Transcript Life Underwriting Trends and Opportunities

Organisation of Southern and East Africa Insurers Technical Training Seminar
Life Underwriting Trends
and
Opportunities
22 April 2016
André Basson
Central Actuarial Services
Hollard Group
What is underwriting?
Underwriting is the process of consideration of an insurance risk.
This includes assessing whether the risk is acceptable and, if so, setting
the appropriate premium, together with the terms and conditions of cover.
It may also include assessing the risk in the context of the other risks in
The portfolio.
This helps the company to control the quality of lives accepted.
Insurance company will normally aim to accept as many policies as possible at
the appropriate premium rates.
Given this, the fundamental risks are:
• That premium rates are not appropriate for the lives concerned
• That the premium rates permit selection against the company
Terms of Acceptance
• Standard rates
• Special terms
– An increased premium
– A reduction in benefit
– An exclusion
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Exclusion clauses
Deferred for stated period
Decline
Offer an alternative product/policy
Risk Management
• Protect company from anti-selection
• Identify sub-standard lives for whom special terms need to
be quoted
• For those sub-standard lives, the underwriting process will
identify the most suitable approach and level of special
terms to offer
• Adequate risk classification within the underwriting process
will help to ensure that all the risks are rated fairly
• Will help to ensure that the actual mortality experience
does not depart too far from that assumed in the pricing
• Financial underwriting will help to reduce the risk from
over-insurance
Underwriting Processes
• Medical underwriting
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Questions on application forms
Medical doctor’s reports
Medical examination
Specialist medical test
• Lifestyle underwriting
– Factors like occupation, leisure pursuits, country of residence, health
care environment, socio-economic factors
• Financial underwriting (failure = decline)
– Are premiums affordable (persistency)?
– Fraud (income vs benefit)?
• Claims underwriting
– Disclose terms and conditions at sale stage and enforce when a claim
is submitted
Interpretation of Evidence
• Evidence needs to be measured against the
standard of health required from the life
company (design & pricing assumptions)
• Where risk factors are outside the standard the
evidence will need to be interpreted by specialist
underwriters employed, who will use:
– Any doctor specifically employed for this purpose
– Underwriting manuals prepared by major reinsurance
companies
Determining underwriting levels
Ensure that the increased volumes from more
relaxed underwriting outweigh the cost of
increased anti-selection and any increased cost
of obtaining reinsurance.
Determining underwriting levels (cont.) Factors
• Expenses (salary of underwriter, cost of medical reports, obtaining
further evidence)
• Extent of any potential anti-selection risk (financial significance)
• Interaction between level of underwriting and potential level of
sales (greater underwriting = lower sales)
• Claims underwriting deter sale – creates uncertainty
• Effectiveness of underwriting
• Homogenisation of risk
• Regulatory influence/restrictions
• Reinsurer terms offered
• How to vary underwriting by risk factors – age, sum assured, target
market etc.
Practicalities of getting to market
• Disclosures
– At sale stage (brochures, telesales)
– Any client communication and documentation
– Increase in expenses
– Low non-medical limits
– Claims repudiation
– Extreme customer discomfort/dissatisfaction
Practicalities of getting to market
(cont.)
• Underwriting skills
– Qualified/skilled staff to apply the necessary judgement is
expensive, as is training
– Skilled underwriters are not always available
– Reinsurers provide underwriting manuals
– Automation and systems
 Lack of skills
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Inappropriate inconsistent decisions
Loss of market credibility
Increased medical evidence requirement
Higher declinature rate
Loss of business
Practicalities of getting to market
(cont.)
• Processing hurdles
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Systems controls needs to be robust and efficient
Automated underwriting systems are useful but expensive
Sound decisions are important
Technology barriers and/or lag
 Shortfalls
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Delay in issuance
Dissatisfied customers and sales force
Customer cool offs
Reduced business volumes
Market edge loss
Non-Disclosure & Anti-Selection
Customer A
Customer B
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• 40 years old
• No physical activity or very
irregular
• Back pain on and off
• Diagnosed with high blood
pressure
• Early stages of diabetes
• Health data outside acceptable
levels
No adverse disclosures
40 years old
Goes regularly to gym
Yearly health checks
No ailments
No family history of ailments
Health data within acceptable
levels (weight, height)
No adverse disclosures
Both pay same premiums
• Underwriting required to accept risk within acceptable levels
• Introduce exclusions and waiting periods to manage the sub-standard risks
So…what can we do?
New approach where sound decisions need to
be made
• Tele underwriting
• Automated expert underwriting
Tele underwriting
• While the quote/sale is being concluded, the sales
agent gathers all the information
• Information sent to underwriter
• Decision is communicated off-line, or
– Then communicated to applicant
• Automated underwriting system
– Long development process involving experts
– Costly
– But fast/instant results
• Sales agents can be skilled underwriters
– Not required if system automated
Tele underwriting
(cont.)
Advantages
• Reduces the decision making time if skilled
underwriters are sales agents
• Reduces the need for medical report
• Improves disclosure rate
Disadvantages
• First to market to get a head start
• Call times may become excessively long
• Market saturation after extended period
Automated expert underwriting
Most automated systems do some of the
following:
• Identify Yes/No questions
• Refer applications with non-standard
disclosures
• Calculated BMI
• Use logic based “rules” (decision trees)
• Capable of identifying medical conditions
Automated expert underwriting
(cont.)
Advantages
• Faster turnaround times
• Improved business turnaround times
• Accurate and consistent decisions
Creating an expert underwriter
• Attract
• Nurture
– In-house
– Reinsurers
– Diploma in life underwriting
– Retain
The Future
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Underwriting will likely be segmented into:
– Predictive (future / forward)
Application of data and analytics on a portfolio of people to predict what the underwriting
decision would be if each of those people went through a conventional underwriting approach
– Selective (traditional)
Applicants are screened through the submission of underwriting evidence to determine their
suitable coverage
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Shortened proposal forms
– At the cost of potential higher premiums
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Technology and big data
– Mobile devices to sell and capture information
– Activity tracking devices
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Field underwriting
Business from elderly
– Affordability
– Moral hazard
Source: RGA, South Africa – Underwriting Innovations
The Future
(cont.)
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Improvement in risk selection
– Enhancement (use existing better)
– Replacement (supersede traditional)
– Innovative (new information => new insights)
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Credit Scoring
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Segments mortality across many dimensions
A/E of the worst 10% > 4x higher than that of the best 10%
“Evidence” does not appear to wear off very fast
Still a work in progress (TransUnion and RGA)
Dynamic underwriting
– Mining existing data to help prevent and weed out fraud
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Wearables (iWatch, fitbit etc.)
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Health awareness and empowerment
Offering credit/benefits for healthy lifestyle choices
Access to new range of preferred products
Device manufacturers are beginning to consolidate tracking capabilities via social media
platforms
Source: RGA, South Africa – Underwriting Innovations
The Future
(cont.)
• Wearables (cont.)
– Challenges with leveraging information
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Accuracy of device
Chain of custody
Compliance with use
Consumer loyalty
Pace of technology development
Market largely limited to Motivated Healthy and the
Critically Ill
• Genetic profiling (not too distant future)
Source: RGA, South Africa – Underwriting Innovations
Wellness
• Platforms
– Employer Sponsored
• Program that promotes workplace health and prevent illness that
aim to improve employee engagement and attendance
• Additional benefit of potentially improving mortality/morbidity
experience under group insurance arrangements
– Individual Insurance
• The individual policyholder is incentivised to achieve and maintain
a healthy status through a series of financial and non-financial
rewards:
– Premium discounts
– Free wearable devices
– Travel, shopping and/or entertainment type rewards as well as discounts
at retailers
Source: RGA, South Africa – Underwriting Innovations
Health/Wellness Platforms
Employer Sponsored Example – Wellvolution by Blue
Shield
Results
• Smoking decreased by 50%
• Hypertension decreased by 66%
• Employees paying a combined $3mill less per year in
insurance premiums and have enjoyed 2500 health days off
• Disability claims have decreased by 20% among
participating employees (compared with a 60% increase
from non participating)
• Estimated ROI of $3: $1 spend for employer
• 60% increase in employee participation in wellness
programs
Source: RGA, South Africa – Underwriting Innovations
Health/Wellness Platforms (cont.)
Individual Policy Approach
Main Methods
1. Insurer builds their own wellness tracking
application/websites, applicants reassessed at intervals,
with discounts and incentive levels for the insured that
achieved the best outcomes.
Examples: Momentum Multiply (RSA), Great Eastern Live Great
(Malaysia)
2. Insurers outsource wellness tacking to a vendor such as
Vitality and then build the products/rewards around the
results achieved.
Examples: Discovery Vitality (SA), John Hancock Vitality (USA), PruProtect
(UK), PingAn Vitality (China), AIA Vitality (Singapore, Australia)
Source: RGA, South Africa – Underwriting Innovations
Future Data
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Sleep monitors
– Studies have linked duration of sleep to predictors of health and increased risk of early
mortality
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Digestible devices
Implants
DNA analysis
Electronic Health Records (EHR)
– Advantages
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entire digitized medical history available instantly and securely to authorized users across multiple
health care facilities
Consolidates information inputs from all clinicians involved in a patient’s care enabling a complete
view of medical history, diagnoses, medications, treatment plans, immunization dates, allergies,
radiology images, and laboratory and test results
Allows physician’s to access directories and evidence based tools to assist in decisions about patient
care
– Insurance implications
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Complete view of an applicant’s medical history meaning lower likelihood of withheld information
Overwhelming size of some EHRs presents challenges to insurers as to how to efficiently manage
records that can run to 1000+ pages
Source: RGA, South Africa – Underwriting Innovations
Future Data
(cont.)
• Enhanced e-Underwriting Systems
– e-Underwriting systems have been largely focused on:
• Solutions that are integrated into insurers own systems processes
• Focused on maximizing straight-through-processing (STP) outcomes
• Limited integration with underwriting evidence beyond application form
– e-Underwriting systems are moving into the future:
• Hosted by vendors rather than integrated by insurers into their systems
thereby:
– Substantially lowering deployment costs
– Enabling companies to consider multiple e-Underwriting deployments to support
different distribution and product lines
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Hosted systems effectively offering decision ‘look ups’ for the insurers system
Moving from STP into more complex underwriting scenarios
Able to deal with a wide range of structured underwriting evidence
Integrated Credit Scoring and other inputs
Source: RGA, South Africa – Underwriting Innovations
In Conclusion
• The process of traditional underwriting will be profoundly reshaped
by advances in technology and the type of data that will be
submitted as underwriting evidence
• While Health Tracking Devices have not yet achieved universal
appeal, their prevalence will grow as the technology develops
• Wellness platforms will expand as the number of consumers
subscribe to wearables and other health monitoring devices
• Advances in the structuring and centralizing consumer health data
will provide more accurate and richer sources of information for
health professionals and service providers
• Continued advances in medical technology will add or enhance the
risk screening options for insurers leading to more sophisticated
product offerings and/or improved underwriting results.
Source: RGA, South Africa – Underwriting Innovations
Questions?
Thank You