With the introduction of social distancing measures and lockdowns to contain the spread of COVID-19, the life insurance industry has received a long-overdue push into an era of innovation. A lot of that has happened on the digital front, notably with respect to the applications process.
A significant piece of that is accelerated underwriting, which seeks to supplant the traditional mode of long wait times, invasive procurement of bodily fluids, and potentially cumbersome paper requirements. In its place, clients now stand to benefit from potentially speedier approval times and the power of predictive analytics, among other advantages.
But should we assume all companies have undergone a beneficial shift to the technological? As John Grogan, EVP and chief product and innovation officer at Northwestern Mutual wrote in Digital Insurance, the convenience factor is just one element to be considered.
“[T]here is an opportunity to move the conversation to best practices and competitive advantages regarding data-driven underwriting, as these have important ramifications for long-term product value and individual financial security,” Grogan said.
He argued that the ability of a life insurance company to honour claims hinges on its long-term performance, which ultimately relies on mortality risk management and consistent high-quality underwriting. As data-driven underwriting becomes more ubiquitous, that risk management will depend more on “rigorous design and execution of automated underwriting programs.”
With that in mind, he prescribed three questions for advisors to ask about insurers’ accelerated underwriting processes:
- Whether a trade-off exists between short-term gains and longer-term mortality risk – specifically, whether the insurer focuses on realizing immediate cost benefits from automation but compromises its financial strength and product performance;
- Whether the insurer uses custom or aggregate data, especially since third-party aggregated data is less likely to be tailored and relevant to the insurers’ underwriting needs; and
- Whether the insurer has a track record of high-quality traditional underwriting, which Grogan maintained underpins effective accelerated underwriting.
“[I]t is important to evaluate each insurers’ approach because not all accelerated underwriting is created equal,” he said, “[T]he differences impact the financial strength of the insurer itself and most importantly, the long-term product value and reliability for clients.