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Is underwriting improving?

By 3rd January 2018No Comments
​Technology and customer expectations have moved on, but has the industry? Suzanne Clarkson investigates…

For many years now we’ve heard that underwriting is going to become easier and more effective.

Advances in technology are said to hold the key to overcoming the need for lengthy, complex and invasive underwriting processes: the kind of things that are seen as a barrier to growing the market in a world where customers value ease of purchase and personalisation.

In all these areas the industry has evolved but has it done enough to meet consumer expectations?

Keeping up

Businesses need to be thinking and acting at the same rate as technology and customer expectations are evolving.

We have already seen how market-leading companies disappear off the radar once customers can get what they want cheaper and easier.

Consider the way music stores lost out to iTunes and film rental shops to on-demand downloadable films, explains PwC in Life Insurance 2020: Competing for a future.

This report examines how advances in customer profiling and risk analytics are paving the way for a new generation of ‘smart’ policies: affordable, transparent and fully adaptable to individual customer’s changing needs.

The technology that is making these kind of policies possible is also making it easier for new entrants to break into the market at relatively little cost. 

Funding and fending off

Investment in insurtech is helping to drive new solutions from within the industry, with a view to warding off the threat posed by potential new entrants to the market such as Amazon and Google.

According to Willis Towers Watson, 2017 saw record investment in insurtech companies by reinsurers.

This could of course provide disruption to existing insurers too. Investment in insurtechs gives reinsurers the potential to bypass insurers with customer-centric start-ups.

On new entrants, this year will also see a totally new suite of products supported by Cloud-based technology from the soon-to-be-reborn brand Guardian, insurance challenger Gryphon’s protection business.

But what of existing players? Have they advanced?

Automated decisions widen 

Firstly, the need for human intervention in the underwriting process is reducing all the time, helping to simplify the process.

For example, Vitality’s underwriting review shows that for adult onset diabetes disclosures, automated underwriting rates – in other words, speeding things up by avoiding the usual trigger for a medical evidence request – had increased from c40% to c70% due to changes implemented by the insurer.

Acknowledging that risk isn’t static, VitalityLife launched real-time online decisions for Type 1 diabetics last year (automated decisions for Type 2 have been available for some years).

This provides a fully underwritten final decision for diabetics who have achieved good control of their condition without complications.

Deepak Jobanputra, deputy CEO of VitalityLife, adds that depression-triggered evidence requests also represent a very common disclosure and the insurer is looking at whether more decisions in this area could be made via automated underwriting.

“We are constantly reviewing our underwriting practices to ensure that we can offer terms as quickly as possible but whilst still being realistic in our underwriting philosophy,” he says.

VitalityLife’s recent innovation, ‘wellness optimiser’, takes the insurer’s engagement and pricing model a step further.

As well as rewarding members who track their activity levels, it also incentivises them to keep an eye on key health measures – like cholesterol or blood sugar – that helps keep them healthier for longer.

This combination of activity tracking and biennial health checks promises fairer upfront pricing, by better aligning premium to risk, and dynamically adjusting the premium each year to reflect ongoing risk.

New data sources

The use of the wider data universe – electronic health reports, connected devices, social media – is expected to represent a big future growth area for the industry, allowing for the better assessment and pricing of risk and in a different way.

Commentators expect the most immediate impact will be felt by electronic health reports.

All insurers agree that medical evidence requests slow down the acceptance of insurance applications. But cutting them out comes with downsides.

Simon Jacobs, head of claims and underwriting at Aegon, explains: “Limiting the medical information can shorten the acceptance process, but it would be to the detriment of customers as it would result in less bespoke pricing and possibly higher increases in medical ratings.”

Linsey Sutton, life insurance team manager at intermediary firm Assured Futures, adds: “The idea of a reduction in questions to make the application quicker for the client is a good one but only if the underwriting decisions are consistent and there is the ability to get cases reviewed individually by underwriters.”

To help ensure equilibrium, Munich Re plans to work with the industry this year to demonstrate how automated underwriting based on medical evidence on electronic health reports (removing the responsibility of GP disclosure) can deliver better customer trust and greater opportunity for the industry.

Whilst welcomed in theory, the jury’s out over whether this will work in practice.

“The key is improving GP take-up,” says Peter Hamilton, head of market management at Zurich. “We have some 20% of surgeries using the facility [iGPRs or electronic GP reports] now, but we need to dramatically grow this percentage.”

Jacobs adds: “Whilst the protection industry is keen, it’s probably not a priority for many busy GPs.”

Speed vs claims certainty

Meanwhile, the industry might have moved a long way in terms of streamlining application and claims processes, but the question of how to significantly grow the market still remains.

Research carried out by Zurich found that a quarter of people do not have cover as they think it’s too expensive and nearly a third (30%) didn’t think it was relevant.

The insurer last year launched its ‘selfie’ app FaceQuote to encourage people to engage with life insurance and show how affordable it can be.

“Similarly, there are too many customers who believe insurers pay out less than 50% of claims,” adds Hamilton. “To address this directly, we put poster ads on train stations and elsewhere last year highlighting that we paid 99% of all life and general insurance claims.

“Whilst we continue to focus on ease of process, we can’t lose sight of a more fundamental challenge – that of engaging customers in the first place.”

Spreading the word

Education represents the key to more insurance sales, says Nick Telfer, product & marketing director at British Friendly.

The insurer launched its ‘mutual benefits’ programme last year, providing its income protection members with a range of added value benefits and services.

These kind of things – such as virtual GPs and counselling helplines – that can be used from day one of taking out the policy, without the need for a claim, are fast becoming the norm across all insurers.

“We need to get more customers engaged to speak about protection in the first place. For those who buy into protection, we need to make the journey engaging and relevant to them from protection to claim,” adds Telfer.

The adviser view?

Emma Thomson, life office relationship director at LifeSearch, says underwriting has notic
eably improved over recent years.

“Underwriting systems are becoming more interactive, with more detailed question sets,” she says. “And with portals asking for more information at quote stage and the development of UnderwriteMe, the underwriting process is becoming more transparent.

“Underwriters do feel better aligned to the ‘sales’ process and are engaging more closely with intermediaries, which is positive. It is a tricky balance though, between wanting to get clients on risk quickly so they don’t lose interest, and ensuring they get fair terms.”

Sutton agrees, adding that it’s important that as systems develop insurers retain the ability to adjust decisions and look at cases with a human understanding. “Every situation is unique and some insurers seem to be losing touch with this slightly,” she says.

Playing catch-up

Underwriting is improving but, arguably, this is mainly focused on bringing old models up to date for most of the market.

Disrupters, on the other hand, have the benefit of being unencumbered by such legacy systems and processes.

It’s not inconceivable that we’ll soon see retail sector-style behavioral targeting used by insurers, utilising consumers’ web-browsing behavior to select tailored content and ads to display at ideal moments.

Just one click will take the consumer through a swift purchase, involving transparent, personalised cover and pricing based on the individual’s connected data profile, plus access to bespoke added-value services and no-nonsense claiming from a company that lives and breathes corporate social responsibility.

Much like start-up insurer Lemonade has already done for the home insurance market in the US.

As pointed out by PwC recently, to stay in the game insurers need to get ahead of this curve.

Suzanne Clarkson is a freelance journalist and corporate communications consultant.

This article is care of and this article can be found here.

Tim Kelly

Tim is a highly qualified Independent Engineer with over 20 years experience as an Engineering Assessor of damaged vehicles.

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