Overview of Life Insurance Underwriting
The life insurance underwriting process typically takes 4-8 weeks to complete. The process includes an interview, an application, examinations, underwriting, followed by policy issuance. To automate and expedite the process, underwriters utilize tools such as LexisNexis Risk Classifier, Pre-Underwriting Tool, and LexisNexis Electronic Inspection Report. Although the current process ranges in length from one to two months, Life insurers are starting to introduce an accelerated underwriting process; this can complete the underwriting process in a matter of two weeks or, in special cases, a couple of days. The main pain points for U.S. life insurance companies are labor, speed, efficiency, pricing, and mortality.
Key Finding and Methodology
We began our research focusing on principles and steps involved in the life insurance underwriting process. We focused on sources that explain how the process works and what documents are required. Below is a list of the steps in the underwriting process with a brief description for each:
1. Application quality check: This step ensures the application is complete and no pertinent information is missing. This step may require a phone interview.
2. Underwriting Manual: The underwriting manual is unique for every carrier. This manual defines the guidelines and tools that are used to determine the final rates of a policy.
3. Paramedical Exam: This is a physical exam performed by a third party technician. This involves basic measurements(height, weight, blood pressure, etc), a blood test, and a urine drug panel.
4. Attending Physical Statement(APS): If the paramedical exam reveals potential risk factors, the underwriter will order an APS. An APS is a medical summary provided by the applicant's attending physician. This provides a more comprehensive medical summary which aids the underwriter in assessing risk. When an APS is necessary, this can greatly impact the processing time.
5. Medical information bureau check: A MIB database check allows insurers to view other life insurance applications the customer has made in the last six months. This is used to verify information provided by the applicant and to add omitted information, such as a failed urine drug panel on a prior request.
6. Prescription check: This is used in combination with the paramedical exam and/or APS to fully assess a medical history.
7. Motor vehicle report: A MVR notes all driving violations, traffic citations, accident reports, and DUI convictions.
8. Tables: Tables are used by underwriters to organize pertinent information regarding risks. One table used is a mortality table. This is typically based on age and gender and shows the probability of death excluding all other factors. Similarly, a build table uses the client's Body Mass Index(BMI) as a classification tool. Tables are typically the final step in assessing a client's classification.
9. Credit System: This step assesses preventative measures the client has taken for conditions that otherwise hurt their classification rating. If measures have been taken to prevent conditions from progressing or getting worse, this may improve the client's rate.
10. Final rating: This involves the issuance and delivery of a policy.
Next, we researched innovations and tools being used by insurance companies. Underwriters use tools to streamline and expedite the underwriting process. One example of this is through automation. Insurance companies can either fully automate, triage automate or partially automate. A survey conducted by LIMRA found two-thirds of companies used at least one automation technique. The survey also found triage automation to be the most used method. In this technique, insurers utilize computer software to sort details of each case. They are able to expedite uncomplicated applications and flag those needing special attention. LexisNexis Risk Classifier is an automation tool used to estimate the relative mortality risk of an applicant. This software produces a score based on a generated risk profile. Pre-Underwriting is another automation tool used in which an underwriter can enter the medical conditions of an applicant. They instantly receive an indicative underwriting decision. LexisNexis Electronic Inspection Report is used to access public record information needed to evaluate risk. This allows the underwriter to independently confirm the personal data of an applicant.
Automation tools greatly improve the average time the underwriting process takes. The average time from application to coverage is currently four to eight weeks. Now, life insurers are starting to introduce what’s known as accelerated underwriting. This can lower the underwriting process to a couple of weeks. The completion time varies based on multiple factors, such as the specific carrier, the applicant's medical history, and the total amount of insurance requested.
Lastly, we conducted an extensive search on insurance company websites, news publications, studies, and surveys to locate key pain points that underwriters and insurance companies experience. These pain points include labor, speed, efficiency, pricing, and mortality. Speed, efficiency, and labor collectively contribute to the majority of the industry's issues. Attending Physician Statements are a large contributor to the speed and efficiency of the underwriting process and a key factor for automation tools being utilized. Electronic tools can be used to receive APS as well as to process the information. Reading every page of an applicant's medical history is one of the greatest limiting factors for the underwriting process. If this step can be automated it would address the three pain points(labor, speed, and efficiency). Hanover Re addresses the key issues of pricing and mortality by automating the classification process. They have developed software that employs algorithms to quickly assess mortality risk and competitive pricing ranges. A big advantage of this technology is its ability to be customized; it can be tailored to each carrier's underwriting manual.
The life insurance underwriting process currently takes four to eight weeks to complete. Automation tools, such as LexisNexis and Pre-Underwriting tool, are expediting that process. The process starts with an application, followed by medical history and examinations. The underwriter cross-references that information with a database and prescription check. An insurance company then assesses the applicants driving history and organizes all relevant data using various tables. Lastly, they perform a credit system check to provide a final classification and rate. Insurance companies are commonly focused on five key pain points: labor, speed, efficiency, pricing, and mortality. Expediting the underwriting process is a key focus of the life insurance industry and new software is allowing for the shortening of that process.