A Pinch of Accelerated Underwriting and a Dash of Simplified Issue: Could it be the perfect recipe for risk?

Taylor Pickett
Mike Cusumano

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In Brief

Take a closer look at the complex spectrum between traditional SI and AU and discover new ingredients for life products that can increase customer satisfaction, attract the right risks, and maintain low mortality.

Delicious duos like cookies and milk and peanut butter and jelly are imminently accessible if you have the right ingredients. Yet in insurance product development, the most desirable pairing – easy customer experience and low mortality – can sometimes feel tantalizingly out of reach. How close is the industry to bringing together the best of both worlds? What challenges remain?

This article explores the space between accelerated underwriting (AU) and simplified issue (SI) and offers key considerations for insurers eager to whip up products that meet customer needs and satisfy their own appetite for risk and price.

Background

First, a basic definition of terms: AU is a modification of traditional full underwriting (FUW), where a portion of applicants with favorable risk characteristics can forego time- and cost-intensive routine requirements, most often fluid testing and a paramedical examination. SI is further removed from the FUW process, featuring an abbreviated application and reduced evidence ordering, with no applicants undergoing fluid testing or paramedical exams.

Insurers experience a sizable mortality gap between FUW/AU and SI. To match the historical SI experience outside the contestable period, FUW would need to be loaded up with an additional about 150% to account for the SI product’s mortality slippage, which is significantly higher than most AU programs’ anticipated slippage of 30% or less.

Addressing this mortality gap is central to achieving the best-of-both-worlds scenario: a fast, easy, fluidless customer underwriting experience and the lower mortality outcomes of AU. Rather than jumping from one extreme to the other, the most workable solution may be aiming for meaningful progress toward a middle ground.

Differentiators in this Space

Insurers are employing a variety of strategies to expedite underwriting decisions while keeping a close watch on mortality.

Applications: A full Part 2 medical history statement with reflexive questions is common for AU applications. SI applications historically use a short-form app with just a handful of questions. If insurers are looking for places to ease customer burden, other options hold more promise. That’s because application disclosures become more critical in the absence of physical measurements and current lab results. Those disclosures can be particularly helpful in obtaining information such as build, tobacco use, and family history, which can sometimes be challenging to discover through structured digital health data.

As an insurer crafts an application, the goal should be to balance customer experience with accurate disclosure. Behavioral science can provide proven strategies to increase customer disclosure and reduce cognitive load, which is the amount of thinking or memory recall required to complete a task. For example, RGA behavioral science research demonstrates that the number of questions in an application may not be the best metric for an “easy” or “fast” application. If the questions are clear and can be answered quickly and easily, application completion rates as well as disclosure should improve.

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Evidences: To streamline the underwriting process, insurers continue to emphasize digital evidences with near real-time availability. Medical claims histories and clinical labs are attractive because they are structured data that are conducive to automation and scoring. Still, it is important to remember not all “hits” are created equal. For example, a strep test from five years ago is less valuable than a complete blood count (CBC) from last month. Electronic health records offer the appeal of richer data, but often arrive as a mix of structured and unstructured data that may require human underwriters to review and analyze.

Insurers should consider the combination of evidences used and how they work together. The value of a tool will always be greater when evaluated in isolation relative to the incremental value the tool can provide when used in conjunction with other evidence. While challenging to estimate, exclusivity is a key consideration. For example, medical evidence sources will naturally be more correlated with each other than with behavioral and other non-medical evidences.

Finally, new types of evidence must be used meaningfully to move the needle on mortality. What action is being taken because of the evidence results? How often does this evidence change an underwriting decision?
Automation vs. Human Underwriters: Automated underwriting continues to develop in response to a desire for more instant decisions. But a strong push toward instant decisions may result in an insurer turning more applicants away. In all likelihood, human underwriters are necessary to evaluate applicants whose risk profiles are more complex.

If fully automated decisions are a must for a certain product, “gray” or nuanced cases may not fit. Tightening underwriting thresholds can pave the way for increased automation while maintaining favorable mortality performance, but results in lower acceptance rates (i.e., higher rates of decline). In practice, this strategy must be balanced with the customer experience.

Another option is to offer different products to applicants not approved for the primary product. For example, insurers could offer these applicants a guaranteed issue product or an accidental death benefit. Insurers continue to explore alternative pathways for customers who are not a fit for the core product.

quick take: The Fundamentals of monitoring

When launching products in this space, it’s critical to define and evaluate early indications of success. Post-issue audits can provide many such metrics. Different tools and approaches can provide different levels of insight into mortality indications and potential program refinements.

MIB Plan F or ReCheck, where various third-party data calls are re-run a set time after policy issuance (e.g. 90 days), can provide a more passive means of monitoring. These resources flag cases of interest for further underwriter review with the aid of more robust evidence sources.
On the other hand, post-issue APS or EHR audits require more underwriting resources to complete but offer an even fuller picture of risk factors that may be slipping through the cracks. Depending on the audit findings, cases can be re-underwritten to provide a comparison between the simplified underwriting decision and something approaching a fully underwritten decision.

All these monitoring approaches can be beneficial, and each program’s specific goals should inform its unique approach to monitoring – whether post-issue audits, or even active monitoring of key attributes such as score distributions and business mix. Keep in mind: The value of any monitoring program increases greatly when it is part of a broader feedback loop that informs further underwriting development efforts.

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Managing the Market

Marketing plays an essential role in the success of AU products, SI products, and everything in between. When insurers manage the pool of people aware of and seeking the product, they boost their chances of attracting healthier lives even before any underwriting happens. There are a variety of approaches to influence this. Some are quite simple, such as ensuring marketing language that emphasizes speed and convenience rather than a lack of particular testing or evidence. Other, more complex options are explored in more detail below.

However, in a direct-to-consumer world where anyone could stumble upon a product marketed to a certain group, insurers cannot actively prevent people from applying. Affinity groups or affiliate marketing is one avenue for insurers to align products with demographic groups that are well-suited to their risk profile.

Savvy direct-to-consumer marketing boosts visibility among those aligned with the product’s risk tolerance while minimizing the likelihood of others accidentally happening upon it.

Product pricing requires a delicate balance; insurers need to cover their mortality risk while not chasing away healthier lives. People may be willing to pay a certain upcharge for a convenient process, but there is likely a price at which they are prompted to look elsewhere. Risk class structure can help on this front. The potential of a lower preferred rate, enabled by stringent requirements and reduced qualification rates, may help balance attractive marketing with sustainable product pricing. Additionally, insurers focused on SI and AU products should not leave out customers who would normally be attracted to full underwriting products. Products that fall in between AU and SI can be designed to attract these good-risk customers, who may perceive an additional premium charge as worthwhile for a fast and convenient process.

The industry still struggles with consumer perceptions about the cost of life insurance. To single out just one demographic, LIMRA’s 2023 Insurance Barometer Survey found that the number one reason millennials have not purchased life insurance is because they think the cost is prohibitive. Here are two marketing strategies that hold promise in this area.

Price anchoring sets a price point that customers can refer to when making decisions and can be an effective approach for insurers. In their marketing, insurers can “anchor” the cost of life insurance among regular consumer purchases like auto insurance, mobile phone service, or even monthly Starbucks expenses. In this way, insurers can position insurance products among other expenses that people perceive as reasonable. Through price anchoring, a higher price point may still attract desirable customers, providing more underwriting freedom. For example, $500,000 or more in life insurance may cost less than half of a family’s typical monthly mobile phone bill.
Embedded insurance is another strong approach where insurers partner with established consumer brands to bundle insurance coverage into the purchasing journey for other products and services. Life and health insurers have been slower to adopt embedded products when compared to our property and casualty counterparts, but the sector is catching up fast.

Conclusion: Minding the Gap

On the complex spectrum between traditional SI and AU, many strategies can increase the speed of underwriting decisions while finding a comfortable place within the mortality gap. Small steps toward a seamless application process can go a long way toward increasing customer satisfaction, attracting the right risks, and maintaining low mortality. As our underwriting paradigms evolve, insurers don’t have to force themselves into one end of the spectrum or even into the expectations of traditional underwriting. Instead, we may discover a middle ground that gets us closer to the “just right” blend of price and process.

RGA’s teams have unique insights into how products are designed and marketed and can provide candid assessments of current offerings and prospective products. Contact us to learn more about how we can advise insurers on the development of AU and SI products.