Have Electronic Applications Come of Age?

My first experience with an electronic application was in 2002. I was working with a major credit card company who included a flyer along with the billing statement that provided information about how to apply on-line for their term life insurance product. We didn't know how many applications to expect; but based on the wide distribution, we planned on a high number. Many months of effort went into developing the eApplication on the website and creating an interface for the collected data into the new business and underwriting system. This was cutting edge technology at the time. The electronic application collected the Part 1 – demographic information – of the application. The Part 2 – medical information – was collected by a third party. A whopping 523 applications were received from the first mailing. The campaign continued on an intermittent basis for a year with a few over 2,000 applications received. At the end of the year, we threw in the towel and quietly closed down the campaign.

Why did the campaign fail? There was nothing wrong with the process and the technology, while primitive compared to today, worked well. The problem was that the idea was ahead of its time. People were not ready to buy insurance on the internet. In fact, most of the applications received were declined or heavily rated. The people who applied were driven to do so by a less than stellar health history and had few other options available to them.

Flash forward to today; digitization of life insurance new business is a hot topic. Consumers are buying everything from mutual funds to groceries on the internet. However, based on Celent’s recent new business and underwriting benchmarking report, Resetting the Bar: Key Metrics in Life Insurance New Business and Underwriting, nearly 52% of all insurance applications received are still in paper form.

There are a number of problems associated with paper applications, from missing forms to illegible writing, which creates a tremendous impact on an insurer’s ability to process an application quickly and/or accurately. Industry benchmarks have placed NIGO (not in good order) rates at greater than 50%. Electronic applications essentially eliminate NIGO.

Our research shows a significant reduction in new business cycle time for insurers between 2007 and 2016. For high face amount writers, the average cycle time decreased from 52 days to 44 days and from 42 days to 33 days for moderate face amount writers. When asked how the better results were obtained, the majority of insurers had seen a reduction in cycle time due to the use of technology. Some responses included “increase in eApp adoption and increased use of an automated UW engine,” “eApp, more skilled staff, cross-training with 60% automated underwriting, so huge reduction,” and “increase in auto-issue rate.” Obviously, the new business process is ripe for automation.

In Karen Monks’ and my new report, The Doorway to Straight-Through Processing: Life Insurance Electronic Applications 2016, we profile nine software vendors and their 10 electronic applications marketed to life insurance. The report focuses only on stand-alone solutions in North America. For each vendor the solution is described using the customer base, data sources supported, functionality, and technology, as well as implementation and costs.

In 2002, the buying public wasn’t ready to shop for insurance on-line. That attitude is changing. An electronic application, along with an underwriting rules engines and electronic contract delivery, to enable straight-through processing will soon be the norm. The time for eApplications has arrived. An electronic application opens the door to transform the insurance buying experience, increase agent and customer satisfaction, and potentially sell more insurance.