outsourced, rather than in-house, basis. They have to…because they cannot get the budget monies or IT support they need to do them internally and they also have a strong incentive to begin ASAP, rather than take the slower path inherent in developing an internal calling program.

How did insurance salespersons react to teleunderwriting in the early years?

With “studied aversion,” to turn a phrase!

Well, actually, their aversion was largely emotionally-driven and sans any real efforts at understanding what was happening and why it might benefit them as well.

I “fondly” recall addressing a large gathering of producers in a province-wide agents’ association in Alberta, Canada, in the late 1990’s. When I first mentioned the concept, I saw them visibly tense up. Then, as I expounded upon it, I began to hear catcalls and booing…they hated the very thought of their insurers calling their clients in this context!

Why?

They said they were fearful of how “head office types” might witlessly unravel all the work they’d done to find and sell insurance to prospective clients.

Upon reflection, I could appreciate their concerns in this regard…even if they did blow them (as any wizened underwriter knows is their nature!) far out of proportion.

Interestingly, by the time I had finished, the adverse visceral responses had quieted and I walked away to muted applause. Some years later, upon addressing the same organization’s annual gathering once again, my reception was quite different and teleunderwriting was greeted to applause and looks of approval.

Why?

Because in the interim, progressive Canadian carriers had taken care to introduce teleunderwriting in an effective, field-friendly manner. Which speaks volumes to the fact that when I hear “our agents hate teleunderwriting,” I know I’m dealing with someone from a company that botched the introduction of teleunderwriting! More on this in a future essay…

Were there any early reports regarding the value received with teleunderwriting?

Hardly any…again, because this was deemed highly proprietary and also because companies were not as driven to do protective value assessments in those days as they are now.

However, I do recall one statement that was “read into the record” of a Society of Actuaries’ seminar I organized in the late 1990’s. It was brief but powerful and all I can do from memory is paraphrase it here:

“We get more value, $1 for $1 spent, on teleinterviews than we do on attending physicians’ statements.”

This was articulated by Jennifer Richards of Principal Financial in Des Moines, Iowa…

…and I sensed a hush coming over the room when Jen said it!

Understand that all conventional wisdom and historic evidence (such as it was… and there wasn’t much of it!) held the APS to be the GOLD STANDARD in terms of payback per dollar spent on acquiring risk appraisal information. The very fact that a company as outstanding as Principal could utter such words was, well, profoundly indicative of the latent potential of teleinterviews as a core approach to underwriting risks!

One must also bear in mind here that teleinterview drilldowns in those days were not nearly as refined as those we have today.

For example (and please forgive any implicit sales message here), I have designed a generic set of 92 teleunderwriting drilldown questionnaires. They represent consecutive enhancements of customized sets I have done for 5 insurers over the past 3 years. At the risk of sounding boastful, I would wager they are the finest set of questionnaires ever constructed and the sheer amount of protective information they would unearth during the teleinterview process could – by comparison with what was done in the past – result in making the vast majority of medical reports – for certain at ages 50 and under - no longer necessary.

Perhaps the most important of all strictly- underwriting related reasons for embracing teleunderwriting relates directly to certain realities inherent in medical reports:

• They are the leading cause of delays in decision- making.
• Their cost is accelerating rapidly.
• The quality and quantity of their content is declining…and the pace of this decline MUST accelerate in the future (for obvious reasons).

So, then, if they can be supplanted by teleinterviews without attrition of protective value – and more over if there is palpable evidence that their value is actually greater than that conferred by conventional medical records – then it boggles the mind to imagine that companies would continue to labor under egregious volumes of APS’s when there are better alternatives at hand.

Today, using teleunderwriting-mediated triage, we can quickly and highly accurately determine which medical reports we need and which we do not need.

No more blind APS ordering, based on underwriters’ long-held (and all too often mistaken) notions or questionable “gut reactions, should be countenanced by progressive carriers!

Closing Comment

As you see, teleunderwriting evolved relatively gradually between the late 1980’s and the end of the century. The process might have gone far faster if insurers had been more disposed to sharing their early favorable findings, but that is wishful thinking at best in the real world of greater and greater competition for business.

In the 21st century we have more and more testimonials to the pay-off from teleunderwriting. Insurers are presenting information on their experiences on industry programs and at seminars across North America.

Indeed, as I write these last words I am gearing up to chair the 3rd Annual Society of Actuaries Teleunderwriting Seminar in 10 days’ time in Phoenix, Arizona. On this occasion, three major carriers (one life, one disability and one health/ medical) will detail their teleunderwriting programs for attendees.

The information is out there.

All that chief underwriters need do is find ways to convince those who hover (with an “eagle eye”) over the purse strings to fund the meager costs involved in being present and soaking up all of the information.

No small challenge in today’s world of oft- misguided priorities.

Next, we will dissect The Many Faces of Teleunderwriting. We hope you will “stay tuned” and also get back to us with your questions and comments.