I recently read an article on mortality slippage as a result of automated underwriting (AUW). Mortality slippage—when carriers unintentionally allow high-risk applicants to bypass rigorous vetting and place them in a better risk class than had they gone through full underwriting—is a real risk to the financial health of a life insurance company. According to this article, which referenced studies by life insurance reinsurance companies (MunichRe, Swiss Re and GenRe), mortality slippage has increased over the last 11 years at rates greater than anticipated. Analysis of AUW results show that males, older issue ages, and lower face amounts have higher mortality slippage and tobacco misrepresentation is increasing and remains a particular area of concern for AUW programs.
According to a GenRe study, 82% of life insurers in the US have adopted AUM and another 10% are planning on adopting it. Munich Re did a study in 2024 that looked at twodifferent methods of analyzing AUW results – random holdouts (RHO) and post issue audits (PIA). An RHO is an application that has fully qualified for AUW but has been randomly chosen to also undergo full underwriting (FUW) while a PIA are audits conducted after an AUW decision and/or offer is made, most commonly by reviewing an attending physician statement (APS) or electronic health record (EHR). With over 33,000 lives across 30 AUW programs they measured mortality slippage, or the misclassification of AUW mortality relative to FUW mortality and found that mortality slippage is 12% from RHO cases vs. 15% from PIA cases. Munich Re suggested that the difference between the two might be attributable to additional medical history data being collected in an APS/EHR or whether they were even collected among other things.
Most misclassifications were from build/BMI errors, tobacco use, cholesterol/lipids and blood pressure within the RHO group, and build/BMI, medical history, blood pressure, and tobacco use within the PIA group. It seems that RHO are more successful at identifying tobacco nondisclosures than PIA since labs typically test for cotinine while APS/EHRs do not always comment on smoking status. Between both groups, tobacco misrepresentations have been increasing.
Another recent Swiss Re study concluded that mortality slippage averaged 15% but was as high as 30% for some insurers. This research suggested that as many as 2 out of every 100 applications should have been declined and another 2% should have been rated for tobacco. This is a concern. If FUW results in no mortality slippage, then AUW mortality slippage could cost life insurers as a result of early or excess claims over the life of a policy.
These results could cause a drop in profitability and might force life insurers to reevalute their pricing assumptions. What Celent hopes is that insurers begin a broad monitoring of their AUW applications and review their AUW rules and processes while looking more closely at using new tools and data to augment their AUW. This could include adding new data sources like historical lab results, RX data, and digital claims data to their fluidless AUW programs. Celent’s research Life Insurers are Rewriting the Underwriting Rules can help insurers identify the right tools and technology to use. AI tools can help them evaluate this data more quickly and cheaply than in the past. AI can help identify non-disclosures more easily than an underwriter. In addition, some new business and underwriting rules engines and workbenches now include behavioral analytics tools to alert the agent or underwriter when an applicant might be misrepresenting themselves in the application.
Reach out to Celent for more discussions on this topic.
