Business & Technology

The Automation of Risk-Assessment

Life Insurers Leverage Technology and Greater Access to Data to Streamline Underwriting

WINDSOR, Conn., March 23, 2016—Two in three life insurance companies responding to a LIMRA survey in the U.S. and Canada have implemented automated underwriting for at least part of their business and another 32 percent are in the planning stages of implementing automated underwriting, according to a new LIMRA study.

“While fully automated underwriting (no human interaction) is typically available for only a few products, our study found that there is a spectrum of automated underwriting in which companies may use automated underwriting fully or use it in conjunction with rules-based assessments and an underwriter’s review,” said Mary Art, research director,
LIMRA Distribution and Technology Research.

“Clearly, the significant advances in technology have played a major role in companies’ ability to leverage big data and algorithms to evaluate life insurance applications.”

Saving time and money are the top drivers for life insurers who are implementing automated underwriting. According to the study, 100 percent of life insurers surveyed said reducing the time it takes to issue a policy was one of the goals in using automated underwriting; 92 percent cited cost reduction as a goal (chart).

The Efficiency of Data

“Obviously, automated underwriting can offer lower the cost and time it takes to issue a policy, but life insurers also understand that consumers’ expectations are changing,” noted Art. “Most consumers are used to the ease and convenience of buying goods online and our research shows they feel that purchasing a life insurance policy should be a similar experience1.

Clearly, the significant advances in technology have played a major role in companies’ ability to leverage big data and algorithms to evaluate life insurance applications

More than two thirds of life insurers in our study are using automated underwriting to meet today’s consumers’ expectations.”

The study examined the independent information sources life insurers are using in their automated underwriting practices. Almost universally (95 percent), life insurers are using application data (collected by MIB) and around 6 in 10 companies are using prescription databases, lab results and motor vehicle records to inform their decision to issue policies.

Companies couple this independent data with a questionnaire asking about the applicant’s health, family history and lifestyle habits. Leveraging all of this data is allowing about half of companies (48%) to lessen the need to order an Attending Physician’s Statement (APS), which dramatically lowers the waiting period to issue a policy.

The study found that term and whole life insurance products are the most common products currently using some level of automated underwriting. But at least 3 in 10 companies are exploring using these practices for universal life products.

“The next step is using predictive analytics to assist in the underwriting process,” said Art. “Some companies have begun using these tools and others are in the planning stages to implement them. The goal is to offer preferred-eligible products to suitable consumers without requiring medical underwriting. Ultimately, life insurers are working to make the process simpler and quicker for both the company and the consumer.”
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1 Only 4 in 10 consumers think waiting as long as a month for policy approval is acceptable – less than 20% think waiting for 2 months is acceptable. (2015 Insurance Barometer study)