The Expanding Use of Life Insurance Underwriting Tools and Technologies

After writing our biannual report on new business and underwritiing systems ( New Business and Underwriting Systems: North America Life Insurance Edition), I was intrigued when the all of the vendors we evaluated said that they made changes to their systems and began integrating with new data sources during the past two years. We all know how COVID-19 accelerated digitalization plans for US life insurance companies and underwriting departments were forced to find ways to underwrite without labs (known as “fluids”).

To dig deeper into these changes, I surveyed life insurance underwriting departments on the changes they made in terms of plans or use of new tools and technologies. I asked the about 18 different new business and underwriting tools and technologies. The survey results are analyzed in a recently published report Life Insurers are Rewriting the Underwriting Rules.

Background

Traditional life insurance underwriting is typically very time-consuming. From the time an application is completed to when a policy is issued could take weeks if not months, depending on the product and the health of the client. Underwriters require evidence that the applicant is healthy. What evidence is collected is directly correlated with the cycle time, e.g., medical exams and data take longer than non-medical data. To speed the process of underwriting, many life insurance companies have turned to data and technology to create accelerated underwriting procedures an help clients overcome the obstacles of traditional life insurance underwriting. Accelerated underwriting eliminates the need for a medical exam and a lot of the back-and-forth that keeps clients waiting.

Years ago, life insurance companies began using rules-based automated underwriting systems. Rules expanded to include rules to correlating application data with other data like motor vehicle records (“MVR”), pharmaceutical data (“Rx”), and the Medical Information Bureau (“MIB”) database. More recently, insurers started to use new data sources to create a big data approach to underwriting. They may use or develop machine learning algorithms to identify healthy clients or they may access multivariate models that access multiple databases to give a predictive score. They may implement behavioral tools that look at how applications are completed or track an applicants biometric data. or they may implement new technologies like workbenches, OCR, or even computer vision. All of these new tools and technologies may provide new insights into the applicant, help speed underwriting, and hopefully better predict the risk of the applicant as a policy holder.

Survey results

Based on that survey and customer feedback from new business and underwriting system research, here’s what we found:

• Life insurers are harnessing the power of some new tools and technologies in their underwriting processes.
• To supplement medical underwriting evidence like prescription and Medical Information Bureau data, insurers have increased their use of medical claims databases, electronic health records (EHRs), and clinical laboratory databases since COVID-19.
• Wearable data has the potential to further personalize underwriting, but insurers have not invested in this technology yet.
• Insurers have invested in new business and underwriting rules engines and workbenches, but other technologies like OCR and computer vision are not in use. On average, rules engines and automated requirements have reduced cycle time by 42% and FTEs by 25%.
• Privacy regulations limit the use of some behavioral data, and most insurers are not using much beyond motor vehicle records in their underwriting.
• About half of insurers have started to use advanced data tools like multivariate mortality models and predictive analytics, but COVID-19 had little impact on expansion plans.

Want to learn more about what insurers are doing? Celent clients can access the report. Non-clients can reach out to insurance@celent.com to set up a call to learn more about our services and how to get access to the report.