As customer expectations change, it’s imperative that life insurance companies improve their underwriting efficiency. In this blog, we examine three ways that life insurers can evolve their underwriting processes.
Having the same dream again and again is the well-known phenomenon of recurring dreams. Recurring dreams are personal and often involve places, people and things we recognize. While they can be pleasant, 77 percent of recurring dreams recycle the same negative scenarios or fears.
Like a recurring dream, we generally see the same challenges and frustrations show up year after year in the life insurance industry. Challenges like needing quicker claims resolution, more efficient product development cycles and mainframe replacement seem to be ever-present. But the recurring challenge we’re going to focus on in this blog is life insurance underwriting turnaround time.
According to Securian Financial, traditional underwriting usually takes about 45 to 60 days to complete. Many factors come into play during the underwriting process, including an applicant’s medical records, credit history, driving history and more, which all help the carrier analyze the chances of them dying before the end of a policy term. This fundamental review procedure has not changed much through the years, but we have seen incremental improvements due to digital records processing and better electronic integration with information sources.
Customer and agent satisfaction is always top-of-mind for insurance companies. Today, insurers are spending millions of dollars on digital transformation to improve the customer experience. A primary factor that impacts the experience for life insurance customers is the length of the underwriting process itself. In fact, 50 percent of all people searching for life insurance value convenience, speed and simplicity in underwriting above all other factors.
The underwriting of the future requires a customer-first mindset. Let’s take a look at a few ways insurers can improve the time it takes to underwrite a life insurance policy.
Improving Life Insurance Underwriting
When an insurance company is deciding whether to issue a life, disability or health policy for an individual, they need to collect certain information to make that decision. We commonly refer to this information as “pending requirements.” Some of the information comes from the applicant, and some of it comes from outside sources like healthcare providers. The type of information and level of detail needed can vary greatly from application to application.
Here are some factors life insurers use to decide what information they need to collect:
- The amount and type of insurance the applicant wants
- The age and sex of the applicant
- The answers to the questions on the application
- The answers provided by service providers.
The main business problem insurance companies face is identifying and collecting the necessary information in a timely manner. The process can take a very long time due to the number and types of people and other companies involved. Unfortunately, neither the applicant nor the agent wants to wait for long.
As the days drag on, industry research shows the “not taken rate” – the percentage of applicants who refuse to take a policy they applied for – begins to skyrocket. This means the longer it takes to gather this information the more likely your company and agent are wasting your efforts. In addition, your company will incur expenses for collecting the information you need to make the decision. Anything that can shorten the time frame adds value to the underwriting process.
Through the years, the evolution of processes and technology has helped speed up life insurance underwriting, improved customer satisfaction and the policy-taken rate, all while decreasing the cost to insurers. What was once mail and phone calls turned into email and enterprise application integration (EAI), which helped automate much of the information gathering but didn’t necessarily help with the process.
So, where do we stand today? The industry is looking at newer, more creative ways to solve its underwriting issues. Companies that successfully solve these issues and accelerate underwriting have four things in common. They successfully deal with legacy technologies, focus on the customer experience, leverage data to understand the process and the impact on customers and profitability, and see the value in modernizing this process.
Let’s look at some newer tools and ideas for improving life insurance underwriting.
Process Improvement and Business Process Management Tools
Business process management (BPM) tools are not a new technology. The Workflow Management Coalition (WfMC), founded in 1993 with original members including IBM, Hewlett-Packard, Fujitsu, ICL and Staffware, formed as a consortium of software companies to define standards for the interoperability of workflow management systems. Before disbanding in 2019, they said the following about BPM: “BPM is a discipline involving any combination of modeling, automation, execution, control, measurement and optimization of business activity flows, in support of enterprise goals, spanning systems, employees, customers and partners within and beyond the enterprise boundaries.”
The roots of BPM solutions date back to the 1980s with companies like FileNet and their system to route scanned documents. In the 2000s, the rise of enterprise application integration (EAI) systems helped automate the communications between applications but didn’t necessarily have process workflow maturity.
As BPM solutions continued to evolve in the 2000s, developers added new functions to support process modeling, reporting and analytics. Today, you can use BPM as a central hub for handling complex processes and managing workflows for underwriting processes by making sure agents handle their tasks and pass them through the workflow.
BPM solutions leverage a central rules engine maintained by business users who can visually create and manage process flows and decision points. Additionally, BPM solutions can leverage tools such as application programming interface (APIs), robotic process automation (RPA), low-code applications and machine learning/artificial intelligence (ML/AI) models to automate integrations with internal and external applications.
RPA, in particular, can help carriers with a legacy-centric environment where older systems contain relevant information that is difficult to access other than through manual lookups. You can seamlessly add RPA processes into a BPM process flow.
The reporting and analytics these suites provide allow carriers to monitor the underwriting process to better understand efficiencies, inefficiencies and throughput. Modern BPM solutions provide a robust collection of tools to help make the underwriting process more efficient and profitable for carriers today. This data provides not only insights into the process but can also highlight potential areas that may impact the customer experience.
Artificial Intelligence (AI) and Machine Learning (ML)
Traditionally, the underwriting process has been a manual, often paper-based and lengthy process with incremental efficiency gains over time. Words like “automated” and “digital” are still not synonymous with underwriting because legacy systems often remain the bottleneck.
You can use modern ML and AI tools to speed up your existing underwriting process. Making decisions is at the crux of the underwriting process, and decisions depend on required information about the insurance applicant. The more data your underwriters have about an applicant can lead to a more accurate decision. But the more data an underwriter must sift through, the more difficult the decision becomes. ML and AI can assist by processing large quantities of disparate data in seconds. Here are a couple of ML and AI life insurance underwriting use cases.
- One way to leverage ML to help your underwriting process is to help triage incoming applications. Typically, carriers have multiple underwriters with different skills and experience. An ML model that reviews applications to identify simple vs. complex situations can review incoming cases. The ML model can also review and identify characteristics to help route cases to the appropriate underwriters. You could use ML alongside a BPM tool to improve your overall underwriting process.
- You can also use ML models to suggest what data you need to approve a case. Certain characteristics of the potential insured may indicate the most important underwriting rules you need to follow. For example, a 50-year-old male applying for a standard whole life policy with a death benefit over $500,000 may require a specific set of rules for your underwriter to follow. But an ML/AI model, through reviewing the medical history of the potential insured and historical data on claims of similar policyholders, might find additional underwriting criteria to review.
These are only two use cases that help illustrate how you can leverage ML and AI. They can take advantage of customer and process data the carrier has collected to pro-actively help improve the underwriting process as well as the overall customer experience. And as discussed in the prior section, you can also use ML/AI models as part of your overall BPM workflow process.
Using a Digital Journey for an Improved Customer Experience
We will continue to see lengthy underwriting processes for more complex or high-value applications despite introducing new tools and processes. This places extreme importance on communication with the applicant and agent. To improve this communication, you can develop a digital journey to better understand your customer’s needs and experiences.
A customer journey is a path from purchase to retention, from first noticing a product to purchasing it, to needing service and for life insurance, to ultimately using it. With life insurance especially, that journey is often very long, and it is important for the carrier to provide efficient, easy-to-access and accurate touch points. A digital journey provides multiple channel options (for example, phone apps, web, phone, email, text, and so on) with modern graphical interfaces and smooth, easy access.
When you go through the process of mapping a customer journey, including all the possible touchpoints and devices, you will be able to gain insight into the customer’s decision-making process and how they prefer to connect and do business with your brand. This process helps carriers identify and correct any pain points that could make the journey less than satisfying.
The life insurance industry is seeing an evolution in customer demographics as younger, more technologically skilled consumers start families and begin to enter the market for life insurance. These consumers have different demands from an interaction and communication standpoint, and they expect personalized online experiences and mobile applications.
Digital journeys will look different going forward as carriers try to simplify the application process and change the evidence collection process. Carriers must consider and involve their distribution partners in developing these new journeys to satisfy their customers.
What’s Next for Life Insurance Underwriting
Like most recurring dreams, life insurers are analyzing the cause of underwriting inefficiency and looking to stop it. Despite being traditionally resistant to change, the insurance industry is starting to see value in modernizing the underwriting process and is looking for new ways to deal with legacy technologies, focus on the customer experience, and leverage data to understand the process and the impact on customers and profitability.
Insurers are leveraging BPM tools to monitor the underwriting process and highlight areas where carriers could improve the process for efficiency and profitability. Insurance companies are also attempting to simplify risk assessments by incorporating new data sources and increasing the deployment of automation and ML/AI-driven techniques. Others are focusing on enhancing the customer experience with digital transformation.
Insurance companies will need to focus on these areas to accelerate the underwriting process, keep up with evolving customer expectations and stay ahead in this competitive industry.