The 2022 AHOU—Important Underwriting Insight & Potential Case Impact

After a two-year hiatus, the Association of Home Office Underwriters (AHOU) was held recently in person with over 900 attendees present.  Meeting participants included underwriting leadership from all major life carriers, reinsurance companies, exam/lab vendors, industry data/information providers and several technology companies among others.  It was terrific to be back in person at this meeting, networking with industry pros and peers, and gaining important insight and perspective on the current state of life underwriting.

Over the past few years and accelerated by the pandemic, the underwriting industry has moved quickly into data analytics and the use of new and enhanced data tools to replace or augment traditional underwriting requirements to streamline the underwriting process.  It comes as no surprise then that roughly a third of the meeting sessions were devoted to these topics and related matters.

Below are highlights and insights from a few of the sessions.  Some of these are important to be aware of as distributors and sellers of life products, while others are worth keeping on your radar screen as the underwriting industry evolves.

Accelerated Underwriting—Opportunity & Dilemma

Accelerated underwriting has been a terrific underwriting enhancement that has helped speed up the acquisition of life insurance coverage by allowing qualified applicants an opportunity to forgo an insurance exam and lab.

The process includes medical and nonmedical disclosures and for many carriers includes a "proprietary" technological component using data elements such as credit attributes, home ownership, professional designations and other data points to assist in developing an underwriting rate class for an applicant.

It is a great process when an applicant qualifies for the program.  However, consider what happens when a very healthy applicant doesn't qualify for one of the better rate classes, and the reason provided is not based upon something obvious such as medical history, but rather upon proprietary algorithmic data elements and scoring.

This is a major dilemma, especially as we in distribution attempt to advocate for our applicants.

In such cases, the data analytic providers will usually maintain that the decision-making information is valid and rate classes arrived at are appropriate, based upon thousands of back-tested cases.  In addition, the data elements used are FCRA (Fair Credit Reporting Act) compliant (i.e., correctable) and the providers will supply a letter outlining the top few reasons for a decision.  However, the reasons given in these letters are at times opaque and not necessarily easy to correct.

To maintain a high level of distributor acceptance and confidence in these models, communication and transparency are critical to understand underwriting action.  And some carriers do a better job than others at explaining their actions.  However, as these models expand further, this is something the industry needs to become better at and more focused on.

On the other hand, there is a balancing act required in accelerated models between cycle time, client hassle and price which we in distribution need to understand.  Even though there are situations where an applicant may not qualify for the best underwriting rate class (and it may not always be clear), does it really matter if the client is happy — especially if the perceived price difference is nominal?   Also, applicants are typically well-served by the process since these models primarily focus on healthy, younger applicants where the chances of making it through without need for an exam are high along with the probability of achieving best rates.

Applicants Need to be Mindful when Completing Online Applications

Behavioral Economics in insurance underwriting is the science of ordering and stating application questions in such a way as to elicit the most truthful and accurate applicant responses. This along with data analytics has become important as carriers transition from doing home office initiated tele-interviews to situations where applicants initiate and complete "online" applications and medical disclosures on their own — without home office tele-interview contact.

A carrier initiated tele-interview has advantages in that the interviewer can further question an applicant in situations where they are receiving incomplete responses or getting vague answers.  With client initiated online questioning, these advantages disappear.  In view of this, carriers have looked to other tools to monitor application completion and achieve the most complete and accurate responses.

With client initiated online application completion, some carriers have begun using behavioral approaches and analytics that look for things such as answer changes, situations where an applicant hovers over a specific question for longer than expected, or where an applicant abandons an interview at a certain question and returns later to provide an answer.  When such situations occur, especially with questions that can have an outsized impact on mortality — such as a question about tobacco use — carriers may request additional underwriting information once the interview is complete.  If these issues come up as part of an accelerated process, an applicant may be removed from the process and evaluated through traditional underwriting.

Data Sources Used to Verify Applicant Medical History & Streamline Processes

Three data sources are gaining popularity in life underwriting:  Electronic Health Records (EHRs), LabPiQture and Medical Data.  All of these are used in some form by various carriers today — either in pilot mode or production — and are helping to streamline operations and verify applicant medical history. These data sources have already impacted distribution and will have even greater impact as they become more widely used in the future.

The Medical Information Bureau (MIB) has invested heavily in EHRs, becoming a leader in this area.  According to MIB, depending upon the state where the insured resides, 20% of records are returned in 5 minutes and 72% are returned in one day.  The overall hit rate is in the 35% plus range, with some states around 50%.  EHRs are still in the early stages of implementation in the industry, and will become more useful as additional data providers join EHR networks, output becomes standardized and easier to use, and records received become more comprehensive in the type of information provided.

LabPiQture is offered by ExamOne.  It gathers clinical laboratory database information from Quest Labs and LabCorp, two of the largest clinical reference labs in the United States.  LabPiQture provides access to seven years of physician-ordered clinical lab testing results, and is considered a quick access APS alternative that can verify applicant self-reported medical disclosures.

Medical Data is offered by Milliman. The product provides real time medical information from clinical databases and pharmacy records. Information is instantly delivered and can include data on tobacco use, substance abuse, cancer treatment, heart issues and a host of other morbidity related conditions.  It too is considered an APS alternative that can verify applicant self-reported medical disclosures.

No Major Underwriting Enhancements with Next Generation Medical Advances Occurring Today

We have all been hearing about potential breakthroughs with several medical impairments.  Medical journals and news sources talk about personalized oncology and sequencing a person's genome to more effectively treat certain types of cancers such as lymphoma, breast cancer and others. 

Other advances being worked on today include biomarkers to identify cancer at earlier stages and being better able to stratify and ultimately treat cancer subtypes.  While these innovations are of interest and have the potential to positively impact mortality, they are a few years away from being considered in the underwriting decision-making process.  Much of what is happening is still in the R&D phase, and more data needs to be collected before the life industry can condense these advances into actionable underwriting offers.

A Couple of Sales Concepts that Can Present Financial Underwriting Challenges

Certain Split Dollar and Multigenerational Planning sales, depending on case specifics, have at times caused significant underwriting challenges for carriers.

The dual policy Split Dollar approach, where one policy provides a death benefit to pay back a loan and a second policy is for cash accumulation for an insured's retirement, was cited as having unique challenges due to the total combined face amount being applied for at times exceeding normal financial underwriting guidelines.  These cases may require reinsurance evaluation and involvement when coverage exceeds internal carrier retention, which isn't necessarily a negative but rather an additional step to deal with.  Keeping coverage within carrier retention may be helpful at times.

Multigenerational Planning is challenging since nearly every situation is unique, based on a family's financial position, objectives and family dynamics.  While there are a few carriers that have developed underwriting guidelines for these types of sales, most have not.

With Multigenerational Planning, insurance is needed to cover potential economic loss due to taxes, legacy planning, liquidity with transferring assets, and several other objectives.  Underwriting can be involved, with carriers often looking for planning documents, details of what gets passed on to members of each generation, how soon transfers take place, premium affordability, funding structure, coverage inforce on generation one, third-party verified financials on larger cases, and whether there is a potential for windfall gains and anti-selection.

In view of the challenges presented by these types of cases, it's best to have carrier conversations before an application is submitted to prevent any underwriting surprises.

For everyone's success, it is critically important to stay informed about industry trends, ideas, and advances that may impact your cases going forward.  As new ideas and processes develop and evolve, Windsor will continue to be a trusted source to share this information with you.

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