Accelerated
underwriting holds the promise of being able to cut the agent's time spent
selling a $500,000 policy from 20 hours to roughly five, a Deloitte analyst
said.
The
associated benefits from that are numerous. In particular, it could lead to
more life insurance sold to Americans who need smaller amounts for basic
protection.
Chris
Stehno, managing director, human capital practice, at Deloitte, shared data and
analysis Thursday on new underwriting technology for the National Association
of Insurance Commissioners; Accelerated Underwriting Working Group. The
benefits offered by accelerated underwriting have the potential to
revolutionize the life insurance industry.
"Right
now, agents aren't selling below a million dollars," Stehno said.
"It's not they don't want to, but for the most part, they're not too
interested in it. What accelerated underwriting does is say, 'Hey, for a
portion of those people, the young and healthy, I'm interested in selling to
them again.'"
Annual
Milliman surveys show a steadily increasing shift to accelerated underwriting.
For example, Milliman found that 24.6% of indexed universal life sales were
made with accelerated underwriting for the fiscal year ending Sept. 30, 2018.
That figure is up from 16.8% during the fiscal year 2017.
The
Accelerated Underwriting Working Group was formed during the NAIC's summer
meeting in August. The group will "consider the use of external data and
data analytics in accelerated life underwriting, including consideration of the
ongoing work of the Life Actuarial (A) Task Force on the issue and, if
appropriate, drafting guidance for the states."
Life
Insurance Buying Gap
Life
insurance sales have been stagnant for many years, but Stehno said it's
actually much worse than the numbers show. Policy counts are declining, but
face value is going up because life insurance has become a tool for the
wealthy, he said.
(Courtesy
of Deloitte)
"You
talk to consumers and you'll find out that about 41% of Americans don't carry
any type of life insurance," he said. "Of those that do, almost half
of them have a coverage gap of at least 200,000.
"If
you really talk to people like the millennials or other groups, you know, the
people that should be buying it now that they're about 25 to 40 years old, they
say they haven't even been approached."
A big
part of the problem is the lack of incentive for agents to sell small policies,
Stehno said. In this slide, he explained the implications of a commission
structure that has barely changed in 50 years:
(Slide
courtesy of Deloitte)
"If
you ask an agent how much time does it take them to show half-million-dollar
policy under traditional underwriting, let's say they spend about 20 hours on
it," Stehno said. "They'll get about a $300 check in the end. So
they're getting about 15 bucks an hour. So agents really aren't even that
interested in selling that half-million policy anymore."
Strong
Results
Underwriters
are utilizing predictive analytics to triage applications, identifying certain
healthy applications for whom selected medical underwriting requirements can be
waived, Stehno explained.
The
algorithm kicks a certain percentage of applicants out at the beginning,
sending them to traditional underwriting, but actuaries are constantly
tinkering with the testing methods, Stehno said. Results have been surprisingly
accurate, he said.
"There
are some companies that have gotten up to maybe 40% of the applicants that they
can take through the accelerated timeline or not ordering certain
requirements," he said. "But about 60% probably still go to
traditional and that's probably companies that are being pretty aggressive at
it."
Big
Benefits
Accelerated
underwriting means savings in two ways, Stehno said. The first comes from the
20% to 25% of people who drop out of the life insurance buying process during
the laborious 30- to 40-day traditional underwriting process.
"They
were probably sold insurance in the first place," Stehno said, indicating
a successful sales pitch. "This is dragging on, they're having to do more
things and they just kind of eventually, you know, the process is too
cumbersome and they give up."
A 75%
placement rate jumps to the 95% neighborhood when the underwriting time is cut
dramatically, Stehno said.
The
second savings comes from the underwriters themselves.
"It
frees up underwriters so they can actually spend more time on the tougher cases
and do a better job with those," Stehno said. "We've seen enhancement
on getting rid of some of the underwriting errors that we saw in the past just
because they had too much on their plate."
Agents
are happier because they're spending five hours instead of 20 hours, Stehno
noted. And that means the middle market should get more attention, and more of
those half-million policies get sold.
"When
we put these in place, we're seeing a lot more sales in this million dollar and
less (market)," he said. "A lot more people interested in sort of
reaching out to middle America again, and pushing to sell them a policy."
The
working group will hold monthly conference calls and identify issues and a
"potential work product" throughout 2020. Tentative plans call for
that work product to be delivered to the NAIC's Life Insurance and Annuities
Committee "at or before the 2020 fall national meeting," the work
plan stated.
InsuranceNewsNet
Senior Editor John Hilton has covered business and other beats in more than 20
years of daily journalism. John may be reached at john.hilton@innfeedback.com.
Follow him on Twitter @INNJohnH.
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