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Automated Underwriting: The Industry Turns a Corner
January  2017

It’s widely understood that a faster and easier life underwriting process is needed in order to penetrate the underserved middle and growing millennial markets. Carriers also believe that a better buying experience would produce more sales – and fewer dropped
sales – in the upper middle and affluent markets.

Knowing this, companies have been looking for ways to innovate around the underwriting process for at least a decade. Advancements were made in the simplified issue (SI) arena where e-data and software algorithms enable point of sale underwriting and policy issue for face amounts up to $250,000. But the SI underwriting model – assessing individual risk without the use of paramedicals, labs or medical records – had not been viable for
larger amounts of coverage.

Three years ago, the first life insurer broke through the barriers in the fully underwritten market. Principal Financial introduced an accelerated underwriting (AU) program for face amounts up to a million dollars, with the same product characteristics and premium
as a fully underwritten product. This was a pivotal moment. It put the market on notice that at least one company was going to do things differently and had figured out an approach.

This past year, a number of other carriers have actively entered this space. No longer just talking and investing, they are rolling out – or are on the verge of rolling out – AU programs to include some portion of their business with larger face amount policies.

The approach to AU that companies are taking varies a great deal – from automating traditional underwriting processes to assessing risk with non-medical e-data and predictive analytics. Using predictive analytics to correlate financial and other nonmedical
factors with mortality is still very much in the very early stages, but ultimately this approach may be the game changer that the industry needs to stay relevant in a changing consumer marketplace.

In 2017 we expect to see several programs offering larger amounts of coverage at fully
underwritten rates with at least some portion of applicants underwritten without fluids.

As a reinsurer, SCOR has participated in the transformation of the underwriting process on several levels – as an innovative solutions provider (Velogica), as a thought leader and consultant helping clients develop AU programs and as a risk partner taking on
mortality and lapse risks in new and uncharted markets. From each of these vantage points, it is apparent that the industry has turned a corner. The SI and fully underwritten markets are merging.

At the Forefront of Simplified Issue & Beyond
SCOR has been at the forefront of the accelerated underwriting movement for nearly a dozen years. Velogica, our underwriting platform and algorithm, uses electronic data in conjunction with application data to underwrite life insurance applications in real time,
usually delivering results in less than one minute. Since its market entry in 2005, Velogica has underwritten in excess of 2.5 million lives for our clients in the U.S. Our current annual run rate across all clients in the U.S. is approaching a million applications.

Upon receipt of application data from the client, we order additional data including prescription drug profiles, motor vehicle reports and MIB records. Velogica’s sophisticated algorithm develops a risk profile that considers each data source individually but also incorporates any positive or negative underwriting ramifications of relationships
between data sources. This provides a more nuanced and accurate recommendation than simpler rules engines.

Velogica generates final underwriting recommendations on about 95% of simplified issue cases. Each underwriting recommendation also includes all of the underlying data for potential underwriter reviews and includes reason codes that explain which data sources factored into the final recommendation.

The Velogica underwriting engine has specialized in providing final recommendations on policies up to $250,000; however it has also proven to be a valuable component in a fully underwritten program. Incorporating Velogica’s risk appraisal capabilities into a traditional
underwriting process allows for more automation and point of sale recommendations on higher face amount business.

Applicants who are eligible for approval via the Velogica engine can get coverage at the same premium rates as applications going through full underwriting. Those who are not eligible for approval via Velogica are triaged to traditional full underwriting.

The most recent version of Velogica (V4) has the ability to incorporate new sources of instantly available digital data that are or will soon be available on individual applicants. These include clinical lab results and electronic health records plus non-medical evidence
such as criminal history, financial background, underlying credit history components and social media data.

SCOR is heavily invested in understanding and integrating new sources of external data to continue the advancement of accelerated underwriting for higher face amount business. We also are using predictive models to mine years of Velogica-underwritten
business for mortality relationships and patterns that may not have a corresponding entry in a standard underwriting manual. This generates hypothetical rules that we can test in a “rescore” environment.

We regularly match our underwritten population to the Social Security Administration’s Death Master File, allowing us to take advantage of historic underwriting decisions and electronic data to play “what if” with our rules – with actual quantifiable mortality impact.

The Velogica team at SCOR includes more than 30 dedicated professionals including Velogica-specific underwriters, actuaries and in-house IT professionals. Additionally, there is significant collaboration across the Velogica team and the SCOR Global Life Mortality
Research and Development Center. These combined resources strengthen SCOR’s ability to apply the latest learnings on mortality, lapsation and emerging underwriting trends to support carriers participating in simplified issue and fully underwritten markets.

Accelerated Underwriting - A Core Focus

The SCOR Global Life Mortality Research and Development team is a global, cross functional staff of underwriters, statisticians, data scientists and actuaries. The team has significant expertise in experience analysis and focuses on a number of areas.

An important research focus involves the value of fluids in the underwriting process to determine where and when the information contained via fluid collection impact an underwriting decision. This insight is especially valuable in working toward an accelerated underwriting paradigm that omits fluids when applicants meet other risk assessment criteria. (See Accelerated Underwriting Opportunities from the September 2016 SCORviews).

The team is dedicated to R&D around new data sources – including facial analytics – and the uses of these tools and algorithms with an electronic point of sale underwriting platform.

SCOR provides R&D support to companies implementing predictive analytics models and rules engines. For example, we worked with a carrier that decided to remove fluids from their underwriting process for standard and better risk classes. We performed analysis
using our proprietary model to assess the mortality impact and redistribution of risks among the risk classes.

Our model showed a higher mortality impact due to distribution shifts and loss of
sentinel effect than their proprietary model. Working together, we assisted in the revision of their assumptions and program parameters, which were introduced in early 2016. To date the program has performed as expected.

A Partner in Mortality Risk

When entering new markets and new product lines or introducing different risk selection processes, companies expose themselves to new risks. As a reinsurer, an important part of our value proposition is helping client understand and manage new risks.

SCOR believes the future of life insurance depends heavily on successfully transforming the underwriting process. We have been a leader in this space for more than a dozen years and are well positioned to continue playing a role in making the underwriting process faster, easier and less costly – for our clients and their clients, too.

Conclusion

What life insurers can accomplish digitally continues to become more far reaching, simpler and faster, so underwriting will increasingly depend on algorithms and e-data. A number of insurers and reinsurers are on the march, laying groundwork to adapt to new
technologies and data sources that will change if not replace many existing underwriting systems and processes.

It’s easy to imagine a future where instant information on applicants enables underwriting decisions that are as good as, if not better than, ones made using conventional processes. A more complicated exercise is plotting the transitions we have to make over
the next few years to get there.

The path forward is likely to vary for each company as they consider their distribution, product needs and existing systems and processes. While some may develop and own all aspects of these new processes, the size and complexity of the endeavor will lead many carriers to look for one or even multiple partners. Having an alignment of parties -- distribution, insurer and (perhaps) a reinsurer with experience and know-how -- will be key so that the new underwriting paradigm can be successfully deployed.